UNDP in Ukraine

Ukraine is one of the least energy efficient countries in the world and has the greatest emissions level per unit of GDP among CIS countries. A recent inventory of the total emissions from Ukraine showed the figures that significantly exceeds the levels in most European countries and is also one of the highest in the world. An inventory estimated that total emissions from Ukraine in 2002 were 487 million tons of CO2 equivalent (the corresponding figure for 2001 was 482 million tons). This results in a per capita emission of 10 tons of CO2 equivalent per year. Heat supply in the buildings sector accounts for approximately 25% of all fuel consumed in Ukraine, and, therefore, there is a huge potential for energy efficiency improvement in this sector, which Ukraine wants to actively pursue.

Address: 22a, Zamkova St., office 904 Rivne, 33028, Ukraine Phones: Rivne: +380 362 261 889 +380 362 263 469 (fax) Kyiv: +380 44 253 4923, +380 44 206 1429 (fax) e-mail: undp-rivne@ukr.net Alexey.Paschenko@undp.org Natalia.Olshanska@undp.org Project Manager: Alexey Paschenko UNDP Programme Manager: Sergei Volkov

Duration: 01.06.2006 - 01.05.2010

WHAT IS THE SITUATION?

Since 1991, the Government of Ukraine has devoted a great deal of attention to the development of the energy sector. The National Energy Programme of Ukraine until 2020, adopted in 1996, articulated the Government’s energy policy and its priorities: energy conservation, use of domestic resources, development of renewable energy and targeted investments in strategic areas to reduce energy intensity. In the district heating sector, the programme calls for reconstruction and rehabilitation of existing district heating networks, continued development of district heating systems and combined heat and power plants, promotion of waste heat usage, and construction of new high-efficiency, heat-only boiler plants where appropriate.

Currently Ukraine continues to be one of the least energy efficient countries in the world and has the greatest emissions level per unit of GDP among CIS countries. An inventory estimated that total emissions from Ukraine in 2002 were 487 million tons of CO2 equivalent (the corresponding figure for 2001 was 482 million tons, and for 2004 -425 million tons of CO2 equivalent). This results in a per capita emission of 10 tons of CO2 equivalent per year. Heat supply in the buildings sector accounts for approximately 25% of all fuel consumed in Ukraine, and, therefore, there is a huge potential for energy efficiency improvement in this sector, which Ukraine wants to actively pursue.
Ukraine is one of the least energy efficient countries in the world and has the greatest emissions level per unit of GDP among CIS countries. A recent inventory of the total emissions from Ukraine showed the figures that significantly exceeds the levels in most European countries and is also one of the highest in the world. An inventory estimated that total emissions from Ukraine in 2002 were 487 million tons of CO2 equivalent (the corresponding figure for 2001 was 482 million tons). This results in a per capita emission of 10 tons of CO2 equivalent per year. Heat supply in the buildings sector accounts for approximately 25% of all fuel consumed in Ukraine, and, therefore, there is a huge potential for energy efficiency improvement in this sector, which Ukraine wants to actively pursue.

WHAT IS OUR MISSION?

The global environmental objective of reducing overall fossil fuel consumption and associated GHG emissions is to be achieved through the removal of the following main existing barriers to energy efficiency improvement in the communal heat supply sector:
1) difficulties in arranging financing for efficiency projects;
2) institutional constraints;
3) lack of capacity and experience in preparing, implementing and managing energy efficiency projects;
4) high transaction costs for relatively small energy efficiency projects; 5) lack of information about existing opportunities for energy efficiency.

In line with the Government’s priorities, this project addresses a key issue in the reduction of greenhouse gas emissions through large-scale improvements in energy efficiency in Ukraine’s communal heat supply sector.

These improvements will result from a four-part approach:
1) capacity building to create the basis for systematic energy efficiency activities at the local level;
2) an integrated approach of supply and demand-side improvements to achieve maximum fuel savings and emissions reduction;
3) attraction of external investment resources for an energy efficiency programme in a pilot city (Rivne); and,
4) project-specific replication measures in other parts of the country, including development of relevant procedures, guidelines, information materials and their dissemination, and public awareness-raising through the involvement of NGO’s, in particular those concerned with environmental and energy efficiency problems. The project will involve establishing a privately-run energy service company (ESCO) as an innovative mechanism for financing energy efficiency activities in Ukraine at both municipal and regional levels, and, eventually, at the national level.

HOW ARE WE DOING THIS?

Under Phase 2, ESCO-Rivne company will receive additional support to implement a city-wide programme for energy efficiency activities in municipal district heating, to expand its reach beyond the borders of the city, to implement activities which require longer payback periods for which financing may not be readily available, to design and implement finance guarantee and risk mitigation instruments, and to promote the adoption and implementation of project experience and lessons learned throughout Ukraine and in other CIS countries.

Implementation approach: ESCO modality

The ESCO modality presents an innovative and very promising mechanism to finance large-scale energy efficiency activities in Ukraine.
The Project overall goal is creation of an Energy Service Company (ESCO) as self-sustaining company conducting energy efficiency activities at the municipal and regional level.

Since international practice has shown that operation scale for purely communal ESCO is limited by financing capabilities of local budgets and heat supplier, the obligatory strategy of private sector investor(s) attraction was envisaged by the project document.

The ultimate condition for the investor is to invest into the ESCO-Rivne Company directly or indirectly (in it’s projects) initially the funds in the amount not less then UNDP UKR01G31 Project and that the ratio of external funds to UNDP/GEF funds would be at least 3:1.

The story about the investor attraction you can read here.

 

HOW WILL UKRAINE BENEFIT?

National benefits:
The project will help reduce
- the level of dependence on external gas supplies ? and decrease overall fossil fuel consumption ? and associated GHG emissions by removing barriers to supply and demand side energy efficiency improvements in district heating systems in the main cities of Ukraine.
- Successful operation of the Rivne ESCO will facilitate setting up of similar ESCOs in other cities and attracting foreign private capital and experience to Ukraine.

Domestic benefits:
- positive economic and financial returns from investments,
- higher level of heat supply service and reliability of district heating system operation,
- lower air pollution (in particular by NOx),
- creation of incentives to energy savings in public and residential sector,
- reduction of budgetary expenditures on residential subsidies and institutional buildings’ heat bills,
- improvement of the qualification of district heating company personnel and its management capacity.
A successfully operating ESCO will be able to further expand its activity in the region as a whole and implement energy saving measures in the industry and infrastructure sectors, thus achieving additional economic and environmental benefits. Expansion of ESCO-Rivne’s activities will contribute to the development of the local energy service market.

WHO ARE OUR PARTNERS?

Rivne Municipality
Rivne Oblast State Administration
State Committee for Energy Conservation
Ministry of Economy and European Integration
Ministry of Environmental Protection of Ukraine
Ministry of Housing and Municipal Economy
Association of Local and Regional Authorities
Other Municipalities