EBRD EBRD SUSTAINABLE ENERGY INITIATIVESUSTAINABLE ENERGY INITIATIVE

ACTION AND RESULTS 2006ACTION AND RESULTS 2006--20082008

JOSUJOSUÉÉ TANAKATANAKACORPORATE DIRECTORCORPORATE DIRECTOR

ENERGY EFFICIENCY AND CLIMATE CHANGEENERGY EFFICIENCY AND CLIMATE CHANGE

PREPARED FOR PREPARED FOR ENERGY WEEK 2009ENERGY WEEK 20091 APRIL 20091 APRIL 2009

EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENTEUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT

PRESENTATION STRUCTUREPRESENTATION STRUCTURE

EBRD: A SNAPSHOT

SUSTAINABLE ENERGY INITIATIVE: OVERVIEW

SEI PHASE 1 RESULTS 2006-2008

SEI APPROACH

FINANCING INSTRUMENTS

SEI CASE STUDIES

THE EBRD: A SNAPSHOTTHE EBRD: A SNAPSHOT

EBRD is an International Financial Institution which promotes transition to market economies in 30 countries from central Europe to central Asia.

It is owned by 61 countries and two inter-governmental institutions

2008 investments of around US $6.5 billion in 302 operations for total project value of around US$ 16.8 billion

73% of portfolio in private sector

Broad range of financial instruments including non-sovereign loans, direct equity, equity funds, guarantees and sovereign loans

Broad sector range covering corporate, financial and infrastructure sectors.

SEI OVERVIEWSEI OVERVIEWOBJECTIVESOBJECTIVES

The Sustainable Energy Initiative (SEI) responds to the specific needs of the energy transition in the EBRD countries of operations, as well as to the call of the G8 at the 2005 Gleneagles Summit for the IFIs to scale-up climate change mitigation investment.

SEI was launched in 2006 with the objective to:• double sustainable energy investments to €1.5 billion in the period 2006-08 within a

total project volume of €5 billion; • mobilise €100 million for technical assistance and investment grants to support its

investment activity;• achieve diversification across SEI sectoral areas;• ensure appropriate geographic distribution of SEI activities; and• strengthen the organisation to scale up delivery and “mainstream” energy

efficiency in the Bank’s operations.

SEI OVERVIEWSEI OVERVIEWCORE SEI COMPONENTSCORE SEI COMPONENTS

SEI 1: Industrial energy efficiency projects which reduce greenhouse gases emissions from industrial clients).

SEI 2: Sustainable Energy Financing Facilities (SEFF) dedicated loan facilities to local banks for on-lending to small and medium clients undertaking industrial and residential energy efficiency and/or renewable energy projects.

SEI 3: Power sector energy efficiency targeted at power utilities across the region.

SEI 4: Renewable energy with direct financing of renewable energy projects

SEI 5: Municipal Infrastructure Energy Efficiency projects which reduce greenhouse gases emissions in the municipal sector, including district heating, public transport and energy efficiency in water supply/treatment projects.

SEI 6: Carbon Finance - technical assistance to promote carbon market development including two Carbon Credit Funds; i) MCCF, joint EBRD/ EIB initiative (€190 million) and ii) The Netherlands Carbon Fund (€23 million - fully committed)

SEI PHASE 1 RESULTS 2006 SEI PHASE 1 RESULTS 2006 –– 20082008OVERVIEWOVERVIEW

EBRD SEI 2006-2008 investments reached €2.66 billionexceeding the original three-year target by 77% through 166 projects.

Total project value reached €14 billion although not all directly linked to SEI.

Reflecting the strategic integration and mainstreaming of energyefficiency and climate change into EBRD operations, the share ofSEI activity increased from 15% of total EBRD investment in 2006 to close to 20% in 2008.

SEI PHASE 1 RESULTS 2006 SEI PHASE 1 RESULTS 2006 –– 20082008CARBON REDUCTION / ENERGY SAVING IMPACTCARBON REDUCTION / ENERGY SAVING IMPACT

SEI PHASE 1 ACTIVITY IS ESTIMATED TO LEAD TO:SEI PHASE 1 ACTIVITY IS ESTIMATED TO LEAD TO:

• 21 MILLION TONNES OF ANNUAL CO2 EMISSION REDUCTIONS. THIS IS EQUIVALENT TO THE TOTAL ANNUAL EMISSIONS OF CROATIA; AND

• OVER 8 MILLION TOE IN ANNUAL ENERGY SAVINGS. THIS IS EQUIVALENT TO OVER THREE TIMES THE TOTAL ANNUAL ENERGY CONSUMPTION OF ALBANIA.

SEI PHASE 1 RESULTS 2006 SEI PHASE 1 RESULTS 2006 –– 20082008SECTOR RESULTSSECTOR RESULTS

CUMULATIVE SEI RESULTS 2006-2008

CATEGORY SIGNED

(€ MILLION) % SHARE NUMBER OF PROJECTS %

25% 56

31

19

14

46

166

14%

34%

19%

11%

8%

28%

38%

9%

15%

100% 100%

679

362

1010

227

388

2665

SEI 1 INDUSTRIAL ENERGY EFFICIENCY

SEI 2 SUSTAINABLE ENERGY CREDIT LINES

SEI 3 CLEANER ENERGY PRODUCTION

SEI 4 RENEWABLE ENERGY

SEI 5 MUNICIPAL INFRASTRUCTURE ENERGYEFFICIENCY

TOTAL

SEI SEI PHASE PHASE 1 RESULTS 2006 1 RESULTS 2006 –– 20082008RESULTS BY REGIONRESULTS BY REGION

SEI PHASE 1 ACTIVITIES COVERED 24 COUNTRIES OF OPERATIONS

20% OF PROJECTS ARE IN EARLY TRANSITION COUNTRIES.

ALBANIA ARMENIAAZERBAIJANBOSNIA AND HERZEGOVINABULGARIACROATIACZECH REPUBLIC ESTONIAFYR MACEDONIAGEORGIAHUNGARYKAZAKHSTAN

LITHUANIAMOLDOVAMONGOLIAMONTENEGROPOLAND ROMANIA RUSSIAN FEDERATIONSERBIASLOVAK REPUBLICTAJIKISTANUKRAINE UZBEKISTAN

South-Eastern Europe

17%

Russia 28%

Eastern Europe and Caucasus

32%

Central Europe and Baltics

13%

Central Asia 6%

Regional 4%

SEI APPROACHSEI APPROACHBARRIERS TO SUSTAINABLE ENERGY INVESTMENTSBARRIERS TO SUSTAINABLE ENERGY INVESTMENTS

Broad range of barriers to sustainable energy investments including:• Tendency to focus on core business and short term objectives with expansion investments

perceived as more attractive than cost-reduction investments to management and shareholders.

• Energy bill as proportion of cost base may not be high enough for efficiency improvements to be a priority.

• Company planning may not take into account future tariff increases or environmental obligations (e.g. on energy-related pollution).

• No dedicated in-house energy management expertise in most corporates in the region to assess and promote such projects.

• Uncertainty and lack of information about available options and their financial reward.• In the housing/building sector, barriers include credit-worthiness of households and housing

associations and difficulties with collective decision making, low market penetration for high quality energy savings and renewable energy technologies

Donor funding is essential to overcome these barriers..

SEI APPROACH SEI APPROACH KEY INGREDIENTSKEY INGREDIENTS

InvestmentsProject and mainly private sector driven approach using a broad range of financial instruments

Technical assistance and investment related grantstechnical assistance to overcome barriers (market analysis, energy audits, training, awareness raising). Grant investment co-financing to provide appropriate incentives as in the case of Clean Technology Fund where EBRD expects to be involved on projects in Ukraine, Kazakhstan and Turkey.

Policy dialogueWorking with governments to support development of strong institutional and regulatory frameworks that incentivise sustainable energy.

Institutional focusMainstreamed objectives structured into strategy and individual banking team business plans supported by specialised energy efficiency and climate change team.

FINANCING INSTRUMENTSFINANCING INSTRUMENTSOVERVIEWOVERVIEW

EBRD has broad range of financing instruments for sustainable energy investmentsStand-alone instruments based on direct relationship with clients

– Private Loans and Syndication.Example: Severstal, Russia - €150 million + €450 million Syndication

– Non Sovereign Loan to Municipal Infrastructure Company.Example: Colterm, Romania - €23 million investment of which €15 million financed by EBRD

Bundling approach using intermediaries − Equity Investment in Equity Fund.

Example: Enercap Renewable Energy Financing Vehicle - €25 million− Energy Efficiency Credit Lines

Example: Bulgaria Sustainable Energy Financing Facilities - €170 million intermediated through 8 local Bulgarian banks for energy efficiency in industry and housing and small renewable energy investments

− ESCO Financing.Example: ENEMONA, Bulgaria €7 million

− Carbon Finance.Example: Multilateral Carbon Credit Fund €190 million from 12 sovereign and private participants

FINANCING INSTRUMENTSFINANCING INSTRUMENTSSUSTAINABLE ENERGY FINANCING FACILITIES (SEFF)SUSTAINABLE ENERGY FINANCING FACILITIES (SEFF)

A “One-Stop-Shop” approach providing:

– Donor funded Technical Assistance for marketing and awareness raising, project preparation, training and capacity building

– Appropriate grant incentives to both sub-borrowers (upon completion) and performance fees to banks

Track record of Bulgarian credit line with 7 participating banks: So far €76.2 million committed for 114 sub-loans worth €117 millionenergy savings of 800 Gwh/year (financial : €40.4m/year)estimated emission reduction of 500,000 tonnes of CO2 per year 124 MWe achieved with a grant component (including technical assistance and incentive payments) of €130,000/MWe and €3.15/ tonne of CO2

– SEFFs also active in: Ukraine (industry), Georgia (industry and residential), Romania (industry) Slovakia (industry and housing associations), and Western Balkans (industry and renewable energy)

FINANCING INSTRUMENTSFINANCING INSTRUMENTSSEFF CREDIT LINE STRUCTURESEFF CREDIT LINE STRUCTURE

EBRD

Participating Bank

Sub-Borrower

Independent Energy ExpertConsultant

€Credit Line

€Loan AgreementTechnical AssistanceEnergy Audits

Implementation Verification

DonorFunded Contract

DonorFunded Contract

TrainingAnd Marketing

Support

FINANCING INSTRUMENTSFINANCING INSTRUMENTSWESTERN BALKANS SUSTAINABLE ENERGY DIRECT FINANCING FACILITYWESTERN BALKANS SUSTAINABLE ENERGY DIRECT FINANCING FACILITY

New framework innovation to provide debt financing worth up to €50 million in Western Balkan countries with Direct Lending to:

– Private sector industrial companies implementing energy efficiency projects;– Private companies implementing renewable energy projects

Facility supported by TC amounting to €2 million and €10 million for incentive payments.Loan amounts from €1 to €6 millionTechnical assistance through engagement of consultancy firms’ services to assist:

– potential clients in project identification, development and submission to EBRD; and– verification of completed projects.

Completion fee to Borrowers paid upon successful project implementation and verification of completion of up to 20% based on CO2 emission reductions.

Future extension – Direct lending facility could be doubled by end of 2009 if the first phase is successful

EBRD FINANCING INSTRUMENTSEBRD FINANCING INSTRUMENTSESCOESCO

Small number of projects in last 15 years held back by limited capacity of local authorities to develop ESCO models and conduct tenders.

Situation changing with new budget rules, better prepared local authorities, new PPP rules, and increased importance of energy efficiency.

Example: EBRD signed €7 million loan to Bulgarian ESCO fund in December 2007 sponsored by private construction company Enemona. Fund purchases receivables under ESCO contracts completed by Enemona enabling it to release working capital to do other ESCO projects. This is a landmark project as the first dedicated ESCO in the Bank's region in over 10 years which will have substantial energy saving in buildings estimated at 30-50%.

Now developing the model in other EBRD countries - initially Hungary, Romania, Russia and Ukraine.

Need for significant parallel TC support to analyse local markets, prepare model contracts and assist local authorities in preparing contracts and conducting ESCO tenders.

Aim to establish financing vehicles with commercial leverage which will purchase ESCO contracts from private engineering companies providing ESCO services.

SEI CASE STUDIESSEI CASE STUDIESCASE 1: ASTARTA, UKRAINECASE 1: ASTARTA, UKRAINE

Astarta: €14.2 million loan with €10.7 million for EE components for Ukraine’s leading sugar producer

Objective: Introduce energy efficiency improvements at each of the company’s five sugar plants.

Company to install equipment that uses less energy and assist the company in improving productivity whilst also consuming less energy (such as new drying equipment, new concentration upgrade of heat supply systems)

Impacts: Energy savings estimated at 25-30% with carbon emission reduction estimated at over 300kton CO2

Technical assistance includes relationship management support, energy audit and assessment of carbon reduction:

• Energy Audit commissioned by the Bank as a €30,000 call-off contract funded by Central European Initiative, under the Industrial Energy Audit Framework (€2 million).

• Energy Management Training was provided and funded by a €20,000 TC.

• A further Energy Audit has been arranged to investigate incremental energy efficiency opportunities.

• Additional €4 million of EE component currently in the Bank pipeline.

• Total grant funding supporting this project leveraged by x 200.

Carbon Finance: Signing of the first large carbon transaction under the EBRD/EIB MCCF(150,000 tCO2e of carbon credits)

Policy dialogue in Ukraine with €1 million of Spanish TC to create an enabling environment for carbon transactions. Outputs expected to include the development of GHG Model, development of institutional and legal framework for Ukraine to participate in JI and the development of pilot GIS transaction, and capacity building.

SEI CASE STUDIESSEI CASE STUDIESCASE 2: SEVERSTAL, STEEL MILL IN RUSSIACASE 2: SEVERSTAL, STEEL MILL IN RUSSIA

Severstal Russian’s leading steelmaker: €600 million investment of which EBRD has financed €150 million with syndication to 3 major international Banks.

Objective: to support the company’s strategy to cut energy consumption.

Measures financed include: enhancement of internal electricity-generating capacity, modernisation of the group’s oxygen plants and the implementation of energy management systems (11 specific EE investment projects were identified and analysed by the Bank’s team and the company’s technical management).

Expected results: reduction of primary energy consumption by 8 % and CO2 emissions by around 1 Mt/year, equivalent to a UK city with 400,000 population.

Technical Assistance :

• Prior to the investment a study was conducted on the optimisation of the power generation of the company as a €30,000 call-off contract funded by the UK under the Industrial Energy Audit Framework(€2 million).

• The Bank worked with the client over two years to prepare this project, spending time on site with both energy and business management – resulting in one of the largest industrial energy efficiency loans.

• Energy Management Training currently under preparation to be supported by a €30,000 TC from Canada.

• Total grant funding provided by donors for the this project was leveraged by over x 4,000.

SEI CASE STUDIESSEI CASE STUDIESCASE 3: ODESSA DISTRICT HEATING PROJECT, UKRAINECASE 3: ODESSA DISTRICT HEATING PROJECT, UKRAINE

Odessa District Heating project in Ukraine: €22 million loan.

Objective: Reduction of natural gas consumption, improvement of the quality of service, and introduction of metering.

Measures: Rehabilitation and modernisation of existing boiler houses, replacement of leaking pipes, introduction of individual metered heating sub-stations, energy efficiency investments in residential buildings and installation of small co-generation plants.

Impact: Investments and institutional reforms are expected to achieve significant cost savings and greater efficiency with associated CO2 emission reduction estimated at 26,000ton/year.

SEI Technical Assistance:Technical Feasibility Study: €229,000 financed by the UK

SEI CASE STUDIESSEI CASE STUDIESCASE 4: SLOVAK SUSTAINABLE ENERGY FINANCING FACILITYCASE 4: SLOVAK SUSTAINABLE ENERGY FINANCING FACILITY

Slovak Credit Line: €60 million of EBRD loans to local banks for on-lending to enterprises and housing associations to make better use of their energy resources. The facility is designed as a one-stop-shop proving clients with access to commercial loans, free technical assistance and a grant upon successful verification of project completion.

Eligible projects include− residential energy efficiency, addressing housing associations− energy efficiency investments in industry− renewable energy projects

Results • Financially intermediated through four participating banks • Portfolio of projects €37 million with pipeline of €20 million (under preparation) • 240 residential energy efficiency projects• 15 industrial energy efficiency and/or renewable energy projects

Estimated Impact• ~11,000 standard flats refurbished and 30,000 people benefiting from lower energy bills and better thermal

comfort;• Average estimated energy savings of 30%. Savings equivalent of providing an extra month of pension per year • 61,000 MWh per year of primary energy savings and 15,000 tCO2 emission reductions per year;

Grant Support from Bohunice International Decommissioning and Support Fund (BIDSF) of €15 million financing technical assistance (€2.5 million), incentives to sub-borrowers (€ 10 million) and participating local banks (€2.5 million).

SEI CASE STUDIESSEI CASE STUDIESCASE 5: KAZAKHSTAN SEI POLICY DIALOGUECASE 5: KAZAKHSTAN SEI POLICY DIALOGUE

In June 2008, a Sustainable Energy Action Plan (SEAP) for Kazakhstan was signed between the Bank and the Kazakh Government.

Objective: Assist Government of Kazakhstan in reducing energy intensity of Kazakh economy by:improving framework of energy legislation and regulation; and

investment in power generation, T&D, industrial energy efficiency and renewable energy.

SEAP Priority Activities include: Draft laws review and improvements

Strengthening of regulatory agencies and specialized bodies

Tariff levels, metering and methodology improvements

Focusing on priority investments and financings.

Expected outcomes:

Link top priority policy objectives of the Government of Kazakhstan to EBRD financing instruments.

Creating an enabling environment in which related investments can achieve maximum impact.