De-risking investment in energy efficient public buildings in Albania

39 Pages·2017·1.25 MB·English

by  Bonjung Goo

De-risking investment in energy efficient public buildings in Albania
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Albania United Nations Development Programme (UNDP)
24 June 2017
De-risking investment in energy efficient public buildings in
Project/Programme Title:
Albania
Country/Region: Albania/ Eastern Europe

Accredited Entity: United Nations Development Programme

National Designated Authority: Ministry of Environment
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Please submit the completed form to [email protected]
CN – UNDP – 23062017- 5990
A. Project / Programme Information
A.1. Project / programme title De-risking investment in energy efficient public buildings in Albania
A.2. Project or programme Project
A.3. Country (ies) / region Albania
A.4. National designated Mr. Alqi Bllako, Ministry of Environment
authority(ies)
A.5. Accredited entity United Nations Development Programme
Executing Entity: Ministry of Energy, Ministry of Environment, Energy Efficiency
A.6. Executing entity /
Agency, Energy Efficiency Fund
beneficiary
Beneficiary: Municipalities of Albania
A.7. Access modality Direct ☐ International ☒
A.8. Project size category
Micro (≤10) ☐ Small (10<x≤50) ☐ Medium (50<x≤250) x Large (>250) ☐
(total investment, million USD)
A.9. Mitigation / adaptation
Mitigation ☒ Adaptation ☐ Cross-cutting ☐
focus
A.10. Public or private public
Which of the following targeted results areas does the proposed project/programme
address?
Reduced emissions from:
☐ Energy access and power generation
(E.g. on-grid, micro-grid or off-grid solar, wind, geothermal, etc.)
☐ Low emission transport
(E.g. high-speed rail, rapid bus system, etc.)
☒ Buildings, cities, industries and appliances
(E.g. new and retrofitted energy-efficient buildings, energy-efficient equipment for companies and
supply chain management, etc.)
☐ Forestry and land use
A.11. Results areas
(E.g. forest conservation and management, agroforestry, agricultural irrigation, water treatment and
(mark all that apply) management, etc.)
Increased resilience of:
☐ Most vulnerable people and communities
(E.g. mitigation of operational risk associated with climate change – diversification of supply
sources and supply chain management, relocation of manufacturing facilities and warehouses,
etc.)
☐ Health and well-being, and food and water security
(E.g. climate-resilient crops, efficient irrigation systems, etc.)
☒ Infrastructure and built environment
(E.g. sea walls, resilient road networks, etc.)
☐ Ecosystems and ecosystem services
(E.g. ecosystem conservation and management, ecotourism, etc.)
20 years (The lifespan of the programme, understood to be the period over which
A.12. Project / programme life
direct benefits take place, matches the estimated lifetime of the buildings retrofitted by
span
the project)
A.13. Estimated
Start: 1/7/2018 (estimated)
implementation start and end
End: 31/7/2024 (estimated, 6 years after implementation start)
date
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B. Project/Programme Details
The Fund requires the following preliminary information in order to promptly assess the eligibility of project/programme
investment. These requirements may vary depending on the nature of the project/programme.
Objective
The objective of the project is to create a market for investments in energy efficiency
(EE) in public buildings in Albania through removing the barriers that are preventing
the development of this market and creating a pipeline of priority public building
retrofits in Albania. The project will use an integrated suite of interventions to create
the capacity for rapid growth of the sector, leading to both global environmental and
local sustainable development benefits in the form of energy savings and improvement
in the conditions in public buildings such as schools and medical facilities.

The project will help to create a favourable market environment for investment in
energy efficiency retrofits, leading to sizable energy savings and accompanying
greenhouse gas (GHG) emissions ( 302,099 tCO2 over the 20-year lifetime of the
investments); green job creation; and improvement of conditions in public buildings. It
will also leverage additional public sector financing of approximately USD 100 million.

Overview
The project’s strategy is to facilitate the de-risking of low carbon investment in public
buildings in Albania, creating healthy supply and demand for energy efficient building
technologies through a three-pronged approach of improving the enabling
environment, increasing supply and enhancing demand. Core institutions that will be
at the heart of the enabling environment are the newly established Energy Efficiency
Agency (EEA) and Energy Efficiency Fund (EEF), which will be supported through the
project to become operational. Municipalities, as the bodies holding responsibility for
the management of most public buildings, will be supported to incorporate energy
efficiency considerations in their operations. Supply will be improved through the
creation of a body of building professionals skilled in conducting EE retrofits, while
demand will be enhanced as a result of increasing awareness of the benefits of such
retrofits.
B.1. Project / programme

description (including
The project is designed to address market barriers to EE building renovation by
objectives)
focusing on the renovation of public buildings. By targeting policy, financial, market
and technical/capacity barriers through a combination of de-risking instruments with
targeted financial incentives, the project will lead to a significant scale-up of investment
in EE building retrofits in cities in Albania. The overall investment risk profile of EE
building retrofits will be reduced as a result of the project, encouraging investment.
The project will kick-start the creation of a sustainable market in EE building retrofits,
incentivizing the domestic commercial banking sector to provide financing for retrofits.

The Project is closely aligned with the GCF investment framework and with the
regional priority which emphasizes the significant potential in Eastern Europe for
retrofitting and upgrading existing infrastructures and for supporting efforts to
strengthen urban systems.

Recent progress made in Albania in creating a legal framework for energy efficiency
(see Section B.4) and in restructuring the power sector, in particular greatly improved
collection rates and increased electricity tariffs, means that the time is now ripe for
such a project. In order to take full advantage of this opportunity, awareness of the
opportunities offered by energy efficiency investments needs to be created. To
achieve this, the project will include awareness raising and marketing activities in all
project outputs in order to support the creation of a sustainable market (see Annex I
for an overview of the baseline situation in Albania concerning energy use in public
buildings and the energy savings potential in buildings).

The project builds on and leverages UNDP’s extensive experience supporting the
Government of Albania and Albanian municipalities, as well as managing a portfolio
of over $100 million of technical assistance projects related to energy efficiency in
other countries in the Europe & CIS region.
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UNDP will work with Government and private sector stakeholders to systematically
identify the most cost-effective policy, financial, market and technical/capacity de-
risking measures with the aim of developing a suite of technical assistance measures
that will ultimately lead to a risk-return profile for EE building retrofits that can attract
investments, including from national budgets, commercial banks and other private
sector stakeholders.

Strategic context
Currently, awareness of the opportunities offered by energy efficiency is very low in
Albania and there are very few projects demonstrating the positive impacts of
improved energy efficiency. This project is intended to initiate the creation of a market
for large scale energy efficiency improvement in Albania. In order to maximize
effectiveness and efficiency it targets the public sector. In this sector the availability of
strong backing from both national and local government - including budgetary
contributions, and the relatively large size of some projects such as those in larger
buildings, will ensure the greatest impact and the greatest chances of success of the
interventions at this early stage of development of the market. Successful examples
of energy efficient retrofits of public buildings such as schools or medical facilities will
be highly visible and have a strong demonstration effect.

Many of the prerequisites for a successful intervention are now being put in place.
Notably:
- A new energy efficiency law has been approved in 2015, a law on energy
performance of buildings was approved in 2016 and work on secondary
legislation is ongoing, including the operationalization of an Energy Efficiency
Fund and an Energy Efficiency Agency.
- Local government is being reformed, and new local government units are
being supported to create the infrastructure needed for investment in assets,
such as due diligence of financial and operational aspects.
- Energy tariffs and collection rates have been increased recently, leading to a
growth of interest in energy efficiency

In Albania, municipalities are responsible for the upkeep of most public buildings in the
territory under their administration. Municipalities receive funds from central
government (Ministry of Finance) for investment in existing buildings but pay for
energy costs of buildings themselves. As a result of this setup, municipalities have a
strong incentive to use the funds they receive to minimize future energy use and hence
expenses.

Financial structure
$12 million USD GCF grant funding will leverage over $90 million funds to be allocated
by the Ministry of Finance and the Regional Development Fund to municipalities for
the purpose of investment in energy efficiency in public buildings. The Project will
combine technical assistance with funding for building renovation by the government
that will be catalyzed by GCF grant funding, enabling the municipalities to engage in
energy efficient retrofits of public buildings. Thus the baseline scenario, in which no
energy efficiency measures are foreseen to be implemented in renovation activities,
will be improved to one in which public buildings will be renovated in an energy efficient
manner.

Project Investments
Investments by the Albanian Government will target various categories of public
buildings for EE building retrofit finance, including schools, hospitals and
municipal/Government offices. By targeting clusters of similar buildings, and by
helping to operationalize the Energy Efficiency Fund, the project will create an easily
scalable model for subsequent replication of EE retrofits and market growth.

The retrofits will include thermal cladding of outer walls, window replacement, roof
insulation and the use of thermostatic valves with hydraulic balancing, energy efficient
lighting, efficient fuel switching (fossil to solar and biomass), air conditioning efficiency
increase, as well as efficiency increase of energy use in public utilities (like water utility
(see Annex I for typical costs of the measures and an initial estimate of the IRR).
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The project will build on the success of the Solar Water Heating (SWH) Market
Transformation and Strengthening Initiative in order to ensure that the nascent market
for solar water heating scales up significantly in the coming years.

Components
The project will have one component on de-risking low-carbon investment in public
buildings around which will be structured 3 main outputs as follows:

Project Outputs
The activities of the project will be structured around 3 main outputs.
• Output 1.1 will support de-risking to reduce market and non-market risks
associated with investment in EE retrofits. This will include policy de-risking
tools and also working in partnership with municipalities and financial
institutions on a set of financial de-risking tools to transfer investment risks to
those market players that are best positioned to assess and take risks.
• Output 1.2 will address the residual risks by providing temporary, targeted
incentives to help kick-start the market.
• Under Output 1.3, a pipeline of energy efficiency renovation projects will be
created through support to municipalities to introduce Energy Management
Systems and conducting energy audits that will enable robust MRV to monitor
energy use in buildings before and after retrofits.

Output 1.1 – Policy de-risking and preparation for financial de-risking:
(estimated GCF grant funding US$ 1,800,000)
Preparation for finance
These activities will prepare the provision of access to affordable capital for EE
retrofits. A key element will be support to the operationalization of the newly
established Energy Efficiency Fund as the financial support mechanism for energy
efficiency in buildings in Albania and of the similarly new Energy Efficiency Agency
that will evaluate projects interested in funding from the EEF. The Energy Efficiency
Fund has been set up with the intention that it will, in future, support projects using a
blended financing approach towards energy-efficiency combining grants, loans,
guarantees, and equity.

Upon completion of these initial activities and once the EEF is judged ready, seed
capital for the EEF will be provided as grants from GCF in Output 1.2 of this Project.
Thus, activities in the Project will build the EEF’s and EEA’s capacity to attract further
funds.

As future clients of the EEF, the new, restructured municipalities will be supported in
tandem with the territorial administrative reform process to increase their
creditworthiness and to build their capacity to access finance for energy efficiency.
This support will include guiding municipalities in developing local energy efficiency
plans and implementing them.

Policy de-risking activities
Development of an enabling policy framework at the national and local levels:
Policy de-risking activities will support national and local authorities to adopt and
implement an enabling policy framework for EE retrofits, including such policy tools as
building codes and mandatory energy performance standards for buildings (in line with
legal requirements on energy efficient renovations); national and municipal targets and
obligations for energy savings and appointment of the single agency responsible for
energy management in all public buildings. Such policy de-risking activities will directly
and indirectly address and lower investment risks for funders of EE retrofit finance and
make it easier to stimulate new and additional investment.

These activities will support the ongoing legal reform in the field of energy efficiency,
in line with all relevant national legislation and EU directives, and will be based on an
initial desk analysis of technical problems and other policy barriers faced by the
existing energy building code, in which recommendations for the design of the planned
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new building code will be developed. In addition, regulations, policies, and incentives
to support the development of a market for ESCOs will be developed. Aspects of the
legal reform that will be supported include secondary legislation for the Energy
Performance in Buildings Law and establishing a mechanism for energy audits of
public buildings, including the certification of auditors as well as regulations to ensure
that there is one agency with overall responsibility for monitoring and reporting on
energy consumption in public buildings in all public buildings. The project will support
the development of the new legislation and regulations related to energy efficiency and
their approval by government.

Awareness raising: Once new laws and regulations are in place, awareness raising
campaigns among the affected sectors will ensure that the new legislation is
understood by the professionals involved. Trainings will be carried out with both
national and municipal authorities on the new laws and regulations and awareness
campaigns will be directed at the general public.

Market de-risking: The policy activities will also include elements of market de-risking
(removing technical and capacity barriers) by providing technical assistance to
selected market players such as building managers, local government and potentially
ESCOs in order to help identify, develop and aggregate technically and financially
feasible EE retrofit projects. Because of high transaction costs and the small size of
most individual projects, in the context of EE building retrofits such aggregation is
particularly important to achieve economies of scale and to align the sizes of
investment projects with financiers’ thresholds. Project activities will support the
establishment of a central support unit for energy management in municipalities and
build the capacity of this unit to provide such assistance to municipalities.

To support the ESCO market development, the project will review existing laws,
regulations, and policies and develop new regulations and policies (and aim to get
them approved) to make the market for ESCOs more viable in Albania. Energy
performance contracting, which is the basis of operation of ESCOs, is provided for
under the new Energy Efficiency Law. However, as noted earlier, much of the
secondary legislation needed to implement this Law is yet to be developed.

Synergy with the Support to Technical and Administrative Reform (STAR)
programme: Phase II of the Support to Territorial and Administrative Reform (STAR)
programme will contribute to this output. This phase of STAR will run from 2016 to
2019 and include benchmarking of environmental performance of the new Local
Government Units. In cooperation between STAR and the proposed project, this
benchmarking will pay particular attention to energy efficiency in buildings. The project
will a) integrate clean energy investment in the municipal development plans; and b)
identify municipalities with good financial standing which have better chances of
securing debt financing from IFIs or local banks for future investments. This will be
done through a central support unit that will be created to assist individual
municipalities in identification and undertaking projects. Model regulations of
procurement and repayment mechanisms for energy efficiency investments will be
developed and the unit will support individual municipalities in adopting and adapting
these to their specific circumstances.

Training: A Training Needs Assessment will be performed for the various types of
professionals involved in energy efficiency, building renovations and energy
management of public buildings. Based on the results of the assessment, vocational
training programs will be developed that build the capacity both of the construction
sector and of the energy management sector where needed, for example in the
performance of energy audits of buildings and in running energy management
information systems. The project will ensure that the needed skills are included in
vocational training of the appropriate professionals in future in order to ensure
sustainability of the capacity built.

Lessons learned in the Solar Water Heating Initiative will contribute to the design of
activities focused on identified needs, such as improving the links between vocational
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training centres providing training in energy efficient construction, energy management
and other relevant professions and employers in order to streamline the transition of
graduates to employment.

Output 1.2 – Financial incentives:
(estimated GCF Grant funding US$ 6,000,000)
The technical assistance activities In Output 1.1 and 1.3 will build the capacity of
central and local Government to invest in energy efficient public building renovations.
Following the carrying out of activities under these two outputs, once the enabling
environment at the national and local level is significantly enhanced and ,
municipalities will be able to employ funds allocated to them to renovate a limited
number of public buildings that have been identified as the highest priorities for
renovation. This will create case studies that, in a next phase of renovation activities,
will be followed by a larger scale renovation program funded by the EEF, which will
receive the funding for this Output from the Ministry of Energy.

GCF grant funding is being requested to provide incentives that will enable the
municipalities to include in the renovations some of the buildings in which the needs
are greatest and hence the payback time the longest (indicatively 8 years or more).
Meanwhile municipal co-financing will be used to renovate those buildings with
payback periods shorter than 8 years. GCF grants are being requested to support
renovation of those buildings renovations that would not take place in a business-as-
usual scenario. Detailed eligibility criteria for benefiting from the incentives will be
developed to ensure that the project provides the minimum amount of concessional
financing to make EE retrofits viable. Most renovations will take place in the three large
municipalities that are providing co-finance for the project: Tirana, Fier and Korce.
GCF grants will be used to enable the project to also reach settlements in the colder,
mountainous areas of the country where the costs of rehabilitation are higher and the
payback periods are generally higher. In these areas, while energy use is higher due
to the increased need for heating in winter, incomes are generally lower and local
authorities poorer with public buildings generally being in a very bad condition. As a
result of this, higher incentives than those provided in the bigger cities will be needed
in order to enable such investments to take place. Technical feasibility of the projects
will be demonstrated in a settlement in the same climate zone but with a relatively high
income. Later projects will then be implemented in low-income settlements in this
climatic zone, which will require increased incentives for economic viability

Output 1.3 - Building a pipeline of energy efficiency renovation projects in
municipalities through implementation of EMIS
(estimated GCF grant funding US$ 4,200,000)
This Output will complement the activities in Output 1.1 to enable the creation of a
pipeline of energy efficiency renovation projects in municipalities through two major
activities - the implementation of Energy Management Information Systems (EMIS) in
municipalities and conducting energy audits in public buildings.

Energy Management Information Systems (EMIS): The key activity of this Output
is the further introduction and scaling up of an Energy Management Information
System (EMIS) for all of Albania. The output will build upon the initial pilot testing of
an EMIS in the municipality of Durrës, the second largest city in Albania which has
already been carried out by UNDP. The central support unit that will also support the
implementation of Output 1.1 will assist selected municipalities in implementation of
the energy management system with the goal to create a national energy consumption
buildings database for all public buildings in Albania and to use EMIS at a national
level. GCF funds will be used to support the appointment and training of energy
managers in all municipalities throughout Albania and to roll out EMIS to all towns and
municipalities of Albania, building on the highly successful approach that UNDP
implemented in Croatia on EMIS scale up and roll out.

In parallel, with the scale up and roll out of EMIS, this output will include the
appointment of a national agency to be responsible for monitoring energy consumption
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in all public buildings (using EMIS), the building of a national buildings database of
energy consumption, the setting of energy efficiency targets at the municipal level, and
the appointment of energy managers tasked to utilize the EMIS as a tool for prioritizing
municipal investments in energy efficiency.

The introduction of Energy Management Information Systems throughout the entire
Albania will support robust MRV for the building sector to enable monitoring of energy
use/CO2 emissions in buildings, prioritisation of buildings for EE retrofits, and
quantification and monetisation of the resulting energy savings. Robust MRV is
necessary to build the investment case for EE retrofits. The project will disseminate
the information generated on the cost-saving potential of EE retrofits to commercial
banks and municipalities. Since awareness of the opportunities offered by energy
efficiency is still very low in Albania, awareness raising and information dissemination
will be an important part of the Output as well as training of key stakeholders on the
EMIS once it is in place and being used.

Energy audits: In order to take full advantage of the opportunities for increased
energy efficiency and reduced costs of energy consumption that the implementation
of EMIS in municipalities create, it will be necessary to conduct energy audits of public
buildings. Output 1.1 of the Project will put in place the preconditions for this - a
mechanism for conducting audits, training and certification of auditors. Subsequently,
in this Output audits in municipalities establishing EMIS will be supported. This will
enable the municipalities to build a pipeline of priority investments for energy efficient
renovation that can be implemented in the next phase of the scaling-up of investment
in energy efficient public buildings in the country.

Barriers:
A number of barriers to energy-efficiency and renewable energy exist in Albania’s
municipal sector, as evident by the low level of investment and slow uptake of debt
financing from IFIs. These barriers are summarized in the following table.

Table 2: Key Barriers to Investment in Clean Energy in the Municipal Sector in Albania
Barriers Barrier Explained Means of Overcoming Barrier
Weak local While historically local Output 1.1 of the Project will
governance governance in Albania has include activities aimed at
been weak, the Government of integrating municipal energy
Albania in 2014 started an management in the new LGU
intensive and comprehensive structures and local
reform process of local governance policies, incuding
governance, which produced a fiscal decentralization, as part
new administrative map for the of the on-going process of
country and reduced the Territorial and Administrative
number of local governance Reform (TAR). The proposed
units (LGUs) from 373 to 61 project will work closely and
new and larger LGUs, which build on STAR’s municipal
were established in mid 2015. support services to encourage
Further capacity building is EE renovations within the over-
needed of these new LGUs all framework of new local
governance in Albania.
Poor financing Albanian municipalities have UNDP STAR project supports
standing of very limited options to raise or the new LGUs in identifying
municipalities access debt financing for clean their key socio-economic and
energy projects due to their development priorities to guide
poor creditworthiness, limited investment decisions in each
borrowing capacity and LGU. In Output 1.1 of the
revenue-raising power. In Project will collaborate with
addition to limits on raising municipalities to a) integrate
revenues and borrowing funds, clean energy investment in the
municipalities face restrictions municipal development plans;
on how they can deploy their and b) identify municipalities
available funds. Although such with good financial standing
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restrictions are intended to which have better chances of
ensure that funds are not securing debt financing from
diverted from vital services, IFIs or local banks.
they may also constrain the
amount of funds that can be
allocated to financing clean
energy projects.

Insufficient Municipal decision makers are Awareness raising activities in
awareness and generally unaware of the Output 1.1 combined with the
incentives to opportunities for improving activities in Output 1.3 for the
identify and energy efficiency, and there is implementation of municipal
implement also inadequate information on energy management systems
clean energy “baseline” conditions (such as and energy audits of public
projects comfort levels in buildings, buildings will contribute towards
number of non-operating making it easier to identify
streetlights), overall energy opportunities for energy-
use, and costs. efficiency/renewable energy
projects in the municipal sector.

Insufficient These are serious constraints The project will focus on the
implementation on the ability of municipalities development of effective
capacity in to identify, design, and delivery mechanisms and will
municipalities implement clean energy provide substantial training and
projects. They include capacity building. The central
restrictive public procurement support unit for energy
policies, a lack of familiarity management in municipalities
with clean energy that will be set up will take on
technologies, and limited some of the tasks of project
capacity for the identification and design and
implementation. will help build the capacity of
municipalities to do this
themselves in future.
A focus on vocational training in
Output 1.1 will aim to ensure
that energy managers in
municipalities throughout the
country have the proper tools to
effectively run and manage
municipal energy efficiency
actions.
Legal & The new law on efficient Output 1.1 includes assistance
Regulatory energy use creates a national with putting in place regulations
Barriers framework for energy- and by laws which support the
efficiency, but does not go into implementation of energy
detail about how this efficiency law.
framework will be
operationalized.
Information & There is a lack of data In Output 1.3 municipal energy
Data Barriers concerning energy management information
consumption, especially in the systems (EMIS) will be
public and municipal sectors established, which will be
which makes it difficult to continuously developed,
ascertain where the best clean strengthened, and updated,
energy investments can be and energy audits will be
made without proper systems conducted in public buildings in
in place to collect, monitor, and order to collect and manage the
manage data. required data.