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

Framework Conditions and Potentials of 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 on 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 of 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 operation, maintenance and controls necessary for providing of the service. Energy service is provided based on respective contract by which, among other 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 of 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 of 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 order 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.

Bioenergy Potential of 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.

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 or 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 6 th and 7 th 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