Framework Conditions and Potentials of ESCO Bioenergy Projects in - - PowerPoint PPT Presentation

Framework Conditions and Potentials

• f ESCO Bioenergy Projects in Serbia

for Public Buildings

(Private-public Partnership Model of Financing)

Aleksandar Durkovic – Energy Consultant

Augsburg – Germany October 10, 2014

Content of the Presentation

• ESCO Concept in Serbia
• Bioenergy Potential of Serbia
• District Heating Companies in Serbia
• Characteristics of Boiler Facilities in Public Buildings
• Opportunities for Bioenergy Projects in Public Buildings
• BOT Model of Project Realization
• Framework and Conditions for Realization of PPP

Projects in Serbia

• List of Relevant Serbian Laws and Regulations
• CONCLUSION: ESCO as Instrument of Realization for

Bioenergy Projects in Public Buildings of Serbia

ESCO Concept in Serbia (1)

• ЕSCО (Energy Service Company) concept in Serbia is introduced by Law
• n Efficient Use of Energy adopted on March 15, 2013.
• ESCO is legal entity or entrepreneur registered for performance of

energy services which by providing energy services increases energy efficiency of the facility, technological process or service, and which to the certain degree resumes financial risk for provided energy services in such a way that payment of its services invoices completely or partially based on achieved savings came out from implementation of the measures and fulfillment of other contracted efficiency criteria (Article 5, paragraph 4

• f the Law).
• Energy service is a service which comprehend activities and actions which

in regular circumstances lead to checkable and measurable or assessable increment of energy efficiency of facility, technical systems, production processes, private and public services and/or primary energy

• savings. This services are based on implementation of energy efficient

technologies and procedures by which energy savings and other related positive effects are achieved, and may comprehend corresponding

• peration, maintenance and controls necessary for providing of the service.

Energy service is provided based on respective contract by which, among

• ther things, energy savings are contracted (Article 5, paragraph 8 of the

Law).

ESCO Concept in Serbia (2)

• Energy service can comprehend also energy audit, design, construction,

reconstruction, energy retrofit and maintenance of the facility, and management and monitoring of energy use (Article 66 of the Law).

• Contract on energy services is a contract which is concluded by consent
• f wills between user of energy services (the Client) and provider of energy

services (ESCO – the Provider) for implementation of individual measures for improvement of energy efficiency (Article 67, paragraph 1 of the Law).

• Means for performance of energy services are obtained by ESCO

entirely or partially from its own or third party’s sources (Article 67, paragraph 3 of the Law).

• Amount of ESCO costs and investment in applied measures for

improvement of energy efficiency are determined and paid to ESCO in accordance with by contract defined level of energy efficiency improvement (Article 67, paragraph 4 of the Law).

• ESCO costs and investments in implementation of measures for

improvement of energy efficiency are paid or pay backed to ESCO from energy cost savings achieved in referent period (Article 67, paragraph 5 of the Law).

ESCO Concept in Serbia (3)

• ESCO or third party bears entirely or partially financial, technical and

commercial risk of energy service realization (Article 67, paragraph 6 of the Law).

• Rights and obligations of contractual parties pertain to paragraph 1 of

this article are defined and performed in accordance with the Law which regulates obligation relationships, if by this Law it is not prescribed differently (Article67, paragraph 7 of the Law).

• Minister prescribes form and structure of model contract for each kind
• f energy services which are performed pertain to Article 67 of the Law,

when financed out of Budgetary Fund for Energy Efficiency or when ESCO clients are from public sector (Article 67, paragraph 8 of the Law).

• It is expected by end of 2014 that set of by-laws is going to be adopted in
• rder to complete ESCO legal framework in terms of model contracts and to

enable practical implementation of the Law in public sector.

• But, Law on Public Procurement allows contracts for works and services

not longer than 3 years for public sector in Serbia.

• Estimated unused available technical biomass potential of Serbia is

2.351 million toe/a (tons of oil equivalent per annum) and is 3 times bigger than hydro potential (Source: Draft Development Strategy for Energy Sector of the Republic of Serbia until 2025 with Projections until 2030):

• Agricultural biomass 1.637 million toe/a (agricultural residuals 0.99,

residuals from fruit processing, viticulture and fruit growing 0.605, liquid manure 0.042;

• Wood (forest) biomass 0.509 million toe/a
• Energy plantings not available
• Communal biodegradable waste 0.205 million toe/a
• Only 3 % is used as a fuel in production of heat and electricity.
• In 2013 feed-in tariffs for electricity produced form biomass facilities

was increased and ranges from 8,22 to 13,82 eurocents per kWh.

Bioenergy Potential of Serbia

District Heating (DH) Companies in Serbia

• Business Association “Serbian DH Companies” gathers 59 members which

are exclusively public utility companies owned by cities/ municipalities. Total installed capacity is about 6 thousand MW and equals thermal power plants.

• DH facilities mainly utilize coal, heavy fuel oil and natural gas. Heat energy

price, when paid per consumption, has 25 - 35% fix part and rest is variable. More than 600 thousand households use heating services.

• Purchase of all fuels amounts about EUR 300 million per year (202 thousand

tons of coal, 112 thousand tons of heavy fuel oil and 560 million m³ of gas).

• DH Companies are in due for gas and other fuels purchased from suppliers

and state reserves (in total EUR 75 million for gas and EUR 5 million for other fuels). Due by the costumers to DH companies is about EUR 170 million.

• By borrowing from the banks DH companies are bridging fuel purchase

issues, but there are still issues with new investments and proper maintenance of DH facilities.

• Emissions of CO2 from DH production facilities are second biggest after

CO2 emissions from thermal electricity production plants.

• KfW supports modernization of DH systems and has prepared 15 studies for

fuel conversion to biomass in municipal DH companies

Characteristics of Boiler Facilities in Public Buildings

• Obvious issues with individual boiler facilities and units in public buildings

(findings of energy audits on 30+ schools and kindergartens in City of Nis):

• inefficient boiler units which utilize light fuel oil, heavy fuel oil, coal or wood

(combustion efficiency 60 - 65%)

• insufficient thermal insulation of piping network and fittings, issues with

pumps, valves and other piping fittings, obsolete piping network, leakages of fuel and water, no

• r

poor automatic control, monitoring and maintenance/management (overall primary heating installation efficiency less than 90%)

• environment pollution on micro-location adjacent to the facilities
• Limited possibilities of municipalities for new investments without additional

loans (if there is any creditworthiness at all due to limited budges).

• Investments in maintenance of heating systems is limited too due to

prioritization of other important investments in communal infrastructure.

• Modest institutional capacities for proper technical solutions of the issues.

Opportunities for Biomass Projects in Public Buildings

• Majority of heating equipment is older than 20 years and at the end of its

economical life needing replacement with new one anyhow.

• If exclude wood logs for space heating in individual low efficiency furnaces or

boilers, biomass is practically not in use as a heating fuel in public buildings.

• Fossil fuels are used, predominantly coal, light and heavy fuel oil.
• Light fuel oil is the most expensive heating fuel (current market price is EUR

1.25 – 1.30 per litre depending on quality) and burdens municipal budget in a way that quite often supply of the fuel is delayed.

• By replacing light fuel oil boilers with biomass units significant financial

savings could be achieved through cheaper purchase of fuel (current market price of pellets EUR 120 – 180 and wood chips 40 – 60 per ton depending on quality, content of moisture and time of year).

• Heat production costs from LFO is around EUR 135 per MWh and from

pellets EUR 45 per MWh which makes lot of room for both financial savings in municipal budget and profitable investment for ESCO.

Example of City of Nis Project (1)

Replacement of Light Fuel Oil Boilers with Wood Biomass (Pellet) Boilers in Schools and Kindergartens of City of Nis

• Total of 29 institutions (20 elementary schools, 2 high schools, 7

kindergartens)

• Total heated area ~ 70.000 m²
• Total installed boiler capacity ~ 16 MW (of 39 boiler units)
• Yearly consumption of LFO ~ 900,000 liters
• Budget spending for LFO ~ EUR 1.0 million
• Investment in replacement of boilers ~ EUR 1.4 million
• Guaranteed savings 40% in municipal budget (EUR 400,000)
• JPP contract duration 15 years
• NPV = EUR 1,581,000
• ERR = 19,5%
• Payback period = between 6th and 7th year

Example of City of Nis Project (2)

Elementary School “Njegos”

• Boiler age 42 years - Capacity 2x540 kW
• Poor maintenance, need for boiler room refurbishment
• Light fuel oil consumption 55.000 litres/year

Project Objectives

OBJECTIVE 1 Support public sector and civil society toward improvement of quality

• f public services with sound savings of budget funds.

OBJECTIVE 2 Resolving issues with obsolete and unsafe equipment and installations through rational and effective investments using Private- public Partnership (PPP) model of financing. OBJECTIVE 3 Maintenance investments of the highest possible level or justifiable investments in the new facilities. OBJECTIVE 4 Resolving requirements of municipalities and end users without engaging budget funds, and on transparent, high-quality and viable way.

BOT Model of Project Realization

• BOT model of project realization, or „Build-Operate-Transfer” is the

most frequently used model of financing new infrastructure in public sector.

• Usually mixed up with Concession model in which public partner is

exclusively one of contractual parties, while BOT can be contracted with private partners as well.

• Within BOT model the private partner usually resumes:
• Erection of public good or installation or equipment and facilities
• Providing of financial means for project realization
• Maintenance and billing of contracted fees until investment

repaid and costs and profits covered

• While government retains ownership over the public good.
• Differs from Public-private Partnership (PPP) model in which private

partner retains ownership of the project over entire contract period.

Definition of PPP in Serbia’s Legislation

Partnering of public and private entities (Public–private partnership - PPP) is joint cooperative action of public and private sector in providing public services, construction works or production of goods. PPP is also cooperation between public and private sector in domain of planning, production, provision of services, financing, business development and billing of public services. Public sector has a roll of an entity offering and whishing to become partner which by the contract defines variety and scope of services or works to be transferred to private sector, and which

• ffers to the private sector handling of such businesses, while private

partner looks for that kind of collaboration if prospects for profit are lucrative, and under the obligation of high quality performance of the contract. By Serbian Law on PPP it is stipulated that PPP Projects can be contracted for period of 5 to 50 years.

Possibilities for PPP Project Contracting in Serbia

By article 7 of the corresponding law, PPP is long-term cooperation between public and private partners in order to obtain financing, construction, reconstruction, management or maintenance of infrastructure and other facilities of public interest, and providing services of public interest, which can be contractual or institutional. Key elements of PPP are also defined by the PPP law and relate, inter alia, to: 1) Subject of PPP which cannot be exclusively commercial exploitation of goods in common use or other goods; 2) Form of PPP could be: а) Contractual b) Institutional c) Concession

Preconditions for PPP Projects (1)

• 1. Existence of proper justification for selection of PPP model

and clearly defined public interest

• 2. Adoption of the project by City/Municipality Assembly
• 3. Adoption of the project by Commission for PPP and

Concessions of the Republic of Serbia

• 4. Successful contract award according to Law on Public

Procurement

• 5. Positive outcome in case of complaints on contract award

pertain to Law on Public Procurement

• 6. Adoption of draft public contract by the City/Municipality

Assembly

• 7. Existence of financial means for project implementation

within time planned

Preconditions for PPP Projects (2)

• 8. Existence of appropriate profile of works contractors and

suppliers of equipment and materials

• 9. Positive feasibility study results on economical viability of

PPP project

• 10. Existence of legal preconditions for PPP project

implementation (construction permits and other approvals)

• 11. Existence of continuous demand for the services which are

subject of PPP

• 12. Obtaining support by the city/municipality in project

implementation

• 13. Adoption of PPP concept by broader public community
• 14. Adoption of the services by end users

How to Reach PPP Contract (1)

Public Body – Municipality (Adopts decision on initiation of the PPP project) Contractual PPP SPV Owned by Private Partner Institutional PPP SPV Jointly

• wned by

the partners Initiation and preparation of PPP project solely by Public Body (Article 12 of PPP & Concession Law) (Requires Project team or consultant) Self-initiative Proposal (Article 19 of PPP & Concession Law) Serbian or Foreign Legal Entity (Article 14 of PPP & Concession Law)

How to Reach PPP Contract (2)

Preparation of PPP Project Proposal (Article 27) Commission for PPP & Concessions (Opinion - Article 27, Paragraph 3 of the Law) Decision by Municipality Assembly (Article 26 of the Law – Body in Charge) Decision on Initiation of Public Procurement

How to Reach PPP Contract (3)

Act on Composition of Public Procurement Commission as an entity in charge on behalf of public body Preparation of Bidding Documents and Model of Public Contract Announcement of Public Call: „Official Gazette of RS” Public Press for Serbia, Internet Page of Public Body and „Tender Electronic Daily” (Article 22 of the PPP & Concessions Law) Deadlines:

• Open Tender Procedure (minimum 52 days)
• Evaluation Report & Contract Award
• Complaints (if any)

How to Reach PPP Contract (4)

Municipality Assembly - Consent on Public Contract (Article 47, Paragraphs 1 and 2 of PPP law) Decision of Public Body on Contract Award Notification on Contract Award to all the Bidders Conclusion of Public Contract (article 47, paragraph 3 of PPP Law)

How to Reach PPP Contract (5)

Notification on Concluded PPP Public Contract

• „Official Gazette of the Republic of Serbia”
• Public procurement portal

Introduction of Private Partner in Contract Realization (Construction Works / Providing of Services)

Payment Scheme for Contracted Services by the Municipality

PAYMENTS OF MUNICIPAL GOVERNMENT IN MONTHLY INSTOLMENTS (AS CONTRACTED) FOR SUPPLIED HEAT ENERGY AFTER PPP PROJECT IMPLEMETATION IS FINISHED

PRIVATE PARTNER (100 % INVESTMENT)

• EQUIPMENT
• CONSTRUCTION

WORKS

• MAINENTANCE OF

THE SYSTEM

• FUEL (wood pellets)

SPV

SUPPLIER/DEALER OF EQUIPMENT AND MATERIALS WORKS CONTRACTOR MAINTENECE OF THE BOILER FACILITY

RELATED SERBIAN LAWS & REGULATIONS

• Law on Public-private Partnership and Concessions - („Official Gazette
• f the Republic of Serbia (RS)” No. 88/11)
• Law on Companies - („Official Gazette of RS” No. 36/2011 & 99/2011)
• Law on Public Companies - („Official Gazette of RS” No. 119/2012)
• Law on Obligations - („Official Gazette of SFRY” No. 29/78, 39/85, 45/89

and 57/89 and „Official Gazette of SRY”, No. 31/93)

• Law on Efficient Use of Energy - („Official Gazette of RS” No. 25/2013)
• Law on Planning and Construction - („Official Gazette of RS” No. 72/09,

81/09, 64/10 и 24/11)

• Law on Public Procurement – (“Official Gazette of RS” No. 124/2012)
• Rulebook on Energy Efficiency - („Official Gazette of RS” No. 61/11)
• Rulebook on Conditions, Contents and Way of Issuance of Certificates
• f Energy Performance of Buildings - („Official Gazette of RS” No.

61/11)

• Regulations and Decrees of City/Municipality (Local Self-governments)

CONCLUSION: ESCO as Instrument of Realization for Bioenergy Projects in Public Buildings of Serbia

• Legally it is possible in Serbia to contract and implement Bioenergy

projects in public buildings through ESCO and BOT models of project realization.

• Legal ground is Law on PPP and Concessions of the Republic of Serbia.
• Law on Companies gives legal framework for SPV establishment and
• peration.
• Law on Public Companies defines scope of services representing public

interest which may be subject of cooperation with private sector (heating).

• Law on Obligations regulates business relationships between legal entities.
• Law on Efficient Use of Energy introduces and defines ESCO concept

and energy efficiency as criterion for public procurement of works and services.

• Law on Planning and Construction regulates general procedures for

permits and approvals needed for construction works, and energy efficiency performances of buildings and their certification through respective rulebooks.

• Law on Public Procurement establishes EE and the latest energy related

technologies as one of selection criteria in process of contract award.

Thank you for your attention!

aleksandar.durkovic@mre.gov.rs dur@eunet.rs