Successful projects for improving the energy efficiency of budget buildings based on the model of Energy Performance Contracts

The purpose of the visit was to study in detail the financial mechanism for improving the energy efficiency in public buildings based on the Energy Performance Contracting model and to get acquainted with the practical experience of the city gained within the «Improvement of energy efficiency in public building of the city of Dnipro using «Energy Performance Contracting (pilot project) » project, co-funded by EBRD and the E5P Fund.

The main feature of the project is that the Guaranteed Savings method was applied. It allows the Customer (the municipality) to receive the guarantees from ESCO for reduction of the energy consumption to a certain specified level, which is not necessarily related to fixing specific sizes of costs saving. The municipality gets the loan and finances the thermo-refurbishment works, while ESCO assumes all technical risks for development and implementation of the construction works, except of risks related to loan repayments.

According to Mr. Yuriy Kondratenko, the idea for the project in Dnipro was born in 2005, after a local municipal energy service company had been created and an energy efficiency improvement program for municipal operations had been adopted by the municipality. In 2006, the first meeting with representatives of the EBRD Mr. Peter Hobson and Mr. Sergiy Maslichenko was held. During two years (2008, 2009) the city collected data for public buildings, prepared the project proposal and won a competition for the EBRD technical assistance. Next two-three years 2010-2013 years, the energy audits and feasibility studies were carried out, preparatory documents for signing a loan agreement with EBRD were prepared. Eventually, in the end of 2013, the agreement was officially signed. The municipal Dnipro ESCO (hereinafter DESCO) and EBRD put their signatories and the municipality got the loan under the municipal guarantees in the amount of EUR 10 Mln. for the period of 10 years with interest rate of 5.25%. At that time, due to the gaps in applicable legislation, low energy tariffs and lack of practical experience in using of innovative financing mechanisms, the tendering and selection of the subcontractor took the city additional five years.
​The practical experience of the city of Dnipro with use of EnPC model was taken into account while the state authorities were establishing new favorable legislation for this model. In particular, the Law of Ukraine "About the introduction of new investment opportunities, guaranteeing the rights and legitimate interests of business entities for holding large-scale energy modernization» was established and adopted by the state to support energy improvements in sector of public buildings.

Mr. Timur Golovakha, Director of the DESCO, told more about their work and the experience gained on different implementation phases. He familiarized the participants with the EBRD's requirements, namely: the average annual turnover of a company or consortium of companies amounting to UAH 75 million for one Lot, successful experience in implementing similar actions in the total amount of UAH 20 million for the last 5 years, availability of qualified specialists, regular audit of financial statements and availability of assets at the level of UAH 27 million for 1 Lot.

Considering the high requirements for competitors, the municiplaity was not able to select the subcontractor for a long time, the competition was announced three times and only in May 2018 the suitable contractor who meet all requirements was selected.

The work of the DESCO is coordinated by the Department of Innovative Development from municiplaity side under the supervision of Ms. Yulia Pavliuk, who shared her practical project experience in terms of issuing city council decisions, preparation of specific documentation at the city level, obtaining permissions from the Ministry of Finance of Ukraine and official registration in the project in the Ministry of Economic Development and Trade of Ukraine.

The projects which are funded from loans are usually carefully checked and supervised by financial experts from economical point of view. For example, Ms. Oksana Kysil, the national expert of the “Covenant of Mayors - East” EU-funded project, presented key financial and economic indicators which reflect the attractiveness of projects, and practically showed how to properly calculate the Net Present Value (NPV), the Internal Rate of Return (IRR) and the Discounted Payback Period (DPP).

At the end of the first day of study visit, the participants exchanged their impressions of what they had learned, their own ideas and solutions to overcome the existing barriers on the way to sustainable energy development.

The next day began with a visit to the demonstration object -

the Kindergarten №7 in the city of Dnipro. By the way, it is one of the first facility in Ukraine which is thermally-refurbished with financial support of the EBRD in accordance with the Energy Performance Contract model. The list of measures contain the insulation of walls and roof, the doors and partly windows were replaced by more efficient ones, individual heating substation was installed to regulate the heat supply. Today, the similar energy improvements are made in other 30 public buildings that will allow to reduce the energy consumption in total by 40%.

The study visit attended the Deputy Director of EBRD in Ukraine for Energy and Infrastructure Mark Magaletsky, Associate Director of the EBRD's Sustainable Infrastructure Department Denis Gayovy and Dnipro Mayor Boris Filatov.

Finally, the meeting of the representatives of the PROSPECT cities with EBRD representatives took place where the cities presented their project proposals had an opportunity to learn more on conditions and terms of EBRD financing.

We hope that the result of the study visit will lead to new energy efficiency projects in sector of public buildings and the Energy Performance Contracts will broadly spread in Ukraine.