Sustainable Energy and Human Development in Europe and the CIS · 2018. 6. 20. · Foreword This...

Sustainable Energy and Human Development in

Europe and the CIS

U N I T E D N A T I O N S D E V E L O P M E N T P R O G R A M M E

Empowered lives.Resilient nations.

UNDP Europe and the CISBratislava Regional CentreGrosslingova 35811 09 BratislavaSlovak RepublicTel.: +421 2 5933 7111Fax: +421 2 5933 7450http://europeandcis.undp.org


Sustainable Energy and Human Development

in Europe and the CIS

UNDP partners with people at all levels of society to help build nations that can with-stand crisis, and drive and sustain the kind of growth that improves the quality of lifefor everyone. On the ground in more than 170 countries and territories, we offer globalperspective and local insight to help empower lives and build resilient nations.

United Nations Development Programme304 East 45th StreetNew York, NY 10017 USAwww.undp.org

May 2014

Copyright © United Nations Development Programme. All rights reserved

This publication does not necessarily reflect the official views or policies of theUnited Nations Development Programme, nor do the boundaries and namesshown on maps imply official endorsement by the United Nations.

UNDP Authors: Martin Krause, John O’Brien, Marina Olshanskaya, StamatiosChristopoulos

Other Authors: Benjamin Bartle, Aleksandra Novikova, Giovanna Christo andSusan Legro

UNDP reviewers and contributors: Benoit Lebot, Daniela Carrington, ChristophHenrich, Stephen Gitonga

External reviewers: Wilson Rickerson, Mihai Tomescu and Anca-Diana Barbu

Citation: United Nations Development Programme (2014), Sustainable Energyand Human Development in ECIS. Bratislava: UNDP BRC

ISBN: 978-92-95092-86-0

Editor: Tara Bray

Photo Credits: UNDP in Bosnia and Herzegovina, UNDP in FYR of Macedonia,UNDP in Kazakhstan and UNDP in Armenia. Available on Flickr Photo Gallery,UNDP in Europe and the CIS.

Design: Valeur, s. r. o.

Acknowledgments: We are indebted to many people for their contributions to this publication,in particular our environment and energy colleagues from the UNDP country offices in the Europeand CIS region and the Czech-UNDP Trust Fund.

2 S U S TA I N A B L E E N E R G Y A N D H U MA N D E V E LO PM E N T I N E U R O P E A N D T H E C I S


Table of Contents

Foreword. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

List of Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

1. Energy Access. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

1.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151.2 Defining Energy Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151.3 The Benefits of Energy Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151.4 Access to modern energy services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161.5 Availability and Reliability of Grid-connected Electricity . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

1.5.1 Central Asia (Tajikistan and Kyrgyzstan) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171.5.2 Western Balkans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171.5.3 Western CIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181.5.4 Caucasus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

1.6 Consequences of Unreliable Power. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191.7 Heating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201.8 Energy Poverty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221.9 Energy Poverty in Tajikistan and Kyrgyzstan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261.10 Energy Poverty in Russia and Ukraine. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271.11 Energy Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281.12 Ageing Energy Supply Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301.13 Energy Supply Mix Vulnerability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301.14 Energy Insecurity and Hydropower. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301.15 The Future: Addressing Barriers to Energy Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321.16 Tracking Access: Challenges in Defining and Measuring Access to Energy . . . . . . . . . . . 321.17 Summary of Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

2 Energy Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

2.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352.2 Defining Energy Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352.3 Recent trends in energy efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

2.3.1 Country-level energy efficiency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352.3.2 Energy efficiency potential at the country level . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

2.4 Energy Efficiency at the Sector Level: Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392.4.1 Residential buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392.4.2 Commercial and public buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

2.5 Policy Environment for Promoting Energy Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432.5.1 Policy framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

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2.5.2 Policy landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 452.5.3 Policy implementation and enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 452.5.4 Tariff reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

2.6 Financing Energy Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 472.7 Energy Efficiency and Human Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

2.7.1 Energy efficiency as a factor of economic growth. . . . . . . . . . . . . . . . . . . . . . . . . . . 482.7.2 Energy efficiency and fiscal gains from removing energy subsidies . . . . . . . . . . . 492.7.3 Energy efficiency and energy supply security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 492.7.4 Energy efficiency and the environment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 512.7.5 Energy efficiency and health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 512.7.6 Energy efficiency and education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

2.8 Tracking Energy Efficiency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522.9 Summary of Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

3. Renewable Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

3.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 553.2 Defining Renewable Energy Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 553.3 Benefits of RES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 563.4 Renewable Energy in the ECIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 563.5 Deployed RES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

3.5.1 RE as a component of Total Primary Energy Supply . . . . . . . . . . . . . . . . . . . . . . . . . 593.5.2 Sub-Regional Use of RES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 603.5.3 Renewable energy as a share of installed electricity output and capacity . . . . . 603.5.4 RES as a share of heat production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 633.5.5 Absence of RES diversification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

3.6 Potential for RES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 633.7 Policy, Financial and Institutional Landscape for RES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

3.7.1 High financing costs for RE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 663.7.2 The role of public instruments in reducing financing costs . . . . . . . . . . . . . . . . . . 663.7.3 Financial Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 683.7.4 Financial De-risking Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 693.7.5 Policy De-risking Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

3.8 RES Deployment and Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 713.8.1 Compound Annual Growth Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

3.9 Barriers and Risks to RES Investment and Deployment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 733.10 Overcoming Barriers, De-risking Policies and Scaling-up RE . . . . . . . . . . . . . . . . . . . . . . . . 763.11 Tracking Renewable Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 803.12 Summary of Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Annexes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Reference List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83


Foreword

This year marks the beginning of the Sustainable Energy for All (SE4ALL) decade.The UN Secretary General’s SE4ALL initiative was launched in 2011 and aims toachieve three main objectives by 2030: ensuring universal access to modernenergy services, doubling the share of renewable energy in the global energymix, and doubling the rate of improvement in energy efficiency. As a multi-stakeholder partnership the SE4ALL initiative encourages governments, the pri-vate sector, financial institutions and international organisations to work to-gether in mobilising political will and technical and financial resources. Scalingup action on sustainable energy will generate significant development divi-dends such as economic growth, expanded social equity and a cleaner environ-ment. More than 83 countries have already joined the SE4ALL initiative, six ofwhich are from Eastern Europe and Central Asia.

Many of the energy challenges in Europe and the Commonwealth of Independent States (ECIS) are similar to those inother regions, yet others are specifically related to the climatic, economic, environmental and political circumstancesin the region. This publication sheds light on those regional issues associated with energy efficiency, renewable energy,and energy access. It also highlights the human, economic, social and environmental dimensions of sustainable energy.

The ECIS region is blessed with almost universal household electrification (99.4%). However, the ageing energy supplyinfrastructure, a lack of supply diversification and increasing tariffs expose more and more people to power cuts and highelectricity and gas bills. This situation is particularly acute during the cold winter months, and disproportionately affectspoor and rural populations. Some are switching back to solid fuels for cooking and heating, and others to electricity gen-eration via off-grid diesel generators. Access to affordable and reliable energy is a key determinant of socio-economicdevelopment in the region.

Although the region has tremendous untapped potential for almost all forms of sustainable energy, so far renewableenergy sources (other than hydropower) account for only 1.38% of energy supply. However, the region has shown a pos-itive trend in recent years in terms of adopting sustainable energy technologies, for example the generating capacityof solar PV and wind power plants increased by 2.5 GW from 2005 to 2012.

Many of the countries in the region have high carbon footprints due to a legacy of energy intensity and energy in-efficiency from industries and buildings constructed during the past five decades. Investments in energy efficiencyoften present win-win solutions; they can save energy, thereby concurrently reducing both costs and greenhouse gasemissions. In addition, energy efficiency increases the disposable income of families, which can make a difference forpoverty-affected households.

UNDP works with many partners in the ECIS region to promote sustainable energy solutions. Sustainable energy andhuman development are closely connected, and it is my hope that this report will make a significant contribution to ourunderstanding of specific energy-related challenges, and will guide subsequent action to enhance sustainable energydeployment and improve human development in the region.


Cihan SultanoğluUNDP Assistant Administrator and Director,

Regional Bureau for Europe and the Commonwealth of Independent States

List of Acronyms

BiH Bosnia and Herzegovina

CA Central Asia

CAGR Component Annual Growth Rate

CAU Caucasus

CHP Combined Heat and Power

EEA European Environment Agency

ECIS Europe and Commonwealth of Independent States

EU European Union

FIT Feed-in Tariff

FiP Feed-in Premium

FYROM Former Yugoslav Republic of Macedonia

GDP Gross Domestic Product

GEF Global Environment Facility

GHG Greenhouse Gas

GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit (German Society for Inter-

national Cooperation)

GTF Global Tracking Framework

GW Gigawatt

IEA International Energy Agency

IFAD International Fund for Agricultural Development

IPCC Intergovernmental Panel on Climate Change

IRENA International Renewable Energy Agency

LAC Latin American and the Caribbean

MRET Mandatory Renewable Energy Target

MS Member States

MTCE Million Tons of Coal Equivalent

MW Megawatt

MWh Megawatt hour

ODA Official Development Assistance

OECD Organisation for Economic Co-operation and Development

OPEC Organisation of the Petroleum Exporting Countries

RE Renewable Energy

REEEP Renewable Energy and Energy Efficiency Partnership

RES Renewable Energy Sources

RF Russian Federation


RoI Return on Investment

SE4ALL Sustainable Energy for All

SME Small and Medium Enterprises

SPV Solar Photo Voltaic

TFEC Total Final Energy Consumption

TJ TeraJoule

TPES Total Primary Energy Supply

UN United Nations

UNECE United Nations Economic Commission for Europe

UNDP BRC United Nations Development Programme Bratislava Regional Centre

UNMIK United Nations Interim Administration Mission in Kosovo

WB World Bank

WBs Western Balkans

WBT Western Balkans and Turkey

WCIS Western Commonwealth of Independent States

WEC World Energy Council

WHO Wold Health Organization

WWF World Wildlife Fund


Energy is central to human development. It ac-celerates social progress and enhances pro-ductivity. Without the provision of and access toclean, reliable, and affordable energy services,other economic and social development goalscannot be achieved. Energy directly affects peo-ple, communities and countries in terms of eco-nomic growth, health, security, environment,education, and employment. Although mostcountries in Europe and the CIS1 provide ac-cess to the electricity grid and gas distributionnetworks for most citizens and businesses, thechallenges they face related to sustainability, ef-ficiency and reliability of modern energy serv-ices are complex. The challenges associatedwith sustainable energy are not primarily aboutphysical access to the electricity grid or gas dis-tribution network. They are mostly related tothe inefficient use of energy, frequent powercuts, increasing energy costs, sustainable andaffordable heating in winter, and the slow up-take of renewable energy.

The past two decades have produced manychanges in how countries in the ECIS regionuse energy. At present, some export largequantities of fossil fuels and boast some of theworld’s highest rates of energy intensity; othersstruggle to provide reliable and affordable en-ergy to their own citizens. Many of the ECIScountries have a legacy of energy intensity andenergy inefficiency. In some of them energyintensity is as much as three times higher thanthe EU average. Energy losses due to old infra-structure and dilapidated networks are signif-icant. Numerous market barriers, often com-bined with subsidised energy prices, pose areal challenge for promoting renewable and

efficient energy technologies in ECIS countries.Lack of access to basic energy services and fre-quent disruption of power supply are of par-ticular concern in Central Asia and the SouthCaucasus.

This publication provides an overview of keychallenges and developments related to re-newable energy, energy efficiency and energyaccess in the ECIS region. The analysis pre-sented here does not attempt to be a compre-hensive exploration of all energy sector issues;instead it focuses on analysing trends and ex-ploring opportunities related to the economic,social and environmental aspects of sustain-able energy. It is divided into three chapters,each discussing the status, challenges and po-tential for energy access, energy efficiency andrenewable energy.

Energy Access: Although near-universal elec-trification exists in the ECIS region, significantchallenges remain, such as intermittent powersupply, energy poverty, energy security and areversal to the use of solid fuels for cookingand heating. Whilst differences between coun-tries necessitate country-specific approaches,several concurrent energy access themes standout. The most pressing issue in the region isprobably the need to address insufficient accessand supply interruptions in order to rectify thenegative socio-economic and environmentalconsequences, which present major obstaclesto economic development and overall sustain-ability in some countries.

Secondly, energy sector reforms, undertakensuccessfully in some transition economies, are


1 For the purpose of this report, the ECIS region consists of: the Russian Federation, Ukraine, Moldova, Belarus, Kaza-khstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan, Armenia, Georgia, Azerbaijan, Turkey, Albania, Serbia,the Former Yugoslav Republic of Macedonia, Montenegro, Bosnia and Herzegovina and Croatia.

Introduction

essential to reconcile decades of subsidised en-ergy tariffs and distorted energy prices, therebyreleasing money for investments in energy sup-ply infrastructure. At the same time, as energysector reforms have often been suggested as asolution to the economic inefficiencies of sub-sidised energy tariffs, a number of organisa-tions such as the IMF and the World Bank havesupported governments with the removal ofenergy subsidies. The issue is extremely com-plex and not easy to resolve. Some progresshas been made, however large fossil fuel subsi-dies remain a significant barrier to greater in-vestments in energy efficiency and renewableenergy. Decision-makers face the dilemma ofhow to deal with energy subsidies and, like thepoliticians, are concerned that taking unpopu-lar decisions may provoke social unrest and im-posing unpopular energy price hikes may gen-erate political discontent among the formerbeneficiaries of energy subsidies. Consequently,energy sector reforms in many transitioneconomies are considerably restricted.

Thirdly, increases in energy tariffs threaten to in-tensify energy poverty in the region and tar-geted social assistance will be required to en-sure that the poorest do not slip through thesocial safety net.

Lastly, programmes targeting rural and isolatedhouseholds across the region should be consid-ered a priority by SE4ALL development partners.

Tracking the progress made in addressing theabove issues will require new methods and in-dicators and will necessitate the collection of re-liable primary data. Furthermore, building thecapacity required for tracking progress towardsSE4ALL targets will strengthen the ability ofgovernments to understand and address bothenergy and development issues.

The chapter on energy access examines avail-able data on energy access in the ECIS regionand provides an insight into the current chal-lenges, their possible solutions, and methodsfor tracking progress towards energy access.

The three main challenges to achieving sus-tainable, reliable and affordable energy accessin the region are also discussed: (1) remote, off-grid locations (2) on-grid access with limited orintermittent supply due to the poor conditionof infrastructure or fuel supply problems; and(3) affordability issues. For certain countriesthese issues are closely linked to the additionalchallenge of energy security. The chapter closesby suggesting additional, regionally importanttracking methods. It proposes the integration oftracking indicators that reflect the special con-ditions of the region, including power supplyreliability, expanding the scope of tracking fromhouseholds to social institutions and productiveuses of energy in the medium term.

Energy Efficiency: In the ECIS region, energyefficiency is an essential component of ad-dressing current energy challenges. Many coun-tries use several times as much per unit of out-put energy as OECD countries, while the energyconsumption per capita and quality of energyservices is much lower. Long-term patterns ofenergy use in the built environment, trans-portation infrastructure, industry, and agricul-ture, hinder the penetration of energy efficiencytechnologies and practices, resulting in soar-ing energy demands. In most cases, the energyproduction and distribution infrastructureneeds major investment to provide better effi-ciency, coverage and quality of services.

Over the last two decades, primary energy in-tensity per unit of GDP produced has fallen in allECIS countries. However, in the majority ofcountries in Central Asia and other CIS coun-tries, primary energy intensity is still more thandouble EU-27 levels. This relatively high energyintensity translates into a large potential for en-ergy savings and associated economic, socialand environmental gains.

By 2010, the building sector was the biggestconsumer of final energy and electricity, withspace and water heating dominating energyconsumption. Unlike other regions the needfor sustainable heating is a unique challenge in


ECIS countries because it concerns every coun-try and every citizen. The demand for electricalappliances and equipment in the building sec-tor, especially in commerce and administration,poses a rapidly growing challenge. Energy effi-cient construction and efficient thermal retro-fitting of buildings represent the highest po-tential for energy savings. The most attractiveoptions economically are technologies that useelectricity efficiently, such as lights, appliances,electronics, and equipment.

By 2010, about half the countries of the ECIS re-gion had adopted laws on energy efficiencyand set national energy efficiency targets. Inorder to achieve their targets, many countriesapply regulatory and financial incentives, in linewith international practice. Although the coun-tries have advanced in the design and adoptionof energy efficiency policies, comprehensiveand coherent policy packages, which address arange of complex barriers, have yet to be for-mulated. Available evidence suggests that theimplementation and enforcement of energy ef-ficiency policy represents a challenge for the re-gion, which is why further capacity building re-mains an important task.

In spite of the recent energy tariff increasesthroughout the ECIS, energy prices are stilllower than the cost recovery threshold. Energysubsidies misrepresent the true cost of energyfor end-users and represent high fiscal and en-vironmental burdens. Removing energy subsi-dies and redirecting them to energy efficiencypolicies and social protection programmes maynot only raise energy efficiency and help copewith energy poverty, but it can also result innet gains for the public budget.

Energy efficiency attracted only 17% of all energy-related financing during 2006-2012; 83% of fi-nancing was invested in generation and pro-duction of fossil fuels and renewable energy, inspite of the fact that energy efficiency invest-ments are much more cost effective. The lowshare of financing for energy efficiency is par-tially explained by the difficulty of providing

such financing to disaggregated small-scaleenergy efficiency projects. More assistance willbe required to develop standardised method-ologies for making energy efficiency projectsidentifiable, replicable, and bankable; equallymonitoring, reporting, and verification proce-dures will need to be established in order toscale up these projects and make them com-mercially attractive for implementers.

Whereas sectoral energy intensity is high, percapita energy consumption is relatively lowcompared to the OECD or EU-27 countries. Aseconomies develop and inequalities rise, re-ducing energy demand through energy effi-ciency technologies and practices becomes acost-effective solution to securing the abilityto meet growing energy demand and to ad-dressing energy poverty.

Low efficiency in the building sector causes ad-ditional demand for heating and electrical en-ergy. When these are constrained, householdstend to switch to non-commercial, traditionalfuels. Wood collection by rural communitiescontributes to deforestation, biodiversity loss,and soil degradation. Outdated technologies,used for the combustion of non-commercialenergy carriers, lead to indoor air pollution andhigh greenhouse gas emissions.

Uncomfortable thermal conditions in homes,combined with low quality lighting, contributeto higher medical bills and productivity loss.Problems at health and educational facilities,due to non-existent or low quality heating andelectricity supply, undermine the human po-tential and ultimately contribute to lowerlabour productivity.

Accurate tracking of energy efficiency trendsat national, sector, end-use, and technology lev-els is essential to the design, evaluation, and op-timisation of energy efficiency policies. This iswhy more effort is needed to track and analysesectoral end-use statistics, to evaluate existingenergy efficiency policies, and to track andanalyse energy efficiency finance.


The energy efficiency chapter begins with anassessment of recent energy intensity trendsin the region and goes on to describe energy ef-ficiency issues in selected sectors. The chapteralso tracks the policy environment for energyefficiency and provides a snapshot of energy ef-ficiency finance. It examines the link betweenenergy efficiency and social and economic de-velopment in the ECIS region and concludesby reviewing the challenges in tracking energyefficiency and identifying priority areas for at-tention.

Renewable Energy: Global investment in re-newable energy suffers from severe regionalimbalances. The ECIS region is no exception. Itis estimated that in 2010 approximately 96.2%of total primary energy supply in the regioncame from fossil fuels, 16.2% higher than theglobal average. Despite the fact that the ECISregion exhibits excellent potential and pro-motional schemes for solar, wind, biomass en-ergy, small hydropower (SHP) and geothermalplants, the vast majority of these resources re-main untapped, impeded by a range of infor-mational, technical, institutional and financialbarriers.

An analysis of the renewable energy situation inthe ECIS clearly shows that despite the excellentgrowth potential, actual deployment remainscomparatively low and the energy mix is dom-inated by fossil fuels (coal, oil, and natural gas).Although some countries in the region havebegun ambitious journeys to expand their RESin the near future, a number of existing barriersprevent investments from reaching their fullpotential. In particular, high initial investmentcosts for renewable energy projects and a lackof competitiveness when compared to fossilfuels remain major limitations to scaling up theuse of RES and engaging the private sector. Anumber of key conclusions have emerged fromthis analysis.

Higher financing costs reflect a number of per-ceived or actual informational, technical, regu-latory, financial and administrative barriers and

their associated investment risks in the region.Whilst there is evidence that favourable RESpromotion schemes have led to increased de-ployment, the correlation is not always so clear.Experience has shown that investment barri-ers and risks must first be targeted with policyand financial de-risking instruments before fi-nancial incentive instrument are selected to tar-get the remaining incremental cost necessaryto make each technology price competitive.

High levels of fossil fuel subsidies (over 5% ofGDP in some countries in Central Asia and ashigh as 11% in the Western Balkans) distortmarket price signals and reduce the competi-tiveness of RES over fossil fuels. In order toachieve the goals of SE4ALL by 2030 the com-petitiveness of RE technology must grow un-hindered against their fossil fuel counterparts.This will require the reduction and the gradualphasing out of fossil fuel subsidies, not only inthis region but globally.

The analysis revealed an absence of diversifi-cation in RES, with hydropower accounting forsome 63.9% of TPES and LHP representingover 93% of electricity capacity from RES. Tosuccessfully increase RES diversification em-phasis will need to be placed on promotingand supporting other forms of renewable en-ergy (solar PV, wind, biomass, geothermal) andin helping to drive down the associated costsand risk factors of each technology. This can bereinforced through long-term commitmentsto specific renewable energy targets and de-tailed renewable energy roadmaps, and is anindication to investors that governments arecommitted to pursuing a strategy of increasingthe share of RES.

The findings of the analysis in the renewableenergy chapter reiterate the need for selectedpolicy and financial de-risking instruments toattract private investment. Access to energymarkets needs to be simple and transparent.Improvements can be made in the provisionof qualified and detailed information aboutRES opportunities and commercial banks, in


particular, the need to be better educatedabout the risks and returns associated withfinancing renewable energy projects. The en-hanced engagement of the banking sector iscritical in increasing investment in RES. How-ever, banks must first have a clear under-standing of the investment risks involved inorder to be in a better position to finance re-newable energy projects.

Public policy instruments can play an importantrole in de-risking RE projects and help to en-courage private sector investment in RES. Ulti-mately, it is the private sector that will drivenew investment in renewable energy as publicand international donor funding on its own isnot enough to provide the level of investmentthat is needed. This means that RE investmentde-risking must be at the core of any strategythat promotes renewable energy.

In order to understand the unique role RES canplay in achieving the SE4ALL goals, the renew-able energy chapter provides a conciseoverview of RE in the region. Beginning with thecurrent state of deployed RES, the chapter thenexamines the RES market and the supporting fi-nancial, policy and institutional environmentin the region. It quickly becomes clear that themajority of RES technical potential remains un-tapped, hindered by financial, technical andpolitical barriers. Finally, the chapter exploressome of the ways in which these barriers can beovercome and how the investment environ-ment can be de-risked to promote investmentand encourage the development of RES. Thechapter closes with key findings and examinesthe methodological challenges that exist intracking the progress made towards achievingthe SE4ALL goals moving forward.

UNDP has been and is continuing to supportcomprehensive energy sector transformationprogrammes in the ECIS region, accelerating

the market adoption of clean technologieswhich includes measures such as: building ca-pacities in local financial institutions for invest-ing in renewable energy and energy efficiency;improving policy, legal and regulatory frame-works; raising awareness and building institu-tional capacities; and piloting site-specific tech-nical solutions. In Armenia, foreign directinvestment has been secured to restore a mu-nicipal district heating system; in Bulgaria, anew financial credit facility has been estab-lished offering affordable energy efficiencyloans to homeowners; and in Croatia and Kaza-khstan, UNDP’s pilot investments have beenconsiderably scaled up through state-fundedprogrammes.

By addressing national and regional energychallenges in Europe and the CIS, UNDP is con-tributing to the UN Sustainable Energy for All(SE4ALL) initiative, and the achievement of itsthree sustainable energy goals by 2030: ensur-ing universal access to modern energy services,doubling the share of renewable energy in theglobal energy mix and doubling the rate of im-provement in energy efficiency. UNDP supportstransformational change, which lies at the heartof SE4ALL and the sustainable developmentagenda outlined in the outcome document2 ofthe UN Conference on Sustainable Develop-ment (Rio+20).

Through UNDP’s work over the past twodecades it has become clear that energy is notmerely a topic for specialised engineers; itneeds to be addressed as part of national strate-gies on economic growth, social protection andclimate risk management. Comprehensive andambitious transformations will be required toachieve the SE4ALL targets. Countries will needto mobilise significant resources from publicand private sources for a wide range of invest-ments. The scale and complexity of the tasksahead will require strong political commitment


2 The Future We Want: Outcome document adopted at Rio+20 available at: http://www.un.org/en/sustainablefuture/

and the political and financial risks associatedwith transformations in the energy sector willneed to be identified and addressed.

In order to attract and sustain both large- andsmall-scale investments and ensure a coherentoverall approach to energy development, afavourable environment of policies, capacities,institutional frameworks and financing, at thenational and local level, will need to be created.A promising approach, that has already yieldedconcrete results, is to remove barriers to facili-

tate public and private investments in cleanand sustainable energy solutions. Some ofthese results are documented in the third vol-ume of UNDP RBEC’s success stories “Empow-ering Lives, Building Resilience”. UNDP, togetherwith many other partners, supports policy andregulatory reforms that level the playing fieldand lower the investment risks associated withclean energy. UNDP also helps build the capac-ity of private and public companies and insti-tutions to implement policies and to designand scale-up their investment programmes.


1. Energy Access

1.1 Overview

The SE4ALL initiative has the ambitious targetof universal access to modern energy services,which includes access to electricity and moderncooking and heating solutions for all by 2030(Banerjee, 2013).

The ECIS region has almost universal householdelectrification. However, electrification does nottell the entire story. Access to reliable and sus-tainable energy remains a challenge in certaincountries, areas and populations and poses chal-lenges for food security, economic development,human health and poverty reduction, particu-larly in Central Asia and the far eastern parts ofRussia. The three main challenges to achievingsustainable, reliable and affordable energy ac-cess in the region are: (1) remote, off-grid loca-tions (2) on-grid access with limited or intermit-tent supply due to poor infrastructure or fuelsupply problems and (3) affordability issues.These issues are closely linked to additional prob-lems: energy security and energy poverty.

1.2 Defining Energy Access

Energy access is defined by the International En-ergy Agency (IEA) as “a household having reli-able and affordable access to clean cooking fa-cilities, a first connection to electricity (definedas a minimum level of electricity consumption)and then an increasing level of electricity con-sumption over time” (IEA, 2013). Although en-ergy refers to all fuel types as well as electricity,access to electricity is defined by the WorldBank as the percentage of households with anelectricity connection, or the electrification rate(World Bank, 2013).3 This information is usually

obtained from household and other demo-graphic surveys. Unfortunately, these indica-tors often fail to capture detailed informationon the quality and quantity of electricity supply.The quality of electricity supply can be definedas the fitness of electrical power supplied toconsumer devices (voltage and fluctuations) aswell as continuity of supply. Intermittent and in-sufficient access to energy is a more pressing is-sue in the region, more so than traditional en-ergy poverty and has important outcomes forsocio-economic development and environ-mental sustainability in the region.

The level of access to modern and clean cook-ing fuels, as defined by the 2013 Global Track-ing Framework for SE4All, is determined by theprimary cooking fuel used in each household.4

Solid fuels that do not fall within this designa-tion comprise wood, charcoal, agriculturalresidues, animal dung, and coal. Energy povertyis traditionally defined as insufficient access toelectricity and/or dependency on traditionalfuels, meaning insufficient access to modernenergy services, which include electricity, cleancooking facilities5 and affordable heating.6

1.3 The Benefits of Energy Access

Access to electricity and modern forms of energyhave become important human developmenttools and enable sustainable development. Thelife sustaining aspects of energy access facilitatethe provision of adequate food, shelter, water,sanitation, medical care, education, and access toinformation. Electricity supports fundamentalhuman activities including lighting, communi-cation, transport, commerce, manufacturing, andindustry. Access to energy services such as space

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S U S TA I N A B L E E N E R G Y A N D H U MA N D E V E LO PM E N T I N E U R O P E A N D T H E C I S

3 Sources for electrification rates include the World Bank Global Electrification Database and data from the InternationalEnergy Agency (IEA), International Renewable Energy Agency (IRENA) and Renewable Energy Policy Network (REN21).

4 The World Health Organization’s indoor air health impacts database accessed for data on cooking fuel access for thisreport: http://www.who.int/indoorair/health_impacts/he_database/en/

5 Clean cooking facilities are defined by the IEA as fuels and stoves that do not cause indoor air pollution in houses.6 Energy poverty is also used by the SEA4ALL initiative to cover lack of access to affordable fuels. It should be noted that

the European Commission uses the term “fuel poverty” in these circumstances.

heating provided by electricity and modernforms of energy are critical aspects for human de-velopment. Furthermore, the productive uses ofenergy for entrepreneurial activities are essentialfor businesses, economic development and com-munity service provision. In contrast, insufficientaccess to electricity and modern forms of en-ergy (non-solid fuels gas) are a hindrance to sus-tainable development and are particularly harm-ful to poor populations who may have limitedaccess to affordable forms of modern energy. In-sufficient access to energy has a harmful impacton women who are usually responsible for cook-ing and children who need adequate access foreducation and healthcare.

As a core deliverable of the SE4ALL initiative,universal access to electricity and gaseous fuelsfor cooking provides opportunities to improvelivelihoods as well as providing many environ-mental benefits. Investing in energy access canprovide improvements to public health andproductivity whilst reducing harmful green-house gas emissions and the reliance on un-sustainable energy sources. Historical rural elec-trification regimes across the region havebrought a multitude of social and economicdevelopment benefits and have reduced thereliance on traditional fuels. Universal accessto clean energy is an important human de-velopment tool enabling inclusive develop-ment, poverty reduction, business develop-ment, reducing the gap between the rich andthe poor whilst reducing greenhouse gas (GHG)emissions that contribute to climate change.

1.4 Access to modern energyservices

ECIS countries have the advantage of nearlyuniversal access to the power grid, with a rate ofaccess to electricity (99.4%) that is unmatchedby any region, other than North America (World

Bank, 2013). However, interruptions or short-ages in electricity supply, insufficient access toclean and efficient cooking facilities and af-fordable heating restrict access to energy inparticular groups, populations and countries. Inaddition, the 1990s war in the countries of theformer Yugoslavia - Croatia, Kosovo7, Bosniaand Herzegovina (BiH), and Serbia resulted indamage to the sub-regional energy infrastruc-ture, leaving many people who had previouslybeen connected to the grid without access. Asa result, instances of energy poverty are pres-ent across the region. Energy poverty severelyimpacts the potential for economic growth,negatively affecting people’s livelihoods andthe quality of social services.

The number of people without access and withintermittent supply has the potential to grow ifinfrastructure is not repaired or replaced and ifthe electricity supply is not increased (Renew-able Energy and Energy Efficiency Partnership(REEEP), 2013).

1.5 Availability and reliabilityof grid-connected electricity

Where grid access does exist, in some coun-tries and populations, insufficient supply anddeteriorating transmission infrastructure effec-tively break the link between grid access and re-liable supply in Kosovo, Moldova, Albania andthe Central Asian, Caucasus and Western CISsub-regions. Many countries in the region fail totransmit, produce or import enough electricityto meet peak demand during winter months.Access to reliable energy services, such as anuninterrupted electricity supply and access toelectricity, heat and gas networks is limited inrural and remote areas, especially in Kosovo,Moldova, Albania, Russia and across CentralAsia. As a result, rural and remote populationsare becoming increasingly reliant on solid fuels

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7 Hereinafter referred to in the context of UN Security Council Resolution 1244 (1999)

for thermal use (cooking and heating) and elec-tricity generation (via off-grid generators).

Turning to solid fuels to compensate for reducedaccess to electricity leads to indoor and outdoorair pollution, poor health, through respiratory ill-ness related to smoke inhalation, and numerousnegative environmental consequences such asdeforestation, biodiversity loss, soil degradationand greenhouse gas emissions. In addition, rely-ing on energy imports puts populations at themercy of the supply and transmission capacity ofother countries and of increases in energy prices.

1.5.1 Central Asia(Tajikistan and Kyrgyzstan)

These countries face most difficulties in terms ofaccess to energy determined by the availabilityand reliability of the power supply. The unsea-sonably low rainfall and reduced hydroelectricsupply capacity during Central Asia’s winter of2007-2008 caused severe reductions in Tajikistan’sand Kyrgyzstan’s energy supply, and resulted in asevere and compounding energy/water crisis. InTajikistan, the crisis left over one million peoplewithout access to heat and electricity, as well assanitation and pump-supplied water during se-vere winter conditions, the impact of which wasmost severe in rural areas (WHO, 2009). The elec-trification rate in Tajikistan is 97.3% although,alarmingly, Barqi Tojik (Tajikistan’s power utility)data indicates that despite comprising nearlythree quarters of the country’s population, ruralhouseholds during 2008-2010 accounted for only8-11% of Tajikistan’s total electricity consump-tion (see Figure 1.1). This discrepancy is partlydue to the unreliable electricity supply, and un-planned blackouts during winter months whendemand outweighs supply but may also be ex-plained by the high cost of electricity.

Figure 1.1 illustrates the declining and dispro-portionate access to electricity in different areasof Tajikistan. The trend demonstrates that un-planned outages such as supply shortages andelectricity rationing, which has become official

practice in winter, has a disproportionate effectespecially in rural areas. Rural areas only have ac-cess to electricity for around six hours a day, whilstfor other users, such as businesses, schools andhospitals who don’t have their own generators,access is reduced even further. The energy andwater access crisis in Tajikistan spread to neigh-bouring Kyrgyzstan (see Figure 1.2), with bothcountries suffering from planned and unplannedoutages due to supply shortages. As a result, bothcountries had to launch humanitarian food se-curity appeals (UNDP BRC, 2009).

The increase in frequency of power interrup-tions in Kyrgyzstan from 2006-2009 revealed aworrying and growing trend of unreliable elec-tricity supply.

The effect of climate change on acceleratingthe melt of the glaciers that feed the reservoirssupplying hydropower plants, also poses a se-rious threat to the continuity of energy supplyin Tajikistan and Kyrgyzstan (UNDP, 2009).

1.5.2 Western Balkans

Albania: In 2007, a lack of rainfall and low waterlevels for hydropower generation resulted incontinuous load-shedding across the country

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Figure 1.1: Declining access to household electricity Tajikistan 2007-2009

390

357

419

477

364

327

Aver

age

Mon

thly

Ele

ctric

ity

Cons

umpt

ion

(kW

h)

2007 2009

Source: UNDP, 2010

National Dushanbe Villages

Region

and daily outages. Average daily electricity out-ages amounted to 3.7 hours in 2007 and se-verely affected economic development. TheMinistry of Finance estimated that the 2006power shortages cost Albania 1% of its GDPgrowth (Likmeta, 2011).

1.5.3 Western CIS

Russia: A number of rural and remote regions inRussia do not have access, or have inadequateaccess to essential energy services includingelectricity, heating and gas, ordinarily availableto the majority of the population. Due to in-creasing supply capacity constraints and dete-riorating power infrastructure a number of re-gions in the central and remote north struggleto meet electricity demand or will face difficul-ties in future (IFC/GEF, 2011). A joint IFC andGEF study revealed that in the absence of in-creased access, these supply shortages willprobably affect lower income and remote pop-ulations as the issues of affordability, absentand intermittent supply, and electricity priceinflation will be compounded (IFC/GEF, 2011).

Ukraine: In the Ukraine, the persistence of non-monetary settlements in the electricity sector

has resulted in serious cash shortages in thesector causing fuel supply shortages and ‘fre-quent interruptions in electricity supply’ withsimilar occurrences in the gas and district heat-ing sectors (Dodonov, B., et al, 2004).

1.5.4 Caucasus

Azerbaijan: Azerbaijan has significantly en-hanced its installed capacity over the last fewyears. However, only 75% of installed capacity istypically available during winter because of ob-solete equipment and poor maintenance. Theavailable supply capacity does not meet peakwinter domestic demand and many areas haveelectricity for only a limited time during the day(REEEP, 2013). Furthermore, daily rationing ofelectricity continues to take place in some ruralareas and the supply system needs further im-provement to be able to deliver electricity to allthose in need. The most vulnerable areas arethe mountainous regions in the South-East,North-West, North-East and the non-occupiedregions of Karabakh. Insufficient access andsupply interruptions across the Caucasus havehad numerous negative socio-economic andenvironmental consequences presenting majorobstacles to economic development and mass

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Figure 1.2: Kyrgyzstan, share of households reporting interruptions in electricity service (2006-2009)

Source: UNDP, 2010

2006 2007 2008 2009

70%

60%

50%

40%

30%

20%

10%

0%

No interruptions Few times yearly Once a month Once a week Several times weekly Daily

deforestation in the rural areas of the TalyshMountains in Southern Azerbaijan (Noackl andHidayatov, 2007). The rural mountain zone ofSheki-Zagatal and the central areas of Mugan-Salyan and Karabakh-Mil have the country’shighest rates of extreme poverty and often lackbasic infrastructure and power supply alto-gether (IFAD, 2013).

1.6 Consequencesof Unreliable Power

The consequences of insufficient and intermit-tent electricity supply are well documentedacross the ECIS region. Insufficient electricityposes a serious threat to the provision ofpublic services and human development.

The quality of social services such as health-care and education are severely affected due tothe absence of electricity and malfunctioningheating systems. Interruptions in electricityservice delivery often mean reduced access towater, sanitation, irrigation, health and othersocial services that rely on an adequate elec-tricity supply (UNDP BRC, 2009). In Kosovo, forexample, frequent blackouts have affected chil-dren’s access to higher education and have ledto fatalities during medical procedures (UNDPKosovo, 2007). Blackouts during the winter of2007-2008 in Tajikistan resulted in a decline inthe provision of basic healthcare across thecountry (WHO, 2009).

The socio-economic consequences of limitedaccess to affordable and reliable electricity areoften more severe in less populated rural ar-eas. For many in rural areas, the absence of a re-liable electricity supply results in loss of incomeand a lack of employment opportunities. Formany vulnerable households in Tajikistan, mi-gration has become the predominant copingmechanism (UNDP BRC, 2009). Unreliable andintermittent access to electricity also poses chal-

lenges for food security in rural areas in the re-gion; this is especially true for Central Asia. Agri-culture is dependent on irrigation, and as a re-sult of intermittent and unreliable electricitysupply farmers turn to highly inefficient off-grid diesel-powered generators to power irri-gation pumps. In combination with fluctuationsin rainfall and water shortages, insufficient ac-cess to energy threatens economic develop-ment prospects in rural areas.

Although urban areas in the ECIS region havenearly 100% connectivity to the grid, they alsoface challenges related to intermittent and un-reliable energy supply, as well as hikes in energytariffs and access to affordable energy. In theUkraine, Russia and Moldova this has meantthat many poor families can no longer heat

their homes adequatelyduring winter. Poor popu-lations in the Ukraine areparticularly susceptible, as

no targeted social welfare approaches currentlyexist to protect vulnerable consumers againstplanned increases in electricity tariffs (Dodonov,B., et al, 2004).

On a regional scale, energy infrastructure andsupply also have a significant and direct bearingon the potential for sustained economic growth.An insufficient and intermittent supply of elec-tricity inhibits the productivity of households andbusinesses as well as the types of activities andbusinesses that can be sustained. The World Bankcites the unreliability of power supply as one ofthe biggest obstacles to private sector businessand economic development in Kosovo andUzbekistan (World Bank, 2013c). Moreover, theenergy-related operating costs of social infra-structure squeeze out new investments for socialand economic development. Increasing the reli-ability of supply opens up opportunities for en-terprises, which could in turn boost employmentopportunities and alleviate poverty in the region.

The environmental consequences of inadequateand unreliable electricity supply are also evidentin a number of countries. Reduced access to en-

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Insufficient electricity poses a serious threat to the provisionof public services and human development.

ergy for electricity and heating is most com-monly offset by the use of increasingly expensiveand unreliable off-grid supply, including diesel-fired generators, coal, and biomass, i.e., firewoodand dung (UNDP, 2011). These alternative off-grid solutions may address the inadequate sup-ply in the short term, however, they have seriouslong-term environmental consequences. The en-vironmental effects of solid fuel use include de-forestation, biodiversity loss, air pollution andsoil degradation. These problems are evident inTajikistan’s mountainous regions, which have lostup to 70% of their forest cover since the late1920s8 (UNDP, 2010). Wood collection by poorhouseholds in the Western Balkans has led towell-documented deforestation and biodiver-sity loss (EEA, 2010). In Moldova, the use of sun-flower stems, maize cobs and stalks, and otheragricultural waste and coal is the predominantsource of heat energy in rural households (EBRD,2008). The use of solid fuels in households alsohas a negative effect on health. Deaths from in-door air pollution are highest in Tajikistan andKyrgyzstan (516 and 418 per million a year, re-spectively) (UNDP, 2011). This reflects a corre-spondingly high number of people without ac-cess to safe cooking and heating fuels.

1.7 Heating

Unlike many developing countries and coun-tries with economies in transition in other re-gions, heat is absolutely critical to humanwell-being across the ECIS region. Due to itslocation and climatic conditions, access to af-fordable, reliable and environmentally sustain-able heating is a key socio-economic develop-ment issue. The need for sustainable heating isa key challenge in the ECIS because of low tem-peratures in the winter months. For some, it iseven a matter of life or death, as became evi-dent after the crisis in Central Asia during thewinter of 2007-2008.

Without access to reliable and affordable mod-ern and clean energy solutions, the continueduse of traditional solid fuels for cooking andheating will affect human development andenvironmental sustainability. Most householdswithout access to modern forms of energy inthe region cook and combust fuels directly inthe home with negative impacts upon humanhealth and the environment.

Although there has been a shift in the use of tra-ditional solid fuels to clean energy sources, suchas electricity, LPG, natural gas, biogas andkerosene, in recent years (WHO, 2013), approx-imately 37 million people in the ECIS still rely ontraditional solid fuels for heating and cooking(see Table 1.1).

A significant percentage (>30%) of rural popu-lations use solid fuels for cooking, heating andother energy purposes in the Western Balkansand Caucasus sub-regions (Figure 1.3). Often,populations located in remote, rural andsparsely-populated areas do not have accessto gas and district heating networks, whichcould explain the high levels of traditional solidfuel use in Tajikistan, Kyrgyzstan, BiH, Mon-tenegro, Serbia, FYROM, and Turkey.

An IEA report on transition economies globallyfound that district heating is a critical energy re-source and can often meet up to 60% of heat-ing and hot water needs (OECD/IEA, 2004). Inthe ECIS region this is particularly the case forurban areas where gas, heating and hot watersupply networks are available, although manyrural and some urban populations across the re-gion lack access to these services (UNDP, 2010).In combination with an unreliable power supplyin winter, this has led to a significant increase inalternative fuel use. For example the unreliablepower supply in Kyrgyzstan has led to an in-crease in coal consumption, whilst official sur-vey data indicates that nearly 50% of rural Tajik

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8 Saidov, M., et al. Tajikistan Forest Genetic Resource, Committee on Environmental Protection under the Governmentof Tajikistan, p 5. Dushanbe, 2013.

households rely on dung and firewood for win-ter heating (OECD/IEA, 2004). In Azerbaijan andremote populations in Russia, Ukraine and theWestern Balkans, where there is no district heat-ing or gas supply (REEEP, 2013), the main fuelused for domestic energy needs is wood.

Although district heating and gas supplynetworks are available for urban popula-tions in a number of countries in the re-gion, these networks are often old and de-teriorating, making them inefficient,unreliable and costly to maintain. In Russia,

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Region Country Use of solid fuel (% of population)

Use of Solid fuel(absolutepopulation)

CENTRAL ASIA Kazakhstan 19.0 3.228.820

Kyrgyzstan 37.3 2.068.019

Tajikistan 35.0 2.664.077

Turkmenistan 0.2 10.251

Uzbekistan 15.7 4.631.911

Sub-region Average/Total 21.4 12.603.078

WESTERN BALKANS AND TURKEY Albania N/A N/A

Croatia 12.2 523.613

Bosnia and Herzegovina 48.7 1.869.952

Kosovo N/A N/A

Montenegro 31.9 199.210

Serbia 33.5 2.410.474

FYROM 36.5 751.161

Turkey 11 8.319.012


WESTERN CIS Ukraine 4.2 1.865.929

Moldova 14.7 523.958

Russia 3.4 4.918.620

Belarus 3.4 323.447


CAUCASUS Armenia 4.4 143.537

Azerbaijan 9.8 916.001

Georgia 42 1.875.723


Region Average/Total 18.9 37.243.715

Table 1.1: Population using solid fuels in ECIS region

Source: WHO, 2013

70% of the population’s heating requirementsare met by district and local heating (DENA,2010). Although the network is extensive, it isvery old and it is estimated that 60% of thenetwork requires major repairs or replace-ment (IEA, 2009a). The resulting energy effi-ciency issues mean frequent service interrup-tions for some urban populations (DENA2010). In Ukraine, domestic energy poverty isincreasing, as evidenced by reports of lowhousehold thermal temperatures (Bouzaro. S.,et al.,2011). In BiH, district heating is available

in only 40% of urban areas and gas in only20% (World Bank, 2013b). In Kosovo, only Prishtina, Gjakova, Mitrovica and Zveçan havedistrict heating systems, which meet only 3%of total heating demand. In Armenia the dis-trict heating system completely collapsed in2005 and the population was forced to investin individual heating systems fuelled by wood,

gas and electricity. Due to the high povertyrate (35%, 2010) most families in Armenia arecurrently live with low thermal comfort levels(UNDP, 2010).

1.8 Energy Poverty

Energy poverty is frequently defined by de-velopment agencies as a spending thresholdof above 10% of household income on en-ergy services (ICPS, 2013). However, the defi-

nition of energy povertycan be even more com-plicated and takes intoaccount supply and con-sumption levels; prices;energy efficiency of

homes; and the complex phenomena of fuelstacking. Households may find themselves be-low the energy poverty line when they areunable to maintain a healthy temperaturelevel, spend a disproportionate amount oftheir budget on energy, live in insufficiently-heated homes or are in debt for residentialutility services (ICPS, 2013).

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Figure 1.3: Solid fuel use, Rural vs. Urban by Sub-region

EU Central Asia WB and Turkey Western CIS Caucasus Region

60.00

50.00

40.00

30.00

20.00

10.00

0.00

Average % of population type using solid fuels

ECIS Sub-region

Average % of Rural population using solid fuel Average % of Urban population using solid fuel

Source: Elaborated by the Authors based on WHO, 2013

Although district heating and gas supply networks areavailable for urban populations in a number of countriesin the region, these networks are often old and deteriorating,making them inefficient, unreliable and costly to maintain.

Apart from Turkmenistan, all the countries inthe region have experienced a gradual increasein communal service tariffs such as electricity,gas and water. Energy price inflation exacer-bates the problem of energy poverty as it be-comes more difficult for low income house-holds to pay their utility bills. A 2013 World Bankreport found that household spending on en-ergy in the Eastern Europe and Central Asia re-gion is nearly 5%, leaving households extremelyvulnerable to price increases in this sector(Laderchi, C. R., et al., 2013).

The report also revealed that energy price in-flation was at its highest level in 2011 at 25%or more in Moldova and around 10% or morein Albania, Kyrgyzstan, Russia, Serbia, Tajik-istan, Ukraine and Uzbekistan. Central Asiancountries (with the exception of Turkmenistanwhich has heavily subsidised primary energy)as well as Belarus, Russia, Turkey and Ukrainehave all experienced a rise in tariffs as

providers struggle to extend services to newusers and maintain existing services whilstcompensating for decades of tariff levels setbelow cost recovery levels (REEEP, 2013). In-creasing tariffs have led to greater incidenceof energy poverty especially in Tajikistan andKyrgyzstan and have the potential to furtherextenuate inequalities in Russia and Ukraine(REEEP, 2013; ICPS, 2013). The World Bank sug-gests that in many cases, targeted social ad-justment through welfare benefits would bemore cost-effective than subsidies and canoffset the energy poverty associated withprice increases (World Bank, 2013c).

The increase in energy tariffs has been mostrapid in Tajikistan, Kyrgyzstan, Kazakhstan,Turkey, Belarus, Russia, Ukraine (see Table 1.2).In these countries some 38 million people live

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Source: Elaborated by the Authors, 2014

Figure 1.4: Factors Affecting Energy Poverty

Supply interruptions,low energyefficiency

Low incomes

Rising tariffs

Country Those living belownational poverty

line:9

Energyprice

inflationrate10

Millions Popula-tion

share

Belarus 0.5 5.4% 38%

Kazakhstan 1.2 8.2% 17%

Kyrgyzstan 1.9 33.7% 30%

Russia 15.9 11.1% 25%

Tajikistan 3.7 46.7% 58%

Turkey 13.5 18.1% 21%

Ukraine 1.3 2.9% 30%

Table 1.2: Selected Vulnerability indicatorsin the Europe and CIS region

Source: UNDP, BRC 200911

9 2012 World Bank data.10 Alternatively electricity, gas, fuels, or other communal service tariffs. Data is for January-June 2009 compared to

January-June 2008.11 All data from national statistical offices unless otherwise stated (as in UNDP BRC 2009; adjusted to include most re-

cently available data).

below nationally defined poverty lines,12 whichaffects their purchasing power and access toessential energy services. The average percent-age of household income spent on energy bythe lowest income decile of the population inthe region is approximately 14% - about doublethe global average of 4-8% (Banerjee, 2013).

Higher electricity prices are associated withhigher burdens of electricity spending on house-hold budgets (see Figure 1.5); this trend suggestshouseholds find it difficult to keep their energyexpenditures in check.13 Indeed, the World Bankreport (Laderchi, C. R., et al., 2013) reveals countryevidence that energy price increases in the regionhave often resulted in households having to cutback on basic consumption, such as food andhealthcare products.

This is especially worrying for the Central Asianregion and the remote and rural areas of Russia.Official statistics (Turkmenistan and Uzbekistanexcepted) indicate that 2011 household in-comes in the Central Asia sub-region were ei-ther stagnant or in decline, while expenditureon food and utilities comprised up to two thirdsof the consumer price index (UNDP BRC, 2009).In combination with the effect of food and en-ergy price inflation trends, stagnant and de-clining household income has the real potentialto further exacerbate energy poverty in the re-gion, especially in rural and isolated areas. Thisis because these households generally havelower incomes and therefore spend a higherproportion of total income on energy, which iscompounded by low employment and a lack ofincome generating activities.

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12 The nationally defined poverty line is a threshold minimum level of income deemed adequate in a given country asdefined by that country. National estimates are based on population-weighted subgroup estimates from householdsurveys and therefore definitions of the poverty line may vary considerably among nations.

13 Reliable data is not currently available for gas and district heating as a percentage of household income for all coun-tries in the region.

Figure 1.5: Electricity Price and Electricity Share of Total Household Expenditures

0 1 2 3 4 5 6 7 8

20

18

16

14

12

10

8

6

4

2

0

Electricity as a share of total household expenditures (%)

Electricity price (US cents/kWh)

Tajikistan

UkraineKazakhstan

BelarusAzerbaijan

KyrgyzRepublic

RussianFederation

Armenia Macedonia, FYR

Albania

Turkey

Croatia

Moldova Bulgaria

Montenegro

SerbiaGeorgiaBosnia and

Herzegovina

Source: Amended from Laderchi, C. R., et al, 2013

More modest poverty impacts would be felt inthe rural areas of the Western Balkans andTurkey (UNDP BRC, 2009). However, if targetedsocial welfare assistance instruments are notemployed to counteract the combination offood price inflation and increases in energy tar-iffs, the World Bank predicts an additional5.3 million people could become poor in theECIS region (World Bank, 2011).

Subsidised energy tariffs for oil and gas alsopose a serious threat to energy sector develop-ment and reinforce social inequalities in the re-gion. Kazakstan (32.6%), Azerbaijan (35.8%),Uzbekistan (60%) and Turkmenistan (61%) havethe highest energy subsidies (average subsidyrate) in the region (IEA, 2013a). The effect of dis-torted energy prices is possibly most predomi-nant in Kyrgzstan, Turkmenistan, Uzbekistan,

and Ukraine where subsidies exceeded 5% ofGDP in 2011 (IMF, 2013). In many countrieshousehold energy consumption is subsidisedby the state budget, and the energy tariff pricesare often set below cost recovery levels. As sub-sidies are largely untargeted and inequitablethey tend to benefit the higher income popula-tion that has a higher per capita consumption ofenergy, which inadvertently reinforces social in-equalities. For example, in Belarus the richest30% of households receive 45% of total energysubsidies while the poorest 30% receive only15% (World Bank, 2011). Many countries in theregion have committed to eliminating cross sub-sidisation, tariff reforms, and energy price in-creases. In addition to appropriately-phasedprice increases and institutional reforms, tar-geted social assistance will be required to com-pensate the poorest households (IMF, 2013).

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EU (Exc. Cyprus) Central Asia Western Balkans(exc. Kosovo)

Western CIS Caucasus

12.00

11.00

10.00

9.00

8.00

7.00

6.00

5.00

4.00

3.00

2.00

1.00

0.00

Figure 1.6: Affordability of Electricity and Heat Energy at Cost Recovery in 2010, bottom incomedecile, as a percentage (%) of total household income expenditure (estimated)

Household income (%)

Region

Electricity Heating

Source: UNDP BRC, 2009

Energy poverty is a significant issue in the lowerdecile population group when compared to EUmember countries, as shown by the percentageof household income spent on electricity andheating (see Figure 1.6).

1.9 Energy Poverty in Tajikistanand Kyrgyzstan

The worst energy poverty in the region isfound in Tajikistan, where 50% of rural Tajikhouseholds rely on dung and firewood for win-ter heating and households with the lowest in-comes spend roughly 16% of income onhousehold energy needs (UNDP, 2011). Thelack of access to modern energy services is aserious hindrance to economic and social de-velopment, and must be overcome if the UNMillennium Development Goals are to beachieved (IEA-WEO, 2010).

The biggest impact of energy price inflation inthe region will be felt in Tajikistan and Kyr-gyzstan, both lower income countries andhighly dependent on energy imports. Energyprice inflation during 2010 for Tajikistan

reached an all-time high of 42%. Despite in-flation, these rates have tended to remain low,relative to other transition economies, reflect-ing the strong opposition to raising tariffs(UNDP Tajikistan, 2011).

Despite the increase in effective electricitytariffs in Kazakhstan, Uzbekistan, Kyrgyzstanand Tajikistan, these tariffs are still relativelylow when compared to Russia, Ukraine andGeorgia (Figure 1.7a). The yearly price in-creases in communal services tariffs in Tajik-istan and Kyrgyzstan (Figure 1.7b) may be es-sential to meet cost recovery targets, but theyhave a significant impact on the vulnerabilityof poor households and heighten the levels ofenergy poverty, especially for those living be-low the poverty line. In 2012, 38.3% of theTajik population, and 33.7% of the Kyrgyzwere living below the nationally indicatedpoverty line (World Bank, 2013f ). In Kyrgyzs-tan, living standard surveys indicate that theaverage household in 2009 devoted approxi-mately 10% of its income to energy purchases.This figure is almost double for Tajikistan(World Bank, 2013f ), where some 20% ofhousehold budgets in rural areas are spent

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Figure 1.7a: Effective Electricity Tariffs in theRegion

Nominal electricity tariffs per kWh, multipled by collection rates, 2007 data.

Increases in electricity, water,communal service tariffs

$0.20

$0.15

$0.10

$0.05

$0.00Tajikistan Kyrgyzstan

41%

80%

52%

8%

30%27%

Figure 1.7b: Rising Tariffs in the Region

Source: UNDP BRC, 2009 Source: UNDP BRC, 2009

2009 data is for January – September, compared to the same period

in 2008.

2007 2008 2009

Hun

gary

Geo

rgia

Russ

ia

Ukr

aine

Kaza

khst

an

Uzb

ekis

tan

Kygy

zsta

n

Tajik

ista

n

on wood for cooking and heating purposesalone (UNDP Tajikistan, 2011), which is in partdue to energy price inflation.

If energy prices increase every year at ratesthat exceed the consumer price index (CPI),the resulting energy poverty will severely af-fect the more vulnerable, lower-incomehouseholds. As a consequence, remote andrural populations will be forced to turn to tra-ditional solid fuels for their essential energyneeds. The situation will then be exacerbatedby the substandard supply of energy in theseregions. Despite the clear need to address thepertinent energy crises in Tajikistan and Kyr-gyzstan, neither country has pursued thetypes of reform, successfully introduced inother transition economies, that protect vul-nerable low- and middle-income householdsfrom the impact of high tariffs (UNDP BRC,2009). Unless measures are taken to increasethe supply and improve access in rural and re-mote areas, reforms will merely heighten en-ergy poverty, increase the use of traditionalfuels and perpetuate the negative health andenvironmental impacts.

1.10 Energy Poverty in Russia and Ukraine

Security and affordability of supply are particu-larly important issues in Russia’s Far East, north-ern regions and other isolated areas. Whilst rep-resenting a small part of Russia’s electricitymarket they cover a large geographic area. Min-imal competition exists between electricityproviders in this region as a result of the large dis-tances between towns and the lack of electricitytransmission interconnections. Consequently,these areas do not benefit from the price com-petition of electricity market liberalisation thatexists in the rest of Russia (IFC/GEF, 2011).

In Ukraine in 2011, 5.6% of households spentmore than 10% of their total income on heating.If gas rates increase to predicted levels over thenext 10 years, it is estimated that nearly 45% ofhouseholds will have to spend more than 10%of their income on communal services. The cur-rent cessation of heavy government subsidiesand subsequent hike in gas prices pose a seri-ous threat to increasing energy poverty levels inthe Ukraine (ICPS, 2013). Increases in electricity

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Figure 1.8: Trends in Household Energy and Consumer Price Index (CPI) in Kyrgyzstan and Tajikistan(2008-2010)

Perc

ent

Source: UNDP BRC, 2010

63%

41%

21% 21%

8% 7%

2008 2009 2010

Energy Prices CPI

Tajikistan: Average Annual Inflation Rate

Perc

ent

30%

22%

14%

25%

7% 8%

2008 2009 2010

Energy Prices CPI

Kyrgyzstan: Average Annual Inflation Rate

prices without appropriate reforms and tar-geted social assistance are predicted to push asignificant portion of the population into “se-vere social problems” Dodonov, B., et al. (2004).

1.11 Energy security

Energy security is a key political and eco-nomic concern for many countries in the ECISregion. Political conflicts, ageing supply infra-structure, the susceptibility of each energy sup-ply and a reliance on hydropower all pose seri-ous threats to energy security in the region.These threats are further exacerbated by thelevels of energy imports.

A number of countries in the region are heavilyreliant on fossil fuel energy imports. Many for-mer Soviet states, as well as former socialiststates in Eastern Europe, have the typical char-acteristics of an energy supply infrastructurebuilt during the socialist era, and are thus de-pendent on energy supplies, such as oil andgas, from the east, especially from Russia. Thesecountries include Armenia, Belarus, BiH, Serbia,Belarus, Georgia, FYROM and Turkey. Many neg-ative socio-economic and environmental ef-fects are associated with energy insecurity inthe region when populations are forced to in-crease their use of traditional solid fuels.

The region exhibits a high level of energy de-pendence with a majority of net importers

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14 Net energy imports are estimated as energy use minus production, both measured in oil equivalents. A negativevalue indicates that the country is a net exporter. Energy use refers to use of primary energy before transformation toother end-use fuels, which is equal to indigenous production plus imports and stock changes, minus exports andfuels supplied to ships and aircraft engaged in international transport.

Source: Elaborated by the Authors based on 2010 World Bank data (2013e).14

Mol

dova

Bela

rus

Turk

ey

Arm

enia

Kyrg

yzst

an

Geo

rgia

Croa

tia

FYRO

M

Ukr

aine

Tajik

ista

n

Serb

ia

BiH

Koso

vo

Alb

ania

Mon

tene

gro

Uzb

ekis

tan

Russ

ia

Kaza

khst

an

Turk

men

ista

n

Aze

rbai

jan

100

80

60

40

20

0

-20

-40

-60

-80

-100

Percentage Energy Imports %

Figure 1.9: Energy Imports, Net (% of Energy Use)

(>51%). As the predicted demand for oil andgas may double over the next ten years, the ne-gotiation of supply agreements and improve-ments in gas infrastructure is crucial (IEA, 2009b).

The energy security of a number of countries isthreatened by growing trends of import de-pendency as domestic production struggles tomeet growing demands. Turkey currently im-ports approximately 71% of its total primaryenergy supply in order to meet the demands ofits rapidly growing population, which it is un-able to match in its energy production. Belarusimports 85% of its total primary energy needs,the majority of which comes from Russia. Like-wise, Georgia’s primary energy balance, whilstdiversified by source, is dependent on oil andnatural gas imports, mostly supplied by in-creasingly unreliable sources in Ukraine andRussia and suffers from gas price inflation whensupply agreements change (REEEP, 2013).

Political conflict and supply agreement disputespose a serious threat to the security of energysupplies, especially in the transmission of elec-tricity, gas and oil; the region has already expe-rienced a number of resource conflicts associ-ated with energy supply. The interdependencyof the energy supply exporters (such as Russia,Azerbaijan, Turkmenistan, Uzbekistan and Kaza-khstan) and the countries through which theseenergy supplies must pass on their way west,east or south (such as Ukraine and Uzbekistan)creates a complex geopolitical energy infra-structure that is susceptible to supply conflictand political disputes.15

Tensions between upstream and downstreamcountries regarding water resources, particu-larly when it concerns the construction of largehydropower plants in upstream countries, hasintensified the energy and water crisis in Central

Asia. One such dispute is between Kyrgyzstan,Tajikistan and Uzbekistan. The majority (94%) ofKyrgyzstan’s energy is generated from hy-dropower stations, the management of whichseverely affects downstream Uzbekistan, whichexperiences continuous water shortages. Thishas resulted in a trans-boundary conflict overwater resources (Mosello, 2008). Likewise, theconstruction of hydropower stations in Tajik-istan has also resulted in disputes with Uzbek-istan (UNDP BRC, 2009). This led to the eventualdisbandment of the Central Asian Power System(CAPS), which had a dramatic impact on Tajik-istan’s energy sector and population during thewinter months in 2007-2008 (UNDP Tajikistan,2011). In 2010, Uzbekistan also suspended mil-lions of dollars’ worth of electricity imports toTajikistan, which led to the reintroduction ofnational electricity rationing.

Disputes over supply agreements have inter-rupted supply chains in the region. For example,in 2009 gas imports from Russia to Slovakia,Hungary and the Czech Republic were halted inthe Ukraine for several days.16 The event oc-curred in the middle of winter which highlightsthe vulnerability of heat supply security.

Major concern also exists relating to the En-guri/Vardnili hydropower cascade which is akey contributor to Georgia’s electricity genera-tion and thus a major factor in energy securityin the region. Parts of the plant are in Georgiawhilst the infrastructure, including the switch-board, is in territory controlled by Russia. Anypolitical escalation with Russia could put Geor-gia’s energy supply at risk. Similarly, in Moldovaelectricity generation is based almost entirelyon gas. The only large power plant is located inthe Transnistrian region, which has an uncertainadministrative status, thus posing political riskto the security of electricity production. Energy

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15 In this example, energy security is a term for an association between national security and the availability of naturalresources for energy consumption to meet required needs. Energy independence refers to non-reliance on imports ofoil and other foreign sources of energy.

16 For more details see Annex 6

production in Kosovo relies heavily on coal,thus lignite is the most important energy re-source producing around 97% of total electric-ity generation.

1.12 Ageing Energy SupplyInfrastructure

The Soviet legacy gas import infrastructure, themajority of which was built in the 1950s/60s,and a dependency on natural gas imports, es-pecially in winter, are major threats to the se-curity of energy supply for many countries.When the Soviet Union collapsed, Kyrgyzstan,Kazakhstan, Tajikistan, Uzbekistan and Turk-menistan quickly discovered that their new, dis-connected grids had significant transmissioninfrastructure gaps and suffered from high dis-tribution losses. Whilst Kazakhstan’s northernregion is mostly energy independent, its iso-lated, rural southern regions continue to be al-most completely reliant on electricity importsfrom Russia, Kyrgyzstan and Uzbekistan.Moldova, which has almost no primary energyresources, is primarily dependent on the EasternEuropean gas supply grid, making it particu-larly susceptible to interruptions in that system(Baran, 2006). The ageing and ineffective en-ergy supply infrastructure in the WesternBalkans, Moldova and Belarus, compounded bylow domestic primary energy resources and en-ergy production capacity, may result in an in-creased dependency on imports to meet grow-ing demands unless renewable energyalternatives are scaled up to meet this demand.This energy dependence combined with inter-ruptions in supply and high distribution lossesdemonstrate vulnerability to energy insecurity.

1.13 Energy Supply MixVulnerability

The absence of supply diversification and thereliance on one energy source for electricityproduction makes a number of countries in theregion highly vulnerable to fuel shortages and

adverse climatic conditions (affecting hy-dropower). Kazakhstan, Kyrgyzstan, Montene-gro, Serbia, Turkey, Ukraine, FYROM, BiH, Alba-nia, Armenia, Azerbaijan, Belarus, Moldova,Turkmenistan, and Uzbekistan each use onlyone specific fuel source to produce 51% of theirenergy. Almost all (97%) of Kosovo’s electricityproduction is from coal.

As net importers of energy (>51%) Kyrgyzstan,Turkey, Moldova, Belarus and Armenia are par-ticularly vulnerable to limited fuel switchingoptions. A number of these countries have al-ready experienced difficulties meeting peak de-mand with domestic and imported capacity orare expected to face this difficulty in the future.In addition, possible forced and scheduled shut-downs of power plants, such as the Metsamornuclear plant in Armenia, which supplies 42.9%of the country’s electricity, cause severe elec-tricity shortages. These examples exemplify thevulnerability of countries to insufficient diver-sification in their energy supply mix.

1.14 Energy Insecurityand Hydropower

Insufficient rainfall and seasonal variance inriver flow have led to a number of energy/wa-ter crises throughout the region with somecountries being particularly vulnerable.

Central Asia (Tajikistan and Kyrgyzstan): The re-liance of Tajikistan and Kyrgyzstan on hy-dropower makes these countries highly sus-ceptibility to energy insecurity. Thecom b ination of population growth, lack of in-vestment in energy sector infrastructure, inter-ruptions in gas imports from Uzbekistan, andthe dissolution of the Central Asian Power Sys-tem (CAPS) dramatically affected the energysector and population during the 2007-2008winter (UNDP Tajikistan, 2011). In addition, lim-ited and increasingly expensive gas suppliesfrom Uzbekistan and an underdeveloped coalsector have left Tajikistan almost exclusively de-pendent on hydropower production. Nation-

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wide electricity rationing in 2011 furtherdemonstrated that increased electricity importswere not an option, posing a real threat of fur-ther energy crises in Tajikistan and highlightingits reliance on hydropower and imports of elec-tricity. It is estimated that improvements to na-tional and household energy security would re-quire billions of dollars in investment inelectricity generation, including mini and microhydropower plants, extension and connectivityto regional gas supply networks and the devel-opment of the coal sector (UNDP Tajikistan,2011). Similarly, Kyrgyzstan’s hydropower pro-duction accounts for more than 93% of thecountry’s power production. During 2008 en-ergy production by the Toktogul plant fell 21%,and a further 6% in 2009 when hydropowerwater releases were limited by the need to re-store reserves (UNDP Tajikistan, 2011).

Western Balkans (Montenegro, Albania, BiH, Croa-tia, FYROM, Serbia, Kosovo): The Western Balkansub-region is also heavily reliant on hydropowerfor electricity, which cannot be easily ex-changed for other sources when electricity pro-

duction from hydropower is low. Recent cli-matic variability and low rainfall levels duringwinter months have lowered hydro reserves inthe region. Overall hydropower production inthe Balkans fell by 27% in 2011 from 2010 (ICIS,2011), while Montenegro lost 46% of its pro-duction (ICIS, 2011). Albania, BiH, Croatia andFYROM have all seen year-to-year hydropowerproduction fall by between 33-39%. Importingfrom elsewhere in the region has boosted cross-border prices (ICIS, 2011). Additionally, variableand low hydropower production in combina-tion with an increase in electricity demand hasincreased electricity prices across the WesternBalkans sub-region. The trend of a reducedpower supply and increased electricity demandis expected to continue in the region, in partic-ular in the Western Balkan countries of Albania,BiH, Croatia, FYROM, Montenegro and Serbia.

To compensate for the low hydropower pro-duction in recent years, a number of countrieshave begun expanding alternative capacities.For example, FYROM, Kosovo and Croatia arebuilding new coal-powered thermal plants to

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Type of Barrier Barrier to Energy Access Possible Solutions to Barriers

Technical Lack of equipment

Insufficient expertiseand maintenance

Deteriorating energy infrastructure

Innovative financial instruments

Development of partnerships

Off-grid and renewable energysolutions

Energy Efficiency and consumptionmanagement

Economic and Financial Distorted energy tariffs below costrecovery

Compounding effects of poverty

Lack of financing

Energy sector and welfare reform

Targeted social welfare benefits

Public-private partnerships, hybridfinancing

Political and Institutional Constrained capacity to plan and implement projects

Corruption and instability

Capacity development and partnerships

Legal reforms

Social and Cultural Community opposition

Lack of awareness

Community outreach and trainingprogrammes

Educational reform

Table 1.3: Barriers to Energy Access in ECIS


meet the expected increase in electricity de-mand. While additional coal-fired capacity ad-dresses power shortages in the short tomedium term, negative environmental effectsat the local level as well as increased green-house gas emissions make these investmentsunsustainable and unattractive in the long run.

1.15 The Future: AddressingBarriers to Energy Access

Despite the potential benefits of expandedenergy access, a number of technical, eco-nomic, political and social barriers still existin the region. These barriers suggest that en-ergy markets and the private sector will not bythemselves address energy poverty and pro-vide high-quality, reliable and affordable ac-cess to energy. If energy access and energypoverty issues are not addressed, the poor will

continue to face numerous social and economicdevelopment issues. Where the private sector,government and financial institutions are un-likely to intervene, developmental partners willneed to provide targeted intervention and de-velopment assistance to ensure progress ismade towards improving access to modernforms of energy.

1.16 Tracking Access: Challenges in Defining andMeasuring Access to Energy

Tracking access to sustainable energy in theECIS region is challenging. As current indica-tors do not provide a clear picture of energy ac-cess, reflecting the special conditions in the re-gion particularly in terms of heating and energyfor community and productive uses, additionalindicators should be used to capture these

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Target for Measurement Comments Proposed Approach

Access to affordable and reliable heating

As case studies have shown, energy for heatingis a major requirement in the ECIS region.Unfortunately the tracking framework does notidentify sufficient data on energy for heatingthat would allow the compilation of a globaldatabase. In the medium term SE4ALL envisionsthe development of a tracking frameworkto measure access to heating (Banerjee, 2013).

Measurements of accessto heating to be includedin household survey datacollected by governmentstatistical agencies.

Community energyand productive usesof energy

The household-based definition of accessto energy excludes access to energyfor community services, such as health andeducation, and productive uses suchas enterprises (Banerjee, 2013). Methodologiesto collect this data need to be developed.

Recent frameworksto measure energy for publicservices and productive useshave been developed bythe IEA, WHO, USAID andUNESCO which can beutilised for this purpose(UNDP, 2010).

Availability and reliabilityof power supply

Moving forward tracking indicators needto capture information on availability andreliability of power supply as a pertinent issuein the region. Currently there is little availablereliable data on this issue, it is suggested thatmethodologies be developed and datacollected.

Primary data can be collectedfrom energy suppliers anddistributors.

Table 1.4: Measurement Targets and Proposed Approaches


aspects (see Table 1.4). A detailed commentaryabout data issues that complicate tracking canbe found in Annex 1.

1.17 Summary of Findings

Although near-universal electrification existsin the ECIS region, significant challenges re-main, such as intermittent power supply, en-ergy poverty, energy security and a return tosolid fuels for cooking and heating. Whilst dif-ferences between countries will require coun-try-specific approaches, several energy accessthemes stand out:

– The most pressing issue in the region is theneed to address insufficient access and theinterruptions of supply in order to rectifythe negative socio-economic and environ-mental consequences that obstruct eco-nomic development and sustainability insome countries.

– Energy sector reforms, undertaken suc-cessfully in some transition economies, areessential to rectify decades of subsidised en-ergy tariffs and distorted energy prices,thereby releasing money for investmentsin energy supply infrastructure. As energysector reforms have often been suggested asa solution to the economic inefficiencies ofsubsidised energy tariffs a number of or-ganisations, such as the IMF and the WorldBank, have supported governments with theremoval of energy subsidies. However, the is-sue remains extremely complex and diffi-

cult to resolve. Because decision-makers facethe dilemma of how to deal with energysubsidies, energy sector reforms in manytransition economies are considerably re-stricted. While some progress has beenmade, large fossil fuel subsidies remain asignificant barrier to greater investment inenergy efficiency and renewable energy(Dansie, G., et al, 2010).

– Politicians and decision-makers fear that tak-ing unpopular decisions may provoke socialunrest and imposing unpopular energy pricehikes may generate political discontentamong the former beneficiaries of energysubsidies. Furthermore, energy subsidies aresometimes used as a political inducement towin favour in elections (Dansie, G., et al, 2010).

– Further increases in energy tariffsthreaten to intensify energy poverty inthe region and targeted social assistancewill be required to ensure that the poorestdo not slip through the social safety net.

– Programmes targeting rural and isolatedhouseholds across the region should beconsidered a priority by SE4ALL develop-ment partners.

New methodologies and indicators will be re-quired to track the progress being made to ad-dress the above issues. This includes the col-lection of reliable primary data. However, bybuilding the capacity required for trackingprogress towards SE4ALL targets, the ability ofgovernments to understand and address bothenergy and development issues will bestrengthened.

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2. Energy Efficiency

2.1 Overview

One of the three objectives of the SE4ALL ini-tiative is to double the global rate of improve-ment in energy efficiency. In the ECIS region, en-ergy efficiency is an essential component ofaddressing current energy challenges. Follow-ing a steep decline in the 1990s, countries in theECIS region have experienced economic growthat a cumulative rate of 4.7% per year (WorldBank, “World Development Indicators“).17 In or-der to maintain such high rates of economicgrowth and continue their convergence withdeveloped economies, the ECIS region needsaccess to a long-term, secure, affordable andsustainable energy supply. Many transitioncountries still use several times as much energyper unit of output as OECD countries, while en-ergy consumption per capita and the quality ofenergy services is much lower. Long-term pat-terns of energy use in the built environment,transportation infrastructure, industry, and agri-culture, hinder the penetration of energy effi-ciency technologies and practices, resulting insoaring energy demands. In most cases, the en-ergy production and distribution infrastructureneeds major investment to provide better effi-ciency, coverage and quality of services.

2.2 Defining energy efficiency

Energy efficiency is the ratio of end-use outputto energy input of individual technologies andprocesses (World Bank, 2013a). However, as-sessing energy efficiency is not straightforwardas it is often complicated to track and analysethe energy efficiency of numerous individualmeasures in order to make conclusions aboutsector, national, and cross-country progress.This is why energy intensity indicators, which

are the ratios of energy input to national orsector output or activity, are used as a proxy forenergy efficiency at an aggregate level. Indefining energy intensity indicators, this chap-ter relies on the SE4ALL Global TrackingMethodology (World Bank, 2013a) and usesEU-27 energy intensity indicators as a bench-mark. Assessing energy-efficiency at the bottom-up, technology level requires more detailed analysis and has not been reviewed inthe present assessment.

2.3 Recent Trendsin Energy Efficiency

2.3.1 Country-level energyefficiency

In 1990, the GDP primary energy intensities18 ofECIS countries19 were among the highest in theworld (IEA, ”World Energy Statistics Balances”).During the last two decades, these intensitieshave fallen considerably in absolute terms (Fig-ure 2.1). By 2010, primary energy intensity in theCaucasus and Western Balkans had decreasedto EU-27 levels. However, in the majority ofother ECIS countries, primary energy intensity isstill more than double EU-27 levels.

Analysing the structure of final energy con-sumption can provide a more accurate approx-imation of energy efficiency than energy in-tensity. The Divisia method (World Bank, 2013)divides changes in final energy consumptioninto: 1) changes in economic activity; 2)changes in economic structure, e.g. shiftingaway from heavy industry; and 3) actual en-ergy intensity changes, e.g. technological or op-erational improvements. The third measure rep-resents an approximation of energy efficiency.

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17 Growth measured as an increase in Gross Domestic Product (GDP) at constant rates.18 Primary energy intensity is the ratio between the Gross Domestic Product (GDP) at purchasing power parity (PPP) ex-

change rates and the Total Primary Energy Supply (TPES).19 Hereinafter, countries of the ECIS region are merged and analysed as the following regions: Western Balkans, Central

Asia, Caucasus, other CIS, and Turkey.

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Source: World Bank, 2013; WEC, “Energy Efficiency Indicators Database”

60

50

40

30

20

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0

MJ/US$2005 PPP

Figure 2.1: GDP primary energy intensity in the ECIS region in 1990 and 2010 vs. the EU-27

EU-2

7

BiH

Serb

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Alba

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Mac

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YR

Croa

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Arm

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1990 2010

Western Balkans other CIS Central Asia Caucasus

Source: World Bank, 2013

0

-5

-10

-15Com

poun

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gow

th ra

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Figure 2.2: Improvement in unadjusted final energy intensity vs. energy efficiency changes meas-ured using the Divisia method, 1990 – 2010

Turk

men

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n

Kyrg

yzst

an

Uzb

ekis

tan

Kaza

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Tajik

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Aze

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*

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**

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Mac

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eyWestern Balkansother CISCentral Asia Caucasus

Unadjusted final energy intensity changes Energy efficiency estimated using the Divisia method

* Country has less than 20 years of historical data available** Country has less than 10 years of historical data available

The real progress in energy efficiency of seven20

ECIS countries, when estimated using the Di-visia method, was found to be slower than hadbeen suggested by unadjusted energy intensityindicators. In other countries, the energy inten-sity analysis underestimated energy efficiency(see Figure 2.2).

The Devisia analysis also revealed that energy ef-ficiency plays a major role in the reduction of en-

ergy demand in all countries (see Figure 2.3). InTurkey, growing energy consumption due to theexpansion of the economy was partially offsetby energy efficiency improvements. In Ukraine,energy efficiency decreased until 1996, and thisdecline was attributed to the economic restruc-turing and the economic recession, which re-duced energy consumption. After 1996, in spiteof economic expansion, energy consumption de-clined further due to improvements in energy

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20 Ukraine, Belarus, Albania, Tajikistan, Turkmenistan, Kazakhstan, and Bosnia and Herzegovina (BiH). The differencewas especially notable in BiH.

Figure 2.3: Indices of final energy consumption and its drivers: activity, structure, and energy effi-ciency (energy intensity component index) in selected countries, 1990 - 2010

Source: World Bank, “Sustainable Energy for All Database”

2.5

2

1.5

1

0.5

0

Turkey

1990 1995 2000 2005 2010

Activity component index Energy intensity component indexStructure component index Energy consumption index

2.5

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1990 1995 2000 2005 2010

2.5

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1990 1995 2000 2005 2010

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1990 1995 2000 2005 2010

efficiency. In Turkmenistan, energyconsumption grew steadily from2001 because energy efficiency im-provements, though high, were notenough to offset high economicgrowth. In Croatia, the drop in energy consump-tion in the beginning of the 1990s was attrib-uted to economic decline and decreasing energyefficiency. After 1994, energy consumption grewbecause energy efficiency improvements andeconomic restructuring could not sufficiently off-set economic expansion.

2.3.2 Energy efficiency potentialat the country level

In spite of significant energy efficiency im-provements during the last two decades in

almost all ECIS countries, further energy ef-ficiency opportunities exist. Several studieshave been undertaken to provide country-levelestimates of the technical and economic en-ergy efficiency potential. In 2009 McKinsey &Company evaluated Russia’s potential for en-ergy efficiency improvement by generating asupply curve for energy efficiency (see Fig-ure 2.4).21 The measures identified could reduceRussia’s energy consumption in 2030 by 23%,compared to baseline energy consumption.While the investments required are estimatedto be EUR 150 billion over 20 years, they wouldgenerate EUR 345 billion in cost savings. The

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21 Supply curve of energy efficiency characterises the potential for energy efficiency from a sequence of technologicaloptions as a function of marginal costs per unit of energy conserved.

In spite of significant energy efficiencyimprovements during the last two decades in almost

all ECIS countries, further energy efficiencyopportunities exist.

Source: McKinsey & Company, 2009

Figure 2.4: Supply curve of energy efficiency in Russia, 2030

figure indicates that the building sector pos-sesses the highest share of total potential, in-cluding negative cost potential. Technologiesrelated to improving the thermal envelope inbuildings were found to yield the highest sav-ings. The most attractive options economicallyare technologies that use electricity, such aslights, appliances, electronics, and equipment.

2.4 Energy Efficiency at the SectorLevel: Buildings

From 1990 to 2010, the relative importance ofenergy-using sectors in the structure of energydemand22 in the ECIS region (except Turkey)has changed (see Annex 7 for details). In 1990,industrial energy consumption was the high-est, but had shrunk in the beginning of the1990s, reflecting sectoral restructuring and par-tial collapse (IEA, ”World Energy Statistics Bal-ances“). Although by 2010, the industrial sectorhad recovered, its consumption did not returnto 1990 levels.

In contrast, the final energy consumption ofthe building sector increased in both absoluteand relative terms compared to 1990. In 2010,it reached 34-46% of total final energy con-sumption (IEA, ibid). In addition, 2010 figuresshow that 22-66% of total electricity productionin the ECIS region was used in buildings (IEA,ibid). While primary energy consumption asso-ciated with electricity and district heat genera-tion is accounted for in energy balances, thedemand for electricity and heat comes frombuildings, thus many energy saving opportuni-ties can be found in the building sector. InTurkey, total energy demand grew steadily in

both the industrial and building sectors from1990 to 2010, with the building sector pre-dominating (IEA, ibid).

While the following section focuses on final en-ergy consumption and energy intensity in thebuilding sector due to its importance in theECIS region, an overview of energy intensity inother sectors is provided in Annex 8.

2.4.1 Residential buildings

For the majority of countries in the ECIS re-gion, energy intensities in the residential sectorper household and per capita have been onthe rise since the end of the 1990s (IEA, ibid;UNECE, “Statistical Database”). In spite of this in-crease, residential sector energy intensity didnot exceed that of the EU-27 (IEA, ibid; WorldBank, “World Development Indicators“; UNECE,ibid; EUROSTAT, “Population and Social Statis-tics“ - all accessed 2013).23 ECIS countries gen-erally have lower levels of energy efficiencycompared to the EU-27, but they also havelower living standards, such as smaller living(and thus heating) area per person and fewerelectrical amenities, which reduces energy in-tensity (see Annex 9 for details).

At present, ECIS households primarily consumeenergy for heating and hot water. For example,in 2010 Uzbekistan’s and FYROM’s heating andhot water totalled 45%-85% of energy use (seeFigure 2.5).

However, available data reveals that space heat-ing intensity declined between 1990 and 2010.In Russia, for instance, space heating intensityper household in 2010 was 65% of its 1993 level,

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22 The total (primary) energy demand reflects the demand for energy in the economy. One part of primary energy is di-rectly consumed by energy-using sectors in the form of fuel, e.g. natural gas. Another part of it is converted to sec-ondary forms of energy, e.g. electricity and heat, within the so-called transformation sector (often also referred to asthe energy supply sector) and then transported and distributed to consumers in energy-using sectors. The main en-ergy-using sectors are industry, residential, commercial and public buildings, transport, and agriculture.

23 The exceptions were Belarus, and Azerbaijan (per household); Belarus (per capita); and Russia (per household andper capita).

and the space heating intensity per square me-tre in 2010 was 50% of its 1993 level (the dif-ference between these two intensity trends isexplained by the increase in living area perhousehold) (IEA, World Energy Statistics Bal-ances; UNECE, “Statistical Database“; WEC, “En-ergy Efficiency Indicators Database“; EUROSTAT,“Population and Social Statistics“).

The potential exists to further reduce the energydemand for residential space heating. This is es-pecially true for the multi-residential buildingsconstructed using mass-produced, pre-fabricatedmaterials (‘panel’ buildings) in the 1960s-1980s,which are heated by off-site district heating sys-tems. This type of building features predomi-nantly in the housing stock of the WesternBalkans, Caucasus, Central Asia and other CIScountries which tend to have poor thermal qual-ities, if not retrofitted. Many district heating in-stallations and distribution systems are now morethan 50 years old and, without renovation, maylose more than half the heat they produce.

Case study: Retrofit of residential buildingsin Montenegro

Between 2010-2013, the UNDP Country Of-fice in Montenegro implemented two proj-ects: “Beautiful Cetinje” and “Energy effi-

ciency base formation of informal settle-ments”. Energy audits were conducted for34 municipal houses and identified the av-erage final energy consumption per house-hold as 636 KWh/m2-yr. (all electricity). Theaudits indicated that measures such as in-sulation and replacement of building com-ponents could save up to 63% of householdenergy consumption. The average invest-ment required was estimated at EUR 5,850for a 100m2 household, however the antici-pated saved energy costs would pay backEUR 830/yr.

Case study: Construction of residential build-ings in Kazakhstan

In 2013 the UNDP Country Office in Kaza-khstan implemented a pilot project pro-moting the use of energy-efficient designand construction in the country. A proto-type building was constructed under a jointproject between the national Governmentof Kazakhstan, the Karaganda city authori-ties and the Global Environment Facility, asa model for energy efficient communalhousing in Kazakhstan. The incremental con-struction costs were 10% higher than stan-dard construction costs, however the sav-ings in energy costs are expected to be 30%.

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Figure 2.5: Breakdown of residential final energy consumption in selected countries

Source: Center of Economic Research, 2011; Ivanov, 2013

3%1%10%

62%

24%

Heating Hot water Cooking Lighting Appliances

Multiresidentialbuilding

Uzbekistan (2010)

16%

2%

37%

31%

14%

Family houses

Uzbekistan (2010)

7%

11%

56%

26%

All households

Macedonia (2013)

More specific data will be available onceemissions monitoring has been carried outon the house.

Electrical appliances and equipment, bothclassic (refrigerating, washing, cooking appli-ances, and lighting) and modern (cooling, en-tertainment, communication and informationtechnologies) contribute to a high and grow-ing share of energy consumption in ECIShouseholds. In Uzbekistan and FYROM thisshare ranged from 4-33%, depending onbuilding type.

In those countries for which information wasavailable, an increase in electrical intensity perhousehold was observed during 1990–2010(see Figure 2.6), as the growing number of elec-trical appliances and equipment outweighedthe electrical efficiency gains in the buildingsector. For example, in 2011 Gesellschaft fürKonsumforschung (GfK Group) reported in-creases of 35% in Russia and 8% in Ukraine inthe number of major domestic appliances soldin 2011 versus 2010. This increase indicates thatnot only were the old appliances exchangedbut also new appliances were added to thehousehold inventory. As a result of the growingamount of electrical appliances and equipmentover the last two decades, electricity consump-

tion in the residential buildings of the ECIS re-gion has grown 1.3-4.6 times (IEA, “World En-ergy Statistics Balances”).

Although the efficiency of appliances has alsoincreased during the last two decades, the us-age rate of these more technologically ad-vanced appliances was still slower than in theEU-27. For instance, in Russia, the share of A+class refrigerators increased from 2% to 21%between 2004 and 2011, while in Western Eu-rope and Eastern Europe A+ class refrigeratorswere already dominating the market by 2011(46% and 65%, respectively) (GfK, 2011; UNDP,2010). This slower penetration of high efficiencyappliances is probably due to their cost. For in-stance, in 2011 the average refrigerator of A+class cost EUR 650 in Russia as opposed toEUR 361 in Eastern Europe (GfK, 2011).

The highest and also cheapest potential for sav-ings in single use electricity lies in lighting. Thecountry lighting assessment of the Russian Fed-eration conducted by UNEP (UNEP, 2012) con-cluded that exchanging the bulb type through-out the country (see Annex 9 for details) wouldreduce electricity consumption for lighting by46.3% (5.8% of total national electricity con-sumption). This would result in USD 5.6 million innet benefits with an eight-month payback period.

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Figure 2.6: Electrical intensity of households, 1990 - 2010

Source: WEC, “Energy Efficiency Indicators Database”

1990 1995 2000 2005 2010

3000

2500

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1500

1000

500

0

Kazakhstan Turkey Russia European Union

KWh/

hous

ehol

d

2.4.2 Commercial and public buildings

A significant reduction has been made in end-useenergy intensity per value added in commercialand public buildings in many ECIS countries (withthe exception of Turkey and the Western Balkans)(IEA, “World Energy Statistics Balances“; WorldBank, “World Development Indicators“). However,available data shows an increase in the energy in-tensity of the commercial and public servicessector when measured per employee (Figure 2.7).This increase in energy intensity is predominantlycaused by growing electricity consumption, whilethe relative share of non-electrical energy (mostlyused for space and water heating) has declined.This trend is in line with growing energy intensi-ties in the commercial and public sectors, com-mon in the EU-27. These trends are a result ofthe switch from other fuels to electricity and thegrowing use of telecommunications equipment,information technology and other workplace

technologies. In 2010, the overall electricity de-mand by commercial and public buildings in theECIS region had grown by 2.4-6.1 times that of the1990 demand (IEA, ibid).

Over the past few years, several studies and pilotprojects have been undertaken which demon-strate that a significant potential for energy effi-ciency improvement exists in the public sector.

Case study: educational and healthcare facil-ities in Uzbekistan24

The UNDP Country Office in Uzbekistan iscurrently implementing a GEF-funded proj-ect which promotes energy efficiency in pub-lic buildings. Most of these buildings wereconstructed 30-60 years ago with no consid-eration for energy efficiency and consume320-690 KWh/m2 per year, and by 2008 it wasestimated that 66% of healthcare facilitiesrequired their heating and hot water systems

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Source: WEC, “Energy Efficiency Indicators Database”

Electrical intensity Non-electrical intensity

Figure 2.7: Intensity of electricity and non-electrical energy carriers of services per employee

1990 2000 2010 1990 2000 2010 1990 2000 2010 1990 2000 2010

European Union Russia Croatia Turkey

20

15

10

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MW

h/em

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r.

24 Information was also obtained via local questionnaires, copies of which are held by the UNDP RBEC Regional Centre

to be retrofitted. Energy audits conductedwithin the project demonstrated that insu-lating and exchanging the building compo-nents and installing efficient heating andventilation equipment could result in a 50-60% reduction in space heating demand (Usmanov, 2013) (see Figure 2.8).

Case study: municipalities in Moldova, Mace-donia and Kosovo.

As part of a Czech-UNDP Trust Fund25 projectfocussed on transferring Czech knowledge tosupport local government associations, anevaluation of the overall potential for heatingenergy savings in 39 schools in Moldova,

FYROM, and Kosovo was undertaken(Zahradník, P., et al, 2013). The average heatingcosts in 2011 ranged from 10-12 EUR/m2 or 35-105 EUR/student and the evaluation re-vealed that up to 50% of the energy used forspace heating could be saved. Depending onthe country, this translates into approximately70-85 kWh/m2 or 5-6 EUR/m2 (Figure 2.9).

2.5 Policy Environmentfor Promoting Energy Efficiency

The progress in energy efficiency from 1990to 2010 in ECIS countries was partially trig-gered by the enabling policy environment.

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25 The Czech-UNDP Trust Fundhttp://www.euroresources.org/fileadmin/user_upload/PDF_country_and_Programme_profiles/czech_rep4.pdf

Source: : Elaborated by the Authors based on Usmanov, 2013

Figure 2.8: Ex ante evaluation of thermal efficiency retrofits of public buildings in Uzbekistan

500

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Final energy consumption for space heating purposes Final energy savings

befo

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befo

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afte

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befo

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befo

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Oktepa ruralclinic,

Tashkent region

Dekhibalandclinic,

Navoi region

School No20,Kashkadarja

region

School No35,Navoi region

School No2, Fergana region

School No5,Karakalpakstan

60%

65%

53%

57%

61%

52%

Although significant steps towards theadoption of energy efficiency policy frame-works have been made, room remains forfurther improvement.

2.5.1 Policy framework

By 2010, about half the countries of the ECIS re-gion had adopted laws on energy efficiency orenergy conservation (WEC, “Energy EfficiencyPolicies and Measures Database“; REEGLE,“Country Energy Profiles“; Kogalniceanu andRaicevic, 2013).26 In contrast, only Albania, Rus-sia, Uzbekistan and Belarus had adopted thistype of law in the 1990s. However, since 2000,the driving force behind the adoption of energyefficiency laws, for many ECIS countries, hasbeen European Union accession. The Energy

Community Treaty27 extends the core energylegislation of the EU acquis communitaire toSouth East Europe and the Black Sea region asa legally binding framework. As such, the Con-tracting Parties to the Treaty (the WesternBalkans, Ukraine and Moldova) are obliged toadopt and implement selected EU energy effi-ciency legislation within a particular timeframe.These ECIS countries have therefore had toadopt an energy saving target of a 9% reduc-tion in total energy sales by 2018, from 2010 lev-els (Directive 2006/32/EC).

Overall, more than half the ECIS countries hadset targets for energy efficiency improvementsby 2010. (WEC ibid; REEGLE ibid; Kogalniceanuand Raicevic, 2013)28. The most ambitious tar-get, adopted by Belarus in its National EnergySaving Programme, requires the country to

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Win

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doo

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Insu

latio

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roof

MR

Insu

latio

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wal

ls

Hea

t sou

rce

Tota

l

Figure 2.9: The average potential for savings of energy used for the space heating purposes at thesurveyed schools in Macedonia, Moldova, and Kosovo

50%

40%

30%

20%

10%

0

90

80

70

60

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40

30

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10

0Macedonia Kosovo Moldova

kWh/m2

Source: Zahradnik, P., et al, 2013

26 Information was also obtained via local questionnaires, copies of which are held by the UNDP RBEC Regional Centre27 The Energy Community Treaty entered into force in July 2006. The Parties to the Treaty are the European Union and

eight Contracting Parties from the South East Europe and Black Sea region (www.energy-community.org/portal/page/portal/ENC_HOME

28 Information was also obtained via local questionnaires, copies of which are held by the UNDP RBEC Regional Centre

reduce GDP energy intensity by approximately6% annually from 2011-2015. Ukraine, Russia,Kazakhstan, Serbia, and Turkey have aimed foran annual reduction of 1.5-3.3% in GDP inten-sity, according to country-specific timeframes.29

2.5.2 Policy landscape

The design and adoption of energy efficiencypolicies has advanced in the ECIS region duringthe last two decades. The energy efficiency poli-cies of Ukraine, Russia, Albania, Croatia, Serbiaand Turkey, target the energy-using sectors,and can be found in the World Energy Councilpolicy database (WEC, ibid). An analysis of thesepolicies (see Annex 10) shows that regulatoryand financial incentive policies are frequentlyused, which is in line with international practice.However, the analysis also revealed that thesepolicies are not compiled as a comprehensiveand coherent package, but are designed in amore fragmented manner and therefore do notaddress the wide range of barriers that exist inthe region.

The most commonly introduced and updatedpolicy tools were the introduction of minimumenergy performance standards and labelling.These were applied to buildings, transport, in-dustrial facilities, appliances and equipment, toeffect the phasing out of inefficient stock andthe further promotion of energy efficient tech-nological options. Some countries adopted theprovision of financial incentives and fiscal sup-port for energy efficiency technologies andpractices, as well as for energy audits. In severalcountries, voluntary agreements on energy ef-ficiency have also been initiated between gov-ernment and industry and other businesses, in-cluding the provision of support for energyperformance contracting. Of the six countriesreviewed, Turkey and Croatia currently have themost comprehensive energy efficiency policies.

2.5.3 Policy implementationand enforcement

As few ex post evaluations of ECIS energy effi-ciency policies have been undertaken, it is diffi-cult to provide concrete numbers on their effec-tiveness. However, the available evidencesuggests that the implementation and enforce-ment of energy efficiency policies is a challengefor the region.

The European Bank for Reconstruction and De-velopment (EBRD, 2008) attempted to monitorthe relationship between the institutionalframework and sustainable energy outcomes inEastern Europe, the Baltics and the WesternBalkans. The methodology used quantitativelymeasured the development of key institutionsand market incentives (including energy pric-ing) and then compared this measurement withhow the countries ranked in terms of energy in-tensity (see Figure 2.10).

While the results of the study are subject to manycaveats, they revealed that some countries in thereviewed regions, such as Serbia, Moldova, Be-larus, Armenia, Albania, Ukraine, Croatia, Russia,and Georgia, had made progress in establishinginstitutions and market incentives for energy ef-ficiency. However, in spite of the built capacity inthese countries, only Croatia could record energyefficiency outcomes similar to those of countriesalready advanced in energy efficiency. The posi-tive results in other countries were explained bytheir extensive use of hydropower (Albania andGeorgia) and nuclear power (Armenia), their eco-nomic structure and the limited existence of energy-intensive industries.

2.5.4 Tariff reform

Another energy efficiency policy frequentlyused in the ECIS region is incentivised energy

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29 An overview of energy efficiency legislation and targets in the ECIS region can be found in Annex 10.

pricing. Energy subsidies are given to energysuppliers in order to lower energy tariffs forend-users and thus address the energypoverty challenge. The subsidised energy

tariffs for end-users are often lower than thelevels of energy cost recovery and the differ-ence must be shouldered by the publicbudget (Figure 2.11).

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Source: EBRD, 2008

1

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Figure 2.10: Institutional framework (institutions and market incentives) vs. energy efficiencyoutcomes

Ger

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Uni

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King

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World ‘energyefficiency’ leadres

ECIS countries

Institutional and incentives outcomes

Source: Electricity prices – Energy Regulators Regional Association (ERRA) cited in Kogalniceanu and Raicevic (2013). The electricity cost recovery is estimated for the whole region (World Bank, 2012).

0 2 4 6 8 10 12 14

Energy cost recovery

Ukraine

Kosovo

Serbia

Montenegro

Moldova

FYR Macedonia

Croatia

Bosnia and Herzegovina

Albania

Figure 2.11: The electricity prices for households in the 4th quarter 2011 vs. energy recovery cost

Energy subsidies misrepresent the true cost ofenergy for end-users. This is especially the casewhen universal energy tariffs are used, as high-income groups enjoy low prices for energy, andtherefore have no incentive to limit their de-mand for energy or to invest in energy effi-ciency measures. A vicious circle results as en-ergy consumption, created by a growingdemand for amenities that do not meet modernefficiency standards, will increase, and moresubsidies will be required to meet the cost.

2.6 Financing Energy Efficiency

Estimates for the total amount of public and pri-vate investment in energy efficiency made in ECIScountries have yet to be made. The Review ofthe Financial Support Facilities Available for En-ergy Efficiency and Renewable Energy (WesternBalkans Investment Framework, 2011) identified25 individual funds that provide financial andtechnical assistance for the improvement of en-ergy efficiency in the Western Balkans. The totalavailable funding was estimated at approximatelyEUR 830 million, 98% of which was loan financing,including associated technical assistance andgrants (see Annex 11 for details).

The Central and Eastern European network formonitoring the activities of international finan-cial institutions (CEE Bankwatch, 2013), con-ducted an evaluation of the finances providedby international financial institutions (IFIs)30 forthe energy infrastructure of South Eastern Eu-rope, including the Western Balkans. The evalu-ation revealed that only EUR 289 million (17% ofall energy-related financing between 2006-2012) was allocated to energy efficiency; thebalance went to fossil-fuel energy and renew-able energy investments, despite the fact thatenergy efficiency investments are known to be

1,000-10,000 times more cost-effective than in-vestments in new energy generation capacity.

One of the reasons for this dichotomy is that pro-viding financing for energy efficiency is difficult.Energy efficiency in the residential and commer-cial/public sectors is spread among households,commerce and administration, as well as amongdifferent technological solutions. In January 2013,experts from the European banking sector, com-mercial financiers, analysts and policy makers, at-tended a workshop organised by the German In-stitute for Economic Research31 to address theissue of financing energy efficiency and to discussthe use of criteria for energy efficiency financingby European public and private banks. The ex-perts identified the need to have standardisedmethodologies for designing and monitoring en-ergy efficiency projects in order to scale them upand make them commercially attractive forbanks. The normal practice of IFIs, in the field ofsmall-scale energy efficiency, is to provide technology-based credit lines to local banks,which then disburse finance to recipients in energy-using sectors through preferential (low-interest) loans. However, often the market is stillimmature, recipients are unfamiliar with the ben-efits of energy efficiency and/or the marketing ofthe available financial products is not well devel-oped and recipients are therefore reluctant toapply for loans. Furthermore, local banks havelimited capacity and experience regarding newenergy efficiency products, which creates a chal-lenging environment in which to work.

2.7 Energy Efficiency and HumanDevelopment

The Global Energy Assessment (Gomez-Echeverri, L.,et al, 2012) notes that energy efficiency im-provement brings numerous cost-effective and

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30 EBRD, EIB, WB, EU-IPA31 German Institute for Economic Research, Expert Workshop on Energy Efficiency Investment by Public Banks,

diw.de/en/diw_01.c.407156.en/research_advice/sustainability/climate_policy/events/events.html

near-term benefits. Energy efficiency shouldtherefore be considered an important decision-making element of ECIS policies, because it isclosely linked to economic and human devel-opment.

2.7.1 Energy efficiency as a factorof economic growth

In spite of the low levels of energy efficiency, percapita energy consumption in the ECIS region isrelatively low, compared to OECD or EU-27countries. It is widely believed that there is a re-lationship between the UN Human Develop-ment Index and the per capita energy con-sumption of a nation (see Figure 2.12), whichfalls into three categories: (i) a steep rise in hu-man development relative to energy con-sumption for energy-poor nations; (ii) a mod-

erate rise for transitioning nations; and (iii) es-sentially no rise in human development for energy-advantaged nations, consuming largeamounts of modern energy.

A second trend, can also be seen, which repre-sents heavy energy exporters such as the Or-ganization of the Petroleum Exporting Coun-tries (OPEC) and some former Soviet Unionnations, among others.

This would seem to suggest that in order tomove up on the Human Development Index,ECIS countries will probably increase their en-ergy consumption. However, as economiesgrow, providing more fuels to satisfy the grow-ing demand for amenities will not be a simplesolution and thus reducing energy demand us-ing energy efficiency technologies in order notto compromise economic growth is important.

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Hum

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Source: based on World Bank, “World Development Indicator Database” and UNDP, 2013

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Figure 2.12. Human development index vs total final consumption / capita, 2010

2.7.2 Energy efficiency and fiscalgains of from removingenergy subsidies

As discussed earlier, many ECIS countries pro-vide subsidies to energy providers in order tolower energy tariffs for end-users. A recent re-port (World Bank, 2012) found that in 2010 elec-tricity and gas subsidies constituted 0-5% ofGDP depending on the country, despite thesignificant progress made during the last fewyears to reduce these subsidies. The report,which estimated the fiscal benefits of mitigatingelectricity and gas subsidies in the region, indi-cated that the finances regained from subsidyremoval could be invested into energy effi-ciency policies and social protection pro-grammes to compensate poor households. Thereport also inferred that all the ECIS countries,except Montenegro, could achieve net gains inthe range of 0.1-2.4% of their GDP by removingelectricity and gas subsidies (see Figure 2.13).

Case study: Kazakhstan

A recent OECD study (2013) evaluated theimpact of removing indirect subsidies fordistrict heating tariffs in Kazakhstan. Thesubsidies are directed mostly at oil con-

sumption (55%), electricity (30%), and coal(10%), but these fuels are used to producedistrict heating, so their subsidy indirectlylowers the district heating tariff. Accordingto the IEA estimates cited in the report, thesubsidy value in the country amounted toUSD 5.85 billion in 2011, absorbing 3.3% ofthe country’s GDP in that year. The studyevaluated savings in public expenditureboth where subsidies were reduced to theacceptable affordability threshold and alsowhere only basic heating comfort was as-sured. The study concluded that if the heat-ing tariff was increased but remained belowan acceptable affordability threshold, theburden of the subsidy on the public budgetwould decrease to USD 1.4 billion/yr. If theheating tariff was raised further, assuringonly basic heating comfort, the burden ofthe subsidy on the public budget woulddrop to USD 520.3 million/yr.

2.7.3 Energy efficiencyand energy supply security

The UNDP Country Office in Kazakhstan identi-fied several issues related to energy supply prob-lems that are connected to low energy efficiency.The pilot audits undertaken in Karaganda re-

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Figure 2.13: Net gains from removing subsidies for electricity and gas, as % GDP

2.4% 2.4%

1.8%1.5% 1.5%

1.2% 1.1% 1.0% 1.0%0.8%

0.4% 0.4% 0.3%0.2% 0.1% -0.3%

Source: World Bank, 2012

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vealed that due to high heat losses in districtheat networks, households and commercial andpublic buildings do not receive enough heat andthus switch on additional electrical heaters. Theseheat losses also resulted in low temperatures insanitary hot water supplies, and households hadto install additional individual electric waterheaters, resulting in additional electricity demandand a greater burden on the electricity infra-structure. In Almaty, the district heat water circu-lation is so low during summer that householdshave to let the water run while waiting for the hotwater supply (55-60oC).

In Tajikistan and Kyrgyzstan some householdscannot afford to pay the high energy bills causedby the low efficiency of thermal building en-

velopes and heating systems and consequently be-gin using firewood, coal and dung (UNDP Kyr-gyzstan, 2011; UNDP Tajikistan, 2010). Traditional,and often non-energy efficient technologies, arefrequently used to burn solid fuels resulting in verylow combustion efficiency, high greenhouse gasemissions, and indoor and outdoor air pollution.

The survey of the rural population in Kyrgyzstanin 2010 (UNDP Kyrgyzstan, 2011) found that12.5% of respondents had 1-2 power interrup-tions per week and 2% experienced interrup-tions of half an hour or more on a daily basis.The interruptions were caused by the physicaldeterioration of the electrical systems, the needto replace transformers and power transmis-sion lines, and to install new and automatically

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Source: World Bank, “World Development Indicators”

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Figure 2.14: CO2 emissions from fuel combustion in the ECIS region by sector, 2010

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Transport Manufacturing industries and constructionElectricity and heat productionResidential buildings and commercial and public servicesOthers sectors, excluding residential buildings and commercial and public services

Note: emissions associated with electricity and heat use in energy-using sectors are allocated to the electricity and heatproduction sector

Caucasus Western Balkans other CIS Central Asia

switching transformers, and the low technicalknowledge of the electricians.

2.7.4 Energy efficiencyand the environment

Among the main causes of indoor and outdoorair pollution in the Western Balkans, Kyrgyzstan,and Tajikistan is the continued use of out-datedtechnologies for combustion of solid fuels.

Wood collection by rural communities leads todeforestation, biodiversity loss, and soil degra-dation. In Montenegro (UNDP, 2011)32 70% ofhouseholds still use firewood for their energyrequirements, which is predominantly pur-chased from traders, while the balance is col-lected in forests and parks.

The high losses that occur during the process offossil fuel energy transformation, transportationand distribution, as well as the use of non-sus-tainable harvesting of biomass result in highgreenhouse gas emissions (see Figure 2.14).Emissions from electricity and heat productionare also high, reflecting both the low efficiency ofthese sectors and the high demand for electric-ity and heat (mostly from buildings and industry).

2.7.5 Energy efficiency and health

Populations suffering from energy poverty haveto tolerate below-standard temperatures in theirhomes, administration buildings, and offices. Asurvey of the rural population in Kyrgyzstan un-dertaken in 2011 (UNDP Kyrzystan, 2011), con-cluded that cold temperatures experienced byclinics and first aid posts are detrimental to thework and well-being of the medical staff andalso deter people from visiting healthcare serv-ices. Power blackouts and worn equipment lead

to failures in the operation of refrigerators andmedical equipment, which results in an overallreduction of the quality of medical assistance.The substandard conditions make it difficult toprovide adequate care for women during child-birth, newborn babies and the seriously ill.

Uncomfortable thermal conditions at home, com-bined with low lighting result in higher medicalbills for those affected and productivity loss as aresult of employee sick days. In rural areas, wherehouseholds have lower incomes and often haveno access to effective and efficient energy services,fuel poverty tends to be high (Macours, K., andSwinnen, J., 2008). The 2011 survey revealed thatmore than half the respondents heat only oneroom in winter. In some provinces, this indicatorwas very high, particularly in Jalal-Abad (94%),Batken (82%) and Naryn (72%). The prevalence ofunheated, outside toilets and the lack of heatedbathrooms or bathhouses further contributes tothe various cold-related diseases.

2.7.6 Energy efficiencyand education

Education facilities are also affected by low ther-mal comfort and low lighting and the conse-quent reduction in school attendance under-mines the human potential of the country andultimately contributes to lower labour produc-tivity. Numerous examples of substandard con-ditions in education facilities have been reportedthrough UNDP-supported projects. An energyaudit of Kazakh schools revealed that the light-ing level did not comply with the country’s build-ing codes.33 Field visits conducted in November-January in Kyrgyzstan, recorded below-standardtemperatures in rural schools, forcing teachersand pupils to wear coats in the classrooms. Ad-ditionally, more than half the schools were foundto have no in-house sanitation facilities.

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32 Information was obtained via local questionnaires, copies of which are held by the UNDP RBEC Regional Centre33 ibid

2.8 Tracking Energy Efficiency

Accurate tracking of energy efficiency trendsat the national, sector, end-use, and technologylevels is essential for the design, evaluation, andoptimisation of energy efficiency policies. Eventhough the background data for the analysis ofenergy efficiency in the ECIS region has im-proved over the last twenty years, it lags behindthat of OECD or EU-27 countries. Observingthese trends in the ECIS region is therefore chal-lenging.

While energy macro-statistics are now publiclyavailable in the International Energy Agencyand World Bank websites,34 sector end-use sta-tistics are either unavailable, fragmented or ofsuch poor quality that they are difficult toanalyse. If sectoral energy efficiency indicatorsfrom national energy agencies and local ex-perts were compiled in a database similar tothe ODYSSEE database35 for the EU-27, thiswould facilitate the analysis of energy efficiencytrends and the potential for energy efficiencysavings could be estimated.

Significant progress has been achieved in gath-ering and cataloguing the information on en-ergy efficiency policies in databases such as theIEA Energy Policy Database, the World EnergyCouncil Database, and the REEGLE energy pro-files.36 However, few ex post evaluations of thesepolicies have been undertaken in order to un-derstand how well these policies perform, whattheir success and limitation factors are, howthey should be revised, and what other coun-tries can learn from them.

Major investment mobilisation will be requiredto realise available energy efficiency potential.In order to understand how to leverage andscale up private and public investment, it is nec-

essary to ascertain who invests in energy effi-ciency and the investment size, how effectivelythis finance is spent, where it is spent and whattriggered the investment (Buchner, B., et al,2012). Information on financing provided byinternational financial institutions and interna-tional non-governmental organisations can betracked on their websites and in evaluation re-ports. However, as the individual expendituresare not clearly delineated, the specific allocationof funds is difficult to assess. Further effortsmust be made to track and analyse public andprivate energy investments, as this is essentialfor understanding how to generate additionalinvestments.


Over the last two decades, the primary energyintensity per unit of GDP produced has fallenthroughout the ECIS. However, in the majorityof countries, primary energy intensity is stillmore than double that of EU-27 levels. This rel-atively high energy intensity translates into alarge potential for energy savings and associ-ated economic, social and environmental gains.

By 2010, the building sector was the biggestconsumer of final energy and electricity, withspace heat and hot water preparation domi-nating energy consumption. The need for sus-tainable heating is a unique challenge in theECIS region because it concerns each countryand every citizen. The demand for electrical ap-pliances and equipment in the building sector,especially in commerce and administration,poses a rapidly growing challenge. Energy effi-cient construction and efficient thermal retro-fitting of buildings represent the highest po-tential for energy savings. The most attractiveoptions economically are technologies that use

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34 http://www.iea.org/statistics/, http://databank.worldbank.org/35 http://www.odyssee-indicators.org/database/database.php36 http://www.iea.org/policiesandmeasures/energyefficiency/, http://www.wec-policies.enerdata.eu/,

http://www.reegle.info/

electricity efficiently, such as lights, appliances,electronics, and equipment.

By 2010, about half the ECIS countries hadadopted laws on energy efficiency and set na-tional energy efficiency targets. In order toachieve these targets, many countries have ap-plied regulatory and financial incentives, as isthe practice internationally. Even though ECIScountries have made progress in the designand adoption of energy efficiency policies, com-prehensive and coherent policy packages,which address a range of complex barriers, haveyet to be developed. The available evidencesuggests that energy efficiency policy imple-mentation and enforcement is a challenge forthe region, which is why further capacity build-ing remains an important task.

Despite the recent energy tariff increasesthroughout the ECIS, energy prices are stilllower than the cost recovery threshold. Energysubsidies misrepresent the true cost of energyfor end-users and place a high burden on pub-lic budgets. Removing energy subsidies and re-channelling them to energy efficiency policiesand social protection programmes may notonly result in improved energy efficiency andthe alleviation of energy poverty, but may alsoresult in net gains for the public budget.

Energy efficiency attracted only 17% of all energy-related financing during 2006-2012;83% of financing was invested in the generationand production of fossil fuels and renewableenergy, even though energy efficiency invest-ments are much more cost effective. The lowshare of financing for energy efficiency is par-tially explained by the difficulty in providingsuch financing to disaggregated small-scale en-ergy efficiency projects. More assistance is re-quired to develop standardised methodologiesfor making energy efficiency projects identifi-

able, replicable, and bankable. Monitoring, re-porting, and verification procedures must alsobe improved in order to scale up these proj-ects, making them commercially attractive forimplementers.

Although sectoral energy intensity is high, percapita energy consumption is relatively low,compared to OECD or EU-27 countries. Reduc-ing energy demand through energy efficiencytechnologies and practices is a cost-effectivesolution to managing the growing energy de-mand and to addressing energy poverty aseconomies develop and inequalities rise.

Low efficiency in the building sector causes ad-ditional demand for heating and electrical en-ergy. When these are constrained, householdstend to switch to non-commercial, traditionalfuels. Wood collection by rural communitiescontributes to deforestation, biodiversity loss,and soil degradation and the use of obsoletetechnologies for the combustion of non-com-mercial energy carriers leads to indoor air pol-lution and high greenhouse gas emissions.

Uncomfortable thermal conditions in homescombined with poor lighting contribute tohigher medical bills and productivity loss.Problems at health and educational facilitiesdue to the lack of or low quality heat and elec-tricity supply undermine human potential andultimately contribute to lower labour pro-ductivity.

Accurate tracking of energy efficiency trendsat national, sector, end-use, and technology lev-els is essential for the design, evaluation, andoptimisation of energy efficiency policies. Thisis why more efforts are needed to track andanalyse sectoral end-use statistics, to evaluateexisting energy efficiency policies, and to trackand analyse energy efficiency financing.

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3. Renewable Energy

3.1 Overview

One of the three objectives of the SE4ALL ini-tiative is to double the share of renewable en-ergy in the global energy mix by 2030. In linewith the SE4ALL goals and pertinent regional is-sues, the benefits of renewable energy (RE) in-clude enhanced energy security, reduced de-pendency on fossil fuels and energy imports,improved local environment and health, re-duced levels of greenhouse gas emissions andimproved access to energy. While non-OECDcountries increasingly account for overallgrowth in renewable energy, OECD countriesremain the leaders, contributing to 53% ofglobal investment in renewable energy sources(RES) in 2012 (IEA, 2013).

Despite impressive growth in renewable en-ergy in some countries, fossil fuels (coal, naturalgas, and oil) continue to predominate and werepredicted to meet 80% of global energy de-mand in 2013 (IEA, 2012). In 2011 fossil fuelswere supported by an estimated USD 523 bil-lion in subsidies, an almost 30% increase from2010 and six times more than the subsidies al-located to renewables (IEA, 2012). While re-newable energy offers excellent potential andbenefits in many countries, there is still a longway to go to successfully scale-up its deploy-ment and achieve the goals of SE4ALL.

Global investment in renewable energy suffersfrom severe regional imbalances (FrankfurtSchool-UNEP, 2013). The ECIS region is no ex-ception. It is estimated that approximately96.2% of the total primary energy supply (TPES)in the region came from fossil fuels in 2010,16.2% higher than the global average (IEA,2010). Despite the fact that the ECIS region has

excellent potential and employs numerous pro-motional schemes for solar, wind, and biomassenergy, and small hydropower (SHP)37 and ge-othermal plants, the vast majority of these re-sources remain untapped and are hindered bya range of informational, technical, institutionaland financial barriers.

In order to understand the unique role RES canplay in achieving the SE4ALL goals, the currentstate of deployed RES, the RES market and thesupporting financial, policy and institutionalenvironment in the ECIS region must be exam-ined.38 Equally, the ways in which these barrierscan be overcome and how the investment en-vironment can be de-risked to promote invest-ment and encourage the development of RESneed to be explored.39

3.2 Defining Renewable EnergySources

RES are essential providers to energy supplyportfolios. RES contribute to global energy sup-ply security, reduce dependency on fossil fuelresources, and provide opportunities for miti-gating greenhouse gases (IEA, 2007). Accordingto the current definition by the IEA, “Renew-able energy is energy that is derived from nat-ural processes (such as sunlight and wind) thatare replenished at a higher rate than they areconsumed. Solar, wind, geothermal, hy-dropower, and biomass are common sources ofrenewable energy.”40

For the purposes of this report, which adheresto the definitions used in the SE4ALL GlobalTracking Framework,41 biomass is consideredan RES even though no regional-level data

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37 For the purposes of this report small hydro power plants are defined as plants with a capacity of <10MW38 Due to the availability of region-wide data, the analysis has used the base year of 2010 unless otherwise stated.39 It is beyond the scope of this chapter to propose solutions at the country level.40 Definition of renewable energy sources can be found at: http://www.iea.org/aboutus/faqs/renewableenergy/41 The SE4ALL Global Tracking Framework document specifically recommends that “until adequate data becomes

available” RES shall be “defined and tracked without the application of specific sustainability criteria”.

exists to indicate whether it is produced in asustainable manner. Furthermore, where datais available to allow analysis, energy produc-tion from large hydropower plants (LHPP)(larger than 10MW),42 is treated separately.This is useful in order to focus on data regard-ing other RES, to exemplify the importance ofdiversification in the energy supply mix and isalso due to the contentious nature of the sus-tainability of LHP.

3.3 Benefits of RES

Renewable energy plays an important role inaddressing the simultaneous challenges of cli-mate change and energy security. Investing inrenewable energy helps countries to reducegreenhouse gas emissions while promotingsustainable development.

With the exception of LHP and biomass, wherenegative environmental and social impactscan be significant and should be carefully as-sessed through environmental impact assess-ments, RES have distinct advantages overother energy sources (SE4ALL, 2013; Arm-strong, A. J., et al, 1999).

They are environmentally friendly, as theyhave negligible discharges and emissions;They are sustainable, as they run on a vir-tually infinite supply of locally-available re-sources;They promote energy diversification, whichenhances energy security by reducing acountry’s dependence on imports of fos-sil fuels and can reduce exposure to pricevariability and supply fluctuations;They develop domestic, specialised manu-facturing capacities and green jobs and fos-ter economic growth;

They increase the share of energy from re-newable sources, which can reduce a coun-try’s reliance on (often imported) fossilfuels;They reduce dependence on traditionalfossil fuel-fired energy generation conse-quently lowering greenhouse gas emis-sions and can reduce local pollution; andThey provide protection from fuel supplyand price volatility and can improvea country’s balance of payments.

It is important to note that each type of renew-able energy technology has its own key advan-tages that make it particularly attractive in spe-cific environments. There is no ‘one size fits all’approach to RE solutions.

3.4 Renewable Energy in the ECIS

Distinctive geo-political features make energy akey determinant of development across theECIS region. Very cold winters, inadequate andout-dated energy transmission infrastructure, areliance on fossil fuels and energy imports, en-ergy supply shortages and rising concerns re-garding energy security, all provide specific in-centives for diversifying energy portfolios andinvesting in RES.

The region has a significant amount of di-verse renewable energy potential. In order toincrease the competitiveness of RES comparedto traditional fuel technologies for energy pro-duction, governments have implemented andare continuing to implement a variety of RESpromotional schemes. Countries in the regionhave substantially increased the supply of en-ergy from RES. However, in 2010 the majorsource of this energy (63.9%) (in Terra Joules(TJ) of Total Primary Energy Supply (TPES)) is

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42 As there is no worldwide consensus on size categories of “small hydro” and “large hydro”, the author chose to use TheIEA Implementing Agreement for Hydropower Technologies and Programmes conservative definition of small-scalehydropower as 10 MW or less in size. Available at:(http://www.ieahydro.org/What_is_the_difference_between_small_scale_and_large_scale_hydropower_projects.html)

from hydropower (both LHP and SHP), whilstover 93% of installed RES electrical capacity(Mega Watts) is from LHP. This reflects a historyof significant state-owned utility investment inLHP infrastructure, especially in Russia and for-mer soviet states.

Whilst past investment in RE was driven al-most exclusively by state actors, private sectorinvestment in RE in the ECIS region is growing.Driven by both private and public equity,

countries have witnesseda growth in energy fromRES. The highest increases

in TPES from RES between 2000-2010 were inAzerbaijan (125%), Ukraine (112%), Armenia43

(105%), Uzbekistan (84%) and Belarus (80%)(IEA, 2010; Danish Energy Management,2011). Despite current growth statistics, thepenetration of RE in TPES, with the exceptionof hydropower (both LHP and SHP), remainslow. This trend may be explained by a numberof distinctive barriers and related risks thatcontinue to hinder investment and deploy-ment in the region.

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43 Danish Energy Management A/S (2011) (http://reweek.am/UserFiles/45567aaef3822f38dfd12365719112eeRenew-able%20Energy%20Roadmap%20for%20Armenia.pdf)

44 At the same time (2000-2010) some countries also increased their total renewable energy supply Turkey: 15% (mainlywind, solar and geothermal energy) and Bosnia and Herzegovina: 41% (IEA, 2010)

The region has a significant amount of diverse renewableenergy potential.

Box 3.1 Key Energy Issues in the ECIS region

Three key energy issues related to RE in the ECIS region require further attention, theseinclude; the prevalence of fossil fuels and fossil fuel subsidies; energy security; anddecentralised RE solutions.

Prevalence of Fossil Fuels and subsidies

Despite efforts to promote renewable energy, fossil fuels remain dominant in theECIS region. Fossil fuels represented an estimated 96.2% of TPES in 2010 (IEA, 2010) due,in most part, to large reserves of oil and gas and the prevalence of government subsidiesfor fossil fuels in some countries. Indeed, a number of countries have increased the sup-ply of fossil fuels over the last 10 years. Countries with the most noteworthy increase are:Kazakhstan (112%), Kyrgyzstan (66%), Turkmenistan (50%), Turkey (41%) and Bosnia andHerzegovina (48%) (IEA, 2010). 44

The use of fossil fuel subsidies contributes to this high dependence on fossil fuels. In 2013,subsidies in the ECIS region accounted for around 15% of global energy subsidies, in-cluding the highest share (36%) of global natural gas subsidies, and represented 4.5% oftotal government spending that year (IMF, 2013). Kazakhstan (32.6%), Azerbaijan (35.8%),Uzbekistan (60%) and Turkmenistan (61%) have the highest energy subsidies (average sub-sidy rate) in the region (IEA, 2013).

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Energy subsidies have wide-ranging economic consequences and yet they are notoriouslydifficult to reform (IMF, 2013) and continue to distort the competiveness of renewable en-ergy in the region. The effects of distorted energy prices are possibly most predominantin Kyrgzstan, Turkmenistan, Uzbekistan, and Ukraine where subsidies exceeded 5% of GDPin 2011 (IMF, 2013).

Energy Security and RES

The socio-economic and environmental benefits of RES are widely recognised, but the con-tribution they can make to energy security is less well known (IEA, 2007). The potential con-tribution of RES to energy security in the ECIS warrants special attention. RES deploymentcan achieve energy security by diversifying energy portfolios, reducing the risk of energysupply disruptions and price fluctuations and reducing the reliance of many countries inthe region on imported fuels (IEA, 2013).

As discussed in Chapter 1, the region’s high dependence on imported fossil fuels and heavyreliance on hydropower, its ageing energy supply infrastructure and the absence of di-versification in the energy supply mix, mean ECIS countries are especially vulnerable toa number of energy security risks. Pertinent energy security risks in the region include, butare not limited to, severe supply disruptions and resulting price shocks, political insecu-rity affecting energy supply and seasonal variance affecting LHP energy supply.

Countries most at risk are those that exhibit a high level of energy dependence as net en-ergy importers (>51%) and those exposed to threats of limited fuel switch options as theyrely on one fuel source (such as coal, oil, gas, nuclear or hydropower) for the majority(>51%) of their energy needs. 45

Decentralised RES

The deteriorating condition of energy supply infrastructure and insufficient energy accessissues, especially in Central Asia, makes a strong case for investment in decentralised, off-grid RES even more attractive in the region. Decentralised renewable energy solutions canprovide environmental, economic and social benefits by delivering the energy needed forhouseholds, hospitals, schools and production during energy or fuel supply shortages. Inaddition, as identified in Chapter 1, the deployment of modern forms of energy utilisingRES instead of solid fuel for cooking can improve indoor air quality, especially in rural andremote populations in the Central Asia and Western Balkans regions.

45 Please refer to Chapter 1 for a detailed account of these countries

3.5. Deployed RES

3.5.1 RE as a component of Total Primary Energy Supply

With the exclusion of hydropower, renewableenergy constitutes only a relatively small partof total primary energy supply (TPES) in theECIS region.46 During 2010 RE ac-counted for only 3.8% or 1.8 mil-lion TJ out of a total of 49 million TJof TPES. 47 The majority of the REsupply was from hydropower.

As can be seen, hydropower (including SHP andLHP) dominates the RE component of TPES, ac-counting for 63.9%. This leaves only a 36.1%share of RE contribution to TPES from biomass,geothermal, wind and solar together.

The large share of hydropower in TPES in the ECIS(2.3%) compared to the global average (2%) and

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46 The indicator used to capture RES potential in the region is ‘Total Primary Energy Supply’ (TPES). According to the IEA,TPES is equivalent to total primary energy demand. TPES represents inland demand only and excludes internationalmarine and aviation bunkers. TPES has advantages and disadvantages. According to the IEA (2012) a disadvantageof using TPES is that the calculations used to determine the TPES of low emission sources are obscured by assump-tions about efficiencies. The resulting figures tend to under-represent the share of electricity-producing RES (SE4ALL –Global Tracking Framework Report, 2013). As such, the following sections will also explore the electricity-producingcomponent of RES in the region.

47 For a more detailed breakdown by country of RES see Annex 12.

Source: Authors calculations based on country-specific data (see Annex 12 for complete source list).

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Figure 3.1: Share of total primary energy supply ECIS 2010

Share of other renewables (%) Share of hydro power (%)

With the exclusion of hydropower, renewable energyconstitutes only a relatively small part of total

primary energy supply (TPES) in the ECIS region.

that of OECD countries (2.1%) (IEA, 2010), demon-strates the limited diversification in renewableenergy supply. Excluding hydropower, the regionhas one of the lowest utilisation rates of RE inTPES in the world (1.38%); only Africa has a lowerprevalence of RE (excluding hydropower) at 0.3%(IEA, 2010). This reflects the trend in the ECIS ofmassive investment in LHP in the 1990s, espe-cially in Central Asia and Russia (Peyrouse, S.,2007), and SHP in the Caucasus, Western Balkans,and Turkey. However, the use of RES is growing inthe ECIS region and will be explored in more de-tail in later sections.

3.5.2 Sub-Regional use of RES

In terms of the share of RE as a percentage of TPESby sub-region, in 2010 the Western Balkans andTurkey led with 12%, followed by the Caucasussub-region (10%). For hydropower, the Caucasus

sub-region ranked first (7.6% of TPES, or 76.5% ofTPES from RE), followed by the Western Balkansand Turkey (5.5% of TPES, or 45.6% of all RE).However, nearly all-renewable energy (98%) inCentral Asia was from hydropower.

The Caucasus, Central Asia and Russia utilise bothLHP and SHP as their main source of renewableenergy (76.5%, 98.6%, 80.9% respectively), whilethe Western CIS predominantly uses solid bio-mass (71.6%) (see Figures 3.4 and 3.5).

3.5.3 Renewable energy as a shareof installed electricity outputand capacity

Renewable energy features more prominentlyin electricity output contributing nearly 19%or 335,276 Gigawatt hours (GWh) in 2010 (seeTable 3.2).

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Figure 3.2: World share of renewable energysources in total primary energy supply, 2010

Source: Author’s calculations based on IEA, 2010.

Note: Solar energy includes both photovoltaic and ther-mal energy

Non-Renewable Energy 86.7%

Hydro Energy 2.3%

Other Renewable Energy 11%

Geothermal 0.5%

Solar Energy 0.1%

Wind 0.2%

Renewable Municipal Waste 0.1%

Solid Biomass 9%

Others 1%

Figure 3.3: ECIS share of renewable energysources in total primary energy supply, 2010


Note: Solar energy includes both photovoltaic and ther-mal energy

Non-Renewable Energy 96.2%

Hydro Energy 2.4%

Other Renewable Energy 1.4%

Geothermal 0.2%

Solar Energy 0.04%

Wind 0.02%

Solid Biomass 1.1%

Others 0.01%

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Total of All EnergySources (TJ)

Total of Renewable

Energy Sources(TJ)

Total of Renewable

Energy excluding

hydropower(TJ)

Share of RE

includinghydro-

power (%)

Share of hy-

dropower(%)

Share of RE

excludinghydro-

power (%)

Western Balkansand Turkey

5,888,778.92 710,675.43 386,437.08 12.07% 5.51% 6.56%

Western CIS 6,734,465.16 174,073.24 126,271.04 2.58% 0.71% 1.87%

Caucasus 728,578.48 72,359.92 17,021.56 9.94% 7.60% 2.34%

Central Asia 6,084,596.81 164,442.77 2,269.58 2.71% 2.67% 0.04%

RussianFederation

29,371,365.68 740,871.89 141,425.21 2.52% 2.04% 0.48%

ECIS Region 48,807,785.04 1,862,423.25 673,424.47 3.82% 2.44% 1.38%

Table 3.1: ECIS Sub-region share of renewable energy in total primary energy supply (TPES), 2010


100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Figure 3.4: Share of RE by sub-region in TPES,2010 (in %)

Source: IEA,2010.

WB

and

Turk

ey

WCI

S

Cauc

asus

Cent

ral A

sia

Russ

ia

ECIS

Reg

ion

Other energy sources

Hydro Energy

Other Renewable Energy

5.56.6

87.9 97.4 90.1 97.3 97.5 96.2

0.71.9

7.62.3 2.7

2.00.5

2.41.4

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Figure 3.5: Share of types of RE by sub-region inTPES, 2010 (in %)

Source: IEA,2010.

WB

and

Turk

ey

WCI

S

Cauc

asus

Cent

ral A

sia

Russ

ia

ECIS

Reg

ion

Others

Solid Biomass

Wind

Solar Energy

Geothermal

Hydro

11.7

45.6 27.5 76.5 98.6 80.9 63.8

37.9 71.6 20.8 1.4 16.7 28.7

2.72.4

5.5

Note: Solar energy includes both photovoltaic and ther-mal energy.

Once again, the dominant RES is hydropower,which accounted for 98% of total GWh outputfrom RES in 2010. Without hydropower this fig-ure only amounts to 5,058 GWh or 2% of totalelectricity output, which was supplied by acombination of solar, wind, biomass and geot-hermal sources. Thus, the utilisation of otherRES resources for electricity production in theregion is very low.

At the regional level, LHP dominates the elec-tricity supply mix, as demonstrated by indica-tors of installed Megawatts (MW) of RE elec-tricity capacity. The vast majority of installedMW capacity in the region comes from LHP(93.5%). However, at the country level,48 somecountries have a greater share of installed ca-pacity of biomass, solar, wind, SHP and geot-hermal than others. In terms of total MW in-stalled capacity, those with the greatest share(excluding LHP) include Turkey (6.7%) predom-inantly from wind and SHP, Armenia (5.4%)mainly from SHP, and Croatia (5.3%), mostlyfrom wind. The share of biomass, solar, wind,

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Electricityoutput:

All EnergySources(GWh)

Electricityoutput:all RES(GWh)

Electricityoutput:

Hydroelec-tric power

(GWh)

(%) RESin total

electricityoutput

(%) Hydro-electric

electricityoutput

(%) RES ex-cluding hy-droelectric electricity

output

WB and Turkey 294,592 94,138 90,050 31.96% 30.57% 1.39%

WCIS 227,032 13,693 13,276 6.03% 5.85% 0.18%

Caucasus 35,325 15,377 15,369 43.53% 43.51% 0.02%

Central Asia 178,776 45,040 45,040 25.19% 25.19% 0.00%

RussianFederation

1,036,116 167,028 166,483 16.12% 16.07% 0.05%

ECIS Region 1,771,841 335,276 330,218 18.92% 18.64% 0.29%

Table 3.2: Total energy and share of renewable energy in electricity output by sub-region, 2010


48 For country level information please see Annex 13

3500

3000

2500

2000

15000

1000

500

0

Figure 3.6: Total RES electric installed capacityby technology (MW)

Source: Authors calculations based on country-specificdata (see Annex 13 for complete source list).

Biom

ass

Sola

r

Win

d

SHPP

Geo

ther

mal

Note: LHP accounts for approximately 93,000 MW

Caucasus

Western CIS

Western Balkans and Turkey

Central Asia

SHP and geothermal capacity in the sub-regionsof Central Asia, Caucasus, and the Russian Fed-eration are comparatively small.

3.5.4 RES as a share of heat production

Of particular concern is the low share of RE inheat output (TJ) in the ECIS region. This is par-ticularly the case in the Caucasus and CentralAsia (Table 3.3).

Heat from solar, geothermal sources, solid bio-mass, municipal waste and heat pumps is be-coming more economically efficient, but is oftenoverlooked in government renewable energyand energy efficiency promotional programmes,which generally focus on electricity generationand not heat supply. The IEA (2007) suggeststhat the direct contribution that renewable en-ergy can make to domestic or commercial space

heating and industrial process heat should be ex-amined more closely. RES for space heating is es-pecially relevant for the ECIS region given its ex-treme winter temperatures.

3.5.5 Absence of RES diversification

The absence of RES diversification in the ECISmay be the result of several factors: the abun-dance of fossil fuels (mainly oil and gas), state-controlled energy sectors with subsidised pricesin many countries, the high initial cost of in-vestments in solar, wind, and geothermal en-ergy technologies and shorter-term energy pol-icy focus.

The region also has the lowest rate of biomassutilisation globally, at 1.1% (World: 9%, OECDcountries: 3.1%) (IEA, 2010). This figure is partlyinfluenced by the relatively high level of accessto modern (non-solid) heating and cooking fu-els in most parts of the ECIS region relative toother world regions.

3.6 Potential for RES

Whilst deployment may be low the regionexhibits vast potential for RES expansion.According to the International Renewable En-ergy Agency (IRENA, 2012) one of the key strate-gic elements to successfully increasing the de-ployment of technologies for RE is to accuratelyestimate the potential of RES. These estimatesprovide an indication of how much RE couldcontribute to the energy mix and also help todetermine appropriate policy instruments.There are multiple ways to estimate the poten-tial of RES,49 which include: (a) the technical po-tential, representing how much energy can begenerated from a particular renewable tech-nology, given system performance, topographiclimitations, land-use and other environmental

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49 The different types are: market, economic, technical and resource. (NREL, 2012)

Heatoutput:Allenergysources(TJ)

Heatoutput:RE (TJ)

Shareof REin totalheatoutput(%)

WB andTurkey

114,228 319 0.3

WCIS 912,569 24,087 2.6

Caucasus 18,761 0 0

Central Asia 517,861 0 0

RussianFederation

6,015,631 35,734 0.6

ECIS Region 7,579,050 60,140 0.8

Table 3.3 Heat Output in TJ, 2010


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50 For a more comprehensive set of values per type of RES potential in ECIS countries please see Annex 1451 The total installed capacity of the entire energy mix in Belarus is around 9 GW. The Energy Potential Develop-

ment Strategy of the Republic of Belarus (enacted in 2010) assumes that the realistically feasible potential is1.6 GW. The National Programme for Development of Local and Renewable Energy Sources in 2011–2015 (en-acted in 2011) assumes that the economically feasible potential is 0.6-0.7 GW.

CEN

TRA

L A

SIA

WES

TERN

BA

LKA

NS

AN

D T

URK

EYW

ESTE

RN C

ISRF

CAU

CASU

S

Biom

ass

11

1n/

a1

11

1n/

a1

21

21

21

5n/

a1

1

Sola

r5

55

55

35

52

25

35

55

55

45

5

Win

d 5

11

21

11

1n/

a1

11

55

31

41

11

SHP

11

21

11

11

n/a

11

11

11

14

11

1

Aver

age

32

22

1.8

22

20.

51

22

33

32

51.

52

2

Lege

nd

Belo

w 1

0,00

0 M

W

10

,000

to 2

0,00

0 M

W

20

,000

to 3

5,00

0 M

W

30

,000

to 4

0,00

0 M

W

Ab

ove

40,0

00 M

W5

43

21Kazakhstan

Kyrgyzstan

Tajikistan

Turkmenistan

Uzbekistan

Albania


Croatia

Kosovo

Montenegro

Serbia

fYR Macedonia

Turkey

Belarus51

Ukraine

Moldova

Russian Federation

Armenia

Azerbaijan

Georgia

Tabl

e 3.

4: Te

chni

cal p

oten

tial f

or g

ener

atin

g en

ergy

from

RES

(SH

P, So

lar,

Win

d, B

iom

ass)

in th

e EC

IS w

ith a

rank

ing

wei

ght f

rom

1-5

.50

Sour

ce: A

utho

r’s ca

lcul

atio

ns b

ased

on

coun

try-

spec

ific

data

(see

Ann

ex 1

4 fo

r com

plet

e so

urce

list

)

Not

e: T

he d

atas

ets c

once

rnin

g ge

othe

rmal

ene

rgy

pote

ntia

l are

not

ava

ilabl

e fo

r all

coun

trie

s. Fr

om v

ario

us so

urce

s we

can

only

hig

hlig

ht a

few

case

s whe

re th

e po

tent

ial

for g

eoth

erm

al e

nerg

y is

sign

ifica

ntly

hig

h - T

urke

y: 1

500M

W (B

aris,

K.,

et a

l, 20

12);

Ukr

aine

: 14,

855M

W (I

nstit

ute

for R

enew

able

Ene

rgy

at N

AS o

f Ukr

aine

, 201

3); A

zerb

ai-

jan:

800

MW

(UN

DP,

201

3b);

Turk

men

ista

n: 6

,600

MW

(GTZ

, 200

9)

constraints; and (b) the economic potential,which mainly deals with the cost of selectedtechnologies and fuel and narrows down thetechnical potential by considering factors suchas profitability and risk (NREL, 2012).

Due to its sheer size, the Russian Federation,which also has immense fossil fuel productioncapacity, has the highest technical potential forsolar PV, Biomass and SHP (Figure 3.7). Turk-menistan also has huge potential for solar PV(665,000 out of 666,400 MW of total technicalpotential), but this has not yet been realised.

Due to the high wind speeds found in Kaza-khstan, the technical potential from this REsource is approximately 360,000 MW.

Overall, Kazakhstan has the highest per capitapotential for RES in the ECIS region (0.25MW/capita)52, however its abundant resourceshave yet to be realised.

The overall technical potential for RES in theregion should remain relatively stable, with theexception of climatic variability and change fac-tors affecting the fuel supply of some RE tech-

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52 Based on calculation: Potential of renewable energy (MW) / population (World Bank, 2011)

60

50

40

30

20

10

0

Figure 3.7: Potential for renewable energy in thousands of MW by type of technology - top fivecountries

Source: Authors calculations based on country-specific data (see Annex 14 for complete source list)

Russ

ian

Fede

ratio

n

Ukr

aine

Turk

ey

Serb

ia

Bela

rus

Thousands Biomass

25 000

20 000

15 000

10 000

5 000

0

Russ

ian

Fede

ratio

n

Turk

ey

Kaza

khst

an

Ukr

aine

Turk

men

ista

n

Thousands Solar

400

300

200

100

0

Kaza

khst

an

Turk

ey

Bela

rus

Russ

ian

Fede

ratio

n

Ukr

aine

Thousands Wind

40

30

20

10

0

Russ

ian

Fede

ratio

n

Tajik

ista

n

Turk

ey

Kaza

khst

an

Alb

ania

Thousands Hydropower plants (small)

nologies. The economic potential of RES, how-ever, will fluctuate, as it is contingent upon thefinancial, legal, policy and institutional land-scapes for renewable energy.

Technology costs for RE have fallen rapidly overthe last two decades. It is believed that by 2020the technology costs of RES will reduce to thepoint where they become cost competitive withfossil fuels (Waissbein, O., et al., 2013). Whilst theeconomic potential is constantly growing, fi-nancing costs, as a result of existing or perceivedinvestment risk, continue to restrict economicpotential in the ECIS region. An exploration ofthe financial, legal, policy and institutional land-scape will shed further light on this issue.

3.7 Policy, Financial andInstitutional Landscape for RES

The costs involved in rapidly scaling-up RESto achieve the goals of the SE4ALL initiativeare enormous. According to the Global EnergyAssessment (GEA, 2012) global investment inenergy efficiency and low-carbon energy gen-eration will need to be increased from the cur-rent USD 1.3 trillion to between USD 1.7 and2.2 trillion per year over the next twenty yearsto meet the combined challenges of energy ac-cess, energy security and climate change.

Although state-owned RES are significant inthe ECIS region, if economies are to success-fully scale-up the use of RE, the involvement ofthe private sector is undeniably essential. This iswhere public policy landscapes can be mostconducive to lowering risk and thus loweringthe high, upfront financing costs of RES.

3.7.1 High financing costs for RE

The large initial investment costs of RE and thelonger payback periods compared to fossil fuelsremain a major limitation to increasing the use ofRES. Compared to traditional energy sources, REpower plants require a relatively high initial

investment although their operating costs areconsiderably lower (Waissbein, O., et al., 2013).The higher cost of RES generally reflects the in-vestment-related risks associated with RE tech-nology as well as country-specific risk factors.This significantly affects the competiveness ofRE projects versus their fossil fuel counterparts(Frankfurt School-UNEP, 2013). In order to accel-erate the growth of RE investment and attractlarge-scale capital, investment environments willneed to be created using policy and financialde-risking instruments, and direct financial in-centives that increase competitiveness intro-duced, thus encouraging investment and thegreater use of RES (Waissbein, O., et al., 2013).

3.7.2 The role of public instrumentsin reducing financing costs

One of the key challenges of scaling up RE in-vestment are the high financing costs which re-flect a number of perceived or actual risks to in-vestment (Glemarec, Y., et al., 2012). Risk increasesthe weighted average cost of capital for RES proj-ects; however, a broad spectrum of public in-struments can be utilised by policymakers tocreate the conditions for attractive investmentand risk/reward profiles and thereby promotethe use of RE technologies. Waissbein, O., et al.,(2013) explain that risks and investment barrierscan be tackled via three different public instru-ments:

By reducing the risk category itself via policyde-risking. Policy de-risking instruments at-tempt to address and remove the underly-ing country specific barriers that are the rootcauses of risks to RE investments.By transferring the risk from an investor to athird party via financial de-risking. Theseinstruments lower the weighted averagecost of capital demand for RE investments.By increasing the rewards via direct finan-cial incentives. These instruments com-pensate for residual risks and costs by in-creasing rewards through, for example,premium prices or tax incentives for RES.

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53 The “Law on renewable energy” is considered a specific legislation such as legally binding targets for RE, definedfeed-in-tariffs for RES, preferential grid-access for RES or as part of other legislation on energy.

SUB-REGION Country POLICY DEVELOPMENT

Financial Incentives Public Financing

Regulatory Policies

WESTERNBALKANS ANDTURKEY

Albania

Bosnia andHerzegovina

Croatia

Kosovo

Montenegro

Serbia

FYROM

Turkey

WESTERN CIS Belarus

Ukraine

Moldova

CAUCASUS Armenia

Azerbaijan

Georgia

RF Russian Federation

CENTRAL ASIA Kazakhstan

Kyrgyzstan

Tajikistan

Turkmenistan

Uzbekistan

Table 3.5: RES Policy instruments in the ECIS Region

Source: Author’s calculations based on country-specific data (see Annex 15 for complete source list; see Annex 16 for defini-tions of indicators used).

Note: Data was not available for Kosovo.

Capi

tal s

ubsi

dy,

gran

t, or

reba

te

Tax

ince

ntiv

es fo

rre

new

able

ene

rgie

s

Publ

ic c

ompe

titiv

ebi

ddin

g

Publ

ic in

vest

men

t, lo

ans

or fi

nanc

ing

Feed

-in-t

ariff

Elec

tric

util

ity q

uota

oblig

atio

n/ R

PS

Trad

able

rene

wab

le

Law

in re

new

able

ener

gy53

Usually governments choose a cornerstone in-strument in the form of direct financial incen-tives, which are then supplemented by a number of policy and financial de-risking in-struments.

With the exception of Turkmenistan, all the ECIScountries have adopted RES promotional poli-cies. Amongst the most popular polices are sub-sidies, grants, tax incentives, feed in tariffs (FiTs)and RES targets. Importantly, experience fromOECD countries has shown that althoughfavourable RE legislation and enabling policyenvironments may be a necessary precondi-tion for RE investment and deployment, thisdoes not necessarily provide a rationale for dif-ferences in RES utilisation (Frankfurt School-UNEP, 2013). In the ECIS, three types of public in-struments are commonly used to promote RES:

3.7.3 Financial Mechanisms

Given the relatively high instalment costs for REprojects and the longer payback periods com-pared to fossil fuel investments governmentsand banks in the region have employed finan-cial de-risking instruments and direct financialincentives, often in combination, to lower theminimum return on investment (ROI) of a proj-ect required to attract investors.

Direct Financial Incentives:

Grants for RES are direct financial incentivesthat are non-repayable funds most often dis-bursed by development banks and govern-ments at the beginning of the project. The Eu-ropean Bank for Reconstruction andDevelopment (EBRD), the Global EnvironmentFacility (GEF), the Asian Development Bank(ADB), the Islamic Development Bank (IDB) andbilateral organisations such as DeutscheGesellschaft für Internationale Zusammenar-beit (GIZ) GmbH and other international finan-cial institutions offer grants as part of their fi-nancial assistance to RE projects (mostly incombination with loans).

Tax Incentives, such as tax exemption and taxrebates are common in the region and provide adirect financial incentive by reducing the tax lia-bilities and overall project costs for RES devel-opers. For example in Tajikistan and Albania thereare customs tax exemptions for imported REStechnology, machinery and equipment. Addi-tionally, Tajikistan’s “Custom and Tax Codex” pro-vides a number of exemptions from profit tax,land tax, capital facility tax as well as social tax foremployees during construction (UNDP, 2014).

Feed-in Tariffs (FiT) and Feed-in Premiums(FiP) for RE are the most common forms of mar-ket mechanism for RES promotion in the re-gion. FiTs offer long-term contracts to RE pro-ducers paid on a cost-based price for the energythey supply to the grid. A FiP is different in thatthe price is variable, and is usually based onthe electricity price. FiTs and FiPs only functionas a direct financial incentive if they offer ahigher tariff than would ordinarily be obtain-able on the market or from a regulator. FixedFiTs also function as a financial de-risking in-strument as they increase an investor’s plan-ning security. All the ECIS countries haveadopted FiT or FiP legislation with the exceptionof Kosovo, Russia and Turkmenistan. Differencesin conceptual design for FiTs vary greatly be-tween countries, as does their effectiveness inboosting RES investment. For example, in theCentral Asia countries a project specific FiT is ne-gotiated for each project, which increases trans-action costs and insecurity. Belarus offers thehighest FiT for wind in the region and yet hasvery little wind capacity. On the other hand,Turkey has a relatively low FiT for wind and hasdeployed more than 2GW of wind energy. Onedrawback of FiTs is that they represent costlylong-term commitments by the state, as thehigh deployment rates of RES encouraged byFiTs may require increased investment in thegrid (UNDP, 2014).

In Tender and Auction Systems governmentsallow producers to competitively bid for theright to produce and sell electricity at a definedprice over a specified period of time in order to

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solicit the lowest price. This can be used to con-trol the quantity of installed capacity. In 2013,Russia began a MWh output-based tenderscheme which allows RE project developers tobenefit from regulated capacity prices for a pe-riod of 15 years (IFC, 2013).

3.7.4 Financial De-riskingInstruments

The high cost of debt for RES projects can be ad-dressed through financial de-risking throughzero- and low-interest loans and loan guaran-tees from development banks.

Low interest loans offered by some govern-ments and development banks increase the at-tractiveness of investments by decreasing thecost of capital of RES projects where invest-ment would not otherwise take place. EBRD’sSustainable Energy Facility provides financingto RES investors in many countries in the re-gion. In Turkey, the General Directorate ofForestry (ORKOY) of the Ministry of Environ-ment and Forestry is working with UNDP andplans to offer zero-interest solar loans for small-scale, on-grid solar PV systems.

Loan guarantees, offered by developmentbanks, work by transferring the financial risk ofdefault from a local bank to the developmentbank. Loan guarantees are offered in all ECIScountries, with the exception of Turkmenistan.The significantly reduced default risk means lo-cal banks can offer lower interest rate loans toproject developers, which in turn decreases fi-nancing costs.

Prioritised or complimentary grid access or ex-emption from obtaining energy generation li-cences provides a direct financial incentive, by

lowering instalment costs, and also decreasespolicy-related risk (UNDP, 2014). In Kazakhstan,Tajikistan, Uzbekistan, Albania, Serbia, BiH,Turkey, Belarus, Moldova and Armenia, RE de-velopers are given priority when applying foraccess to the grid. In some countries only smallRE developers are given priority for grid access,as in BiH (up to 150 KW) or Montenegro (up to30KW). Kazakhstan, Tajikistan, Moldova, Belarus,Georgia all offer complimentary grid access forRE projects.

3.7.5 Policy De-risking Instruments

Government renewable energy targets andstrategies represent an effective policy de-risking instrument that increases the planningsecurity of investors. This can take the form ofcommitments to fixed RES targets, such asminimum percentage or deployment rates ofoverall RES within TPES, or targets for specifictechnologies. In contrast, the absence of long-term, legally binding RE targets, apparent insome Central Asia countries, may signal topotential investors a degree of uncertaintyin future commitments to RE (Waissbein, O.,et al., 2013).

Most ECIS countries have adopted one or morepolicy targets directed at the share of renew-able energy in their energy mix (see Figure 3.8).These targets vary among production, supply,consumption, and timeframes, and concur-rently support a broad range of national goals.

In most cases, targets take the form of a na-tional or international legally binding share ofRE in final energy consumption, with the ex-ception of Turkey,54 Kazakhstan, and Russia,who have non-legally binding targets for elec-tricity production and/or consumption. Arme-

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54 According to the Electric Energy Market and Supply Security Strategy Paper, adopted by the Higher Board of Plan-ning, the long term primary target is determined as “to ensure that the share of renewable resources in electricitygeneration is increased up to at least 30% by 2023” (MENR, 2010).

nia, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbek-istan and Georgia have not yet developed spe-cific RE targets.

The most comprehensive commitment to RESin the region is the agreement by Albania, Croa-tia, FYROM, BiH, Kosovo, Moldova, Montene-gro, Serbia and Ukraine to implement EU Di-rective 2009/28/EC, which commits thesecountries to binding shares of RES in gross en-ergy consumption by 2020 (EC, 2012).

The ECIS region has a combination of excellentRES potential and numerous RES promotionalschemes. Whilst the promotional policies ex-plored are often seen as necessary for makinginvestment in RE attractive, and as a precondi-tion for RES deployment, RES deployment isnot only tied to the selection of policy instru-ments and potential. In order to understandthe differences in RE deployment, a closer lookat the underlying investment barriers and theirresulting risks for investors is essential.

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Source: Author’s calculations based on country-specific data (see Annex 17 for complete source list)

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%


Albania

Montenegro

Belarus

Turkey

FYR of Macedonia

Serbia

Kosovo

Croatia

Azerbaijan

Moldova

Ukraine

Russian Federation

Kazakhstan

Figure 3.8: Ranking of Energy Targets: Share of RE by 2020 in various energy contexts (includinglarge hydropower)

Belarus: share of not less than 32% in energy production by 2020 (ECSc, 2013).

Turkey: 30% RES in power generation by 2023, 20,000 MW of installed wind and 3,000 MW of solar PV capacity.

Azerbaijan: 20% of electricity consumption by electricity generated from renewable energy sources by 2020.

Russian Federation: By 2030, 4.5% of produced and consumed energy should be produced by RE power plants.

Kazakhstan: 1 bln. kWh of electricity produced by usage of RES in 2014 and about 1% of total electricity consumption coveredby RES in 2015.

Target for share of renewable energy sources in energy consumption by 2020

Target for share of renewable energy sources in energy production / consumption

40%

38%

33%

32%

30%

28%

27%

25%

20%

20%

17%

11%

4.5%

1%

3.8 RES Deployment and Growth

The ECIS region has excellent potential for RESdeployment. It is therefore important to ex-plore whether cohesion exists between this po-

tential, the promotion of RES, and investment.An analysis of the evolution of RES deploymentover time provides important insight into theeffectiveness of promotional instruments. Theabsolute value of RES development can be

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Source: Authors calculations based on IEA, 2010

Figure 3.9: Evolution of RE in share of TPES (TJ) by sub-region, 2000-2010

16.00%

14.00%

12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%

WB and Turkey WCIS Caucasus Central Asia Russia ECIS Region

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Author’s calculations based on IEA, 2010

Figure 3.10: Evolution of RE energy supply (TJ) region, 2000-2010

1,900

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1,650

1,600

1,550

1,500

ECIS Region

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Thou

sand

s TJ

measured in Terajoules (TJ), or as the share (%)of RE in the total primary energy supply (TPES).Although RES use has been increasing in ab-solute terms in the region overall, its share inTPES has remained more or less stable, with mi-nor fluctuations of +/- 2% between 2000-2010.

In the period 2000-2010 the Western Balkansand Turkey experienced the most growth in REdeployment (38%, of which two-thirds is at-tributable to Turkey’s massive deployment ofwind power). The fluctuations witnessed in thesupply of RE at the regional level (Figure 3.10)are probably due to a decrease in the use of bio-mass (-1% across the region except the WesternCIS)55 as a consequence of country commit-ments to reduce GHGs.

3.8.1 Compound annualgrowth rates

The Compound Annual Growth Rate (CAGR)paints a different picture of RES expansion, in-dicating only marginal annual growth of RE sup-

ply between 2000-2010. The CAGR for all RES forthe ECIS for 2000-2010 was 1.2%. The WesternCIS experienced the most significant increase(7%) in overall supply, whilst the Caucasus hadthe greatest decline (-4.6%). The majority of thissupply increase in the ECIS region can be at-tributed to increased hydropower capacity be-tween 2008-2010. Alarmingly, the total RESCAGR in TJ supplied for the entire ECIS region(excluding hydropower) has only grown by 0.6%annually between 2000-2010 (see Table 3.6).

Breaking down CAGR into type of RES (see An-nex 18) reveals that wind power has experiencedthe greatest growth in the period 2000-2010(54.2%), followed by geothermal and solar energyat (13.4% and 5.4%, respectively). Despite thefact that the supply of some RES has increased inthe region, the overall share is still very small andin some regions has even declined.

Despite countries employing a variety of pro-motional schemes, only Ukraine and Turkeyhave noticeably increased RE capacity over thepast several years.

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55 Namely Georgia, Russian Federation, Turkey, Kazakhstan, and Albania decreased use of biomass by 20-45% during2000-2010.

56 CAGRs were calculated using the values for total primary renewable energy supply for 2000 and 2010. CAGR = (2000value/2010 value) ^ (1/n. of years)-1

Sub-region Total RES (TJ) RES excluding hydroelectric power (TJ)

2000 2010 CAGR56 n=10 2000 2010 CAGR10 n=10

WB and Turkey 603,512 710,675 1.6% 388,874 386,437 -0.1%

WCIS 88,472 174,073 7.0% 47,572 126,271 10.3%

Caucasus 58,464 72,360 2.2% 27,301 17,022 -4.6%

Central Asia 151,298 164,443 0.8% 3,228 2,270 -3.5%

Russian Federation 755,960 740,872 -0.2% 165,176 141,425 -1.5%

ECIS Region 1,657,707 1,862,423 1.2% 632,152 673,424 0.6%

Table 3.6: Evolution of renewable energy supply by sub-region, 2000–2010


In terms of RES technology deployment, al-though hydropower is the largest RES contrib-utor to TPES, it has not increased significantlyover the period as many of the LHP plants wereestablished in the 1990s. Some increase in hy-dropower can be, however, attributed to smallhydroelectric power plants in the WesternBalkans (IEA, 2007).

The greatest growth in renewable energy de-ployment during 2000-2010 has come in theform of wind energy (54.2%) (Figure 3.11). Thisis probably a consequence of RES promotionalschemes and reduced capital costs for wind en-ergy projects. Since adopting RES promotionalschemes in 2008, Turkey has seen a remarkableincrease in wind capacity, by around 1500 MW(UNDP, 2014).

Investment in solar power plants remained mar-ginal (5.4%) across the region during 2000-2010, compared with global growth over thesame period (around 40%) (IEA, 2010).57 Thismay well be due to the significantly higher costsof solar installations compared to fossil fueltechnology. In countries where solar power al-most doubled, such as Albania, Croatia, Turkey,and Ukraine, this was largely due to promo-tional schemes and possibly decreasing tech-nology costs. For example, Ukraine adopted itsFiT in 2009, and over the past four years has ex-perienced the deployment of 400 MW in installed solar PV capacity. As Ukraine’s FiT forsolar declines over time, the race has been on tobuild as much solar PV as possible.

Whilst there seems to be some indication thatfavourable RES promotional schemes have led toincreased deployment, the correlation is not al-ways so clear. For example, although Bosnia andHerzegovina had the highest FiT in the region forsmall-scale solar PV installations and one of thehighest solar radiation potentials, there has been

no significant solar PV deployment so far. Simi-larly, Belarus (with less than 5MW of installed ca-pacity of wind energy) stagnated in terms ofwind power plant deployment despite havingone of the highest FiTs for wind energy in the re-gion (UNDP, 2014). These findings lead to theconclusion that a number of country or region-specific barriers to RE investment exist.

3.9 Barriers and Risks to RESInvestment and Deployment

In order to reconcile the differences in RES pro-motion and deployment, a closer look at the un-derlying investment barriers and their resultingrisks for investors is necessary. Deployment ratesin the region tend to suggest that whilst pay-ment obtained through a direct financial incen-tive may be enough to satisfy the minimum re-quired ROI in one country, it may fail to do so inanother due to specific risks and other factors.This means that not only the level of the FiT, but

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60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%

-10.0%

Figure 3.11: Compound Annual Growth Rates(CAGRs) of RES as a percentage of TPES, 2000–2010


Hyd

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57 This growth has mainly been concentrated in a few countries, namely, Germany, Italy, Czech Republic, France, theUSA and Japan, all of which have favourable promotional schemes and public support policies.

1.5%5.4%

54.2%

13.4%

-1.0%

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Risk Category Barrier Description Example

Technicaland Informa-tional

Limited experience and cost of information

Few countries have local specialistswith the technical skills and capacityrequired to implement RE projects.Also financial advisors and project de-velopers face high costs of informa-tion or lack of quality information inRES technology. This hampers invest-ment and ultimately the deploymentof RES in the region

Project feasibility studies such asmeasuring sunlight hours and riverflow are costly and time intensivewhich may lead to investor hesitation.Likewise lack of financial informationabout the riskiness of a project anduncertainty results in a higher relativecost of borrowing for developers.

Lack of gridaccess and inadequatetransmissionand distributioninfrastructure

Uncertainties about connection, thecondition of the electricity grid andenergy transmission infrastructure in-crease the risk and financing costs ofRE projects and thus affect invest-ment attractiveness. The nature ofelectricity supply for example is re-stricted by the absence of transmis-sion lines from the RES to load centresand by high distribution losses acrossthe region.

Many countries in the region sufferfrom out-dated and deterioratingtransmission infrastructure that ishighly susceptible to distribution loss-es. Soviet era transmission infrastruc-ture in Uzbekistan is highly suscepti-ble to shortages and distribution loss-es. During the Balkans war of the1990s significant transmission infra-structure was lost in Croatia; indeedsome villages remain disconnectedfrom the electricity grid.

Logisticalchallengesand supplychain issues

An incomplete or poorly developedsupply chain including access to REtechnology hardware, qualifiedtechnicians and ease of access formaintenance are all factors consid-ered by investors. Barriers may alsobe created by RE technology localcontent requirements (e.g. requiringa certain % of locally sourced parts)in some countries affecting supplychain options.

Across the region poor local infra-structure, such as roads in remote ar-eas may hamper transportation ofhardware to locations. Proposed localcontent requirements for RE technol-ogy in Russia may discourage invest-ment where technology may be un-suitable to local conditions or spareparts are limited.

Economicand Financial

Difficultydoing business

Public sector regulation and legisla-tion can create barriers in the lawsthat govern RES. Risks arise from thepublic sector’s inability to effectivelyadminister the licence and permitprocesses for RES which can increasetransaction costs, delay returns anddiscourage investment.

On the World Bank “Dealing withConstruction Permits” indicator,ECIS countries ranked poorly; Kaza-khstan (145th), Tajikistan (184th),Uzbekistan (159th), Albania (189nd),Serbia (182nd), Croatia (152nd),Bosnia (175th), Turkey (148th),Moldova (174th), Russia (178th),and Azerbaijan (180th) (IFC andWorld Bank, 2013). Transparency is-sues are especially prevalent in Cen-tral Asia and the Western Balkans re-gions (SEECN, 2013).

CapitalScarcity

Countries in the ECIS usually face ashortfall of available equity whencompared to OECD countries. The re-gion exhibits high finance costs mak-ing many RES projects uneconomicalwithout financial incentives such asFiTs and de-risking instruments, suchas preferential grid access.

Higher lending rates and thereforehigher required minimum ROI for REprojects may be to blame for the ob-served absence of RE deploymentacross the region. High average lend-ing rates are prevalent in Ukraine(18.4%), Tajikistan (25.2%), Georgia(22.1%) and Belarus (19.5%) (WorldBank, 2013).

Table 3.7: Barrier and Risk classifications

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Accessto energy

market

Conditions relating to energy mar-ket impact investment decisions. In-vestors may be reluctant to invest incountries where there are uncertain-ties related to energy market liberal-isation including, access, the com-petitive landscape and price outlookfor renewable energy.

The vertically integrated, state-owned energy production and dis-tribution infrastructure in Turk-menistan, Azerbaijan and Uzbek-istan makes it more difficult for po-tential RE projects to access the elec-tricity market and obtain long termcompetitive prices.58

Market distortions

Market distortions caused by fossilfuel subsidies are prominent in theregion, especially in ex-soviet coun-tries with large non-renewable ener-gy resources such as oil and gas. Inthese countries retail tariffs are notcost-reflective and in some cases areset below cost recovery levels. Fossilfuel subsidies may render RE invest-ment uncompetitive.

Subsidies exist in a number ofcountries, especially the Caucasus,Central Asia and Western Balkans.The effect of market distortionsmay be reflected in the region’sgeneral overall low share of RES inTPES. Whist Turkey has set a targetto increase RES by 30% by 2023,fossil fuel subsidies may converselybe a disincentive to RES investment.In the Western Balkans, similar sub-sidies account for 5-11% of GDP(Kovacevic, 2011).

Political andInstitutional

Transpa-rency

Transparency is vital to attract pri-vate sector engagement. A lack ofcompetition in vertically-integrated,state-owned or energy sector mo-nopolies and their proximity to gov-ernment decision-makers has de-creased the transparency in the en-ergy sectors of many countries. Incountries where government or en-ergy sector decisions lack trans-parency investors face increased riskand additional exposure to planninginsecurity.

Non-transparent permit and licenc-ing processes as well as corruptionare an issue in the region. Accord-ing to SEECN (2013) a lack of trans-parency and corruption are preva-lent in the national energy sectorsof the Western Balkans region(SEECN, 2013).

Governmentcommitment

The absence of a reliable RES de-ployment strategy or long term tar-gets reflect a weak commitment toensuring a reliable RE market andprovide little planning security forinvestors.

The absence of market driven RE in-vestment in some countries may beexplained by the absence of com-mitment and long-term targets.

Retroactivepolicychanges

Legislative security is also crucial.The main barrier to RE investmentcould be the retroactive changes toalready existing promotionalschemes, as they damage the sus-tainability of the investment climate(IEA, 2013).

Although not included in this analy-sis, the Government of the Czech Re-public revised its RE law in 2012 af-fecting the profitability of solar in-stallations which were commis-sioned between January 2009 andDecember 2010. This undoubtedlydamaged the country’s investmentenvironment.

58 Uzbekistan and Tajikistan are currently liberalising their energy market

also specific risks influence project economicsand clearly demonstrate that investment deci-sions are based upon an assessment of risks andreturns and not only on projected returns.

Barriers and risks that impact investment deci-sions fall roughly into the following categories:technical and informational; economic and fi-nancial; legal, political and institutional; and so-cial/cultural. It is important to note that thesebarriers are multifaceted and in many casesthey (a) can be particular to a technology, placeor region and (b) often overlap and intersect. Atleast 12 key types of barriers impede progressin the region (Table 3.7).59

3.10 Overcoming Barriers, De-risking Policiesand Scaling up RE

A key finding of this report and a UNDP report(Waissbein, O., et al, 2013) on de-risking RE in-vestment, is that rather than a problem of cap-ital generation, the key challenge of RES in-vestment and deployment is to address existinginvestor risks that affect financing costs and thecompetitiveness of RES. Investment decisionsare made on the basis of an assessment of bothrisk and projected return and in many cases therisks are assessed as high, making investmentprohibitive.

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Politicalinsecurity,country riskand poorrule of law

Political insecurity, country risk andlegal factors include the risk of capi-tal transfer and risk of force majeuresuch as wars, expropriations, revolu-tions and natural disasters. Investorsperceive these risks and price themin their minimum ROI (OECD, 2013).A fully functioning independent andimpartial judicial system, the rule oflaw, redress and independence ofthe courts are also indispensable toattracting private investors.

Uncertainties or impediments maybe due to war, terrorism and/or civildisturbance, high political instabili-ty; poor governance; poor rule oflaw and institutions; governmentpolicy (currency restrictions, corpo-rate taxes).

According to OECD (2013) indica-tors, all countries in the ECIS regionare exposed to high political risks.From a ranking of 0-7, Belarus,Ukraine and Moldova all rank 7,while the average ranking in CentralAsia is 6.2, the Western Balkans 5.8and the Caucasus 5.7.

Social andcultural

Opposition Although not as common as otherbarriers, local and institutional op-position to RE projects in the regionhinder project approvals and expan-sion. Social and political resistancerelated to NIMBY (not in my backyard) concerns, arise from a lack ofawareness and resistance, predomi-nantly to wind power.

Tensions between upstream anddownstream countries based on theuse of water resources, particularlyfor the construction of large hy-dropower plants in upstream coun-tries, has compounded the energyand water crises in Central Asia. Onesuch ongoing dispute in the regionis between Uzbekistan which op-poses Kyrgyzstan, Tajikistan andUzbekistan.

59 This does not represent a comprehensive list of barriers. A country level assessment should be undertaken on a country-by-country basis. For a comprehensive list of risk barriers and de-risking instruments please refer to: Waissbein, O., et al., (2013)http://www.undp.org/content/dam/undp/library/Environment%20and%20Energy/Climate%20Strategies/UNDP%20Derisking%20Renewable%20Energy%20Investment%20-%20Full%20Report%20(April%202013).pdf

Source: Elaborated by the Authors based on Waissbein, O., et al, 2013; UNDP, 2014.

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Risk Category -BarrierExample

Policy de-riskingInstrument

Financial de-riskinginstrument

Example

Limited experi-ence and costof information

- Capacity devel-opment and localtraining pro-grammes

- Improvestakeholderinformation

- Develop in-vestor guides,technical pre-fea-sibility and feasi-bility studies forinvestors

- The UNDP-GEF project “Removing Barriersto Wind Power Development” provides as-sistance to remove technical and informa-tion barriers by supporting institutional ca-pacity building, technical wind resource as-sessments, and training for local operationand maintenance responsibilities.

- To decrease the cost of information andsimplify complicated licencing processesfor potential investors, UNDP and the Ser-bian Ministry of Energy have published aninvestor guide explaining licences and per-mit processes for small hydro, wind, solar,geothermal, and biomass power plants(UNDP, 2013a).

Lack of grid ac-cess and inade-quate transmis-sion infrastruc-ture

- Strengthen theoperational per-formance oftransmissioncompanies

-Develop gridcode for RE tech-nologies and as-sure grid access

- Provide priori-tised, guaranteedor complimentaryaccess to the grid

Assist transmis-sion companies inaccessing capitalfunding via e.g.public loans, orloan guarantees

- In Kazakhstan a UNDP GEF project sup-porting the launch of a wind atlas providingpre-feasibility studies is available and pro-vides interested investors with detailed dataabout wind resources in the country, thusreducing the costs of such studies for poten-tial investors (UNDP, 2014).

- Kazakhstan, Tajikistan, Uzbekistan, Albania,Serbia, BiH, Turkey, Belarus, Moldova and Ar-menia give RE developers priority when ap-plying for access to the grid.

- Kazakhstan, Tajikistan, Moldova, Belarus,Georgia offer complimentary grid accessfor RE.

Logistical chal-lenges andsupply chain is-sues

- Provide trainingfor local O&M re-sponsibilities

- Conduct feasibil-ity assessments

- Providing potential investors with projectfeasibility studies which explore possible lo-gistical challenges or supply chain issues.

Governanceand increasedtransparency

- Increased trans-parency legisla-tion and reforms

The majority of countries in the region60

have improved their transparency throughan OECD initiative, the “Anti Corruption Net-work for Eastern Europe and Central Asia(ACN)” supports countries in implementinganti-corruption polices, by criminalising cor-ruption and preventing corruption throughimproved transparency (UNDP, 2014). Overtime this will benefit RE investment and re-duce underlying governance risk.

Table 3.8: Possible Policy and Financial De-risking Options

60 Albania, Armenia, Azerbaijan, Belarus, BiH, Bulgaria, Croatia, Georgia, Kazakhstan, Kyrgyzstan, FYROM, Moldova,Montenegro, Russia, Serbia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan.

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Policyde-riskingInstrument


Example

Governmentcommitment

- Commitment totargets and RESpromotionalschemes

- Legislative guar-antees

Governments can commit to clear RES tar-gets. For example in order to show clearlegislative security for RES, Uzbekistancommits to legislation for foreign investorsfor 10 years.

Retroactivepolicy changes

- Deploymentcaps

In order to avoid retroactive policy changesgovernments have implemented deploy-ment caps in line with RES promotion pro-grammes to slow down or limit deploymentto a sustainable level. Caps are currently im-plemented in Croatia, Turkey and FYROM inorder to limit the output of a particular RESto an installed MW output capacity.

Political insta-bility, countryrisk and legalfactors

- Risk sharingproducts by de-velopment bankssuch as politicalrisk insurancecovering expro-priation, politicalviolence.

A number of development banks and inter-national financial institutions offer loans,guarantees and grant programmes whichcan partially de-risk investments in RES

Difficulty doingbusiness

- Financial sectorpolicy reformsfavourable tolong-term infra-structure.

- Removal of bar-riers to market en-try e.g. exemp-tions from elec-tricity productionlicences

- Strengthen in-vestors knowl-edge

- Private publicpartnerships

- Financial prod-ucts by develop-ment banks to as-sist project devel-opers to gain ac-cess tocapital/fundinge.g. public financeloan guaranteesand public equity

- Countries can improve the ease of doingbusiness for RES developers by streamliningapplication processes. Georgia, Serbia, Kaza-khstan and FYROM offer developer manualsand pre-feasibility studies to decrease infor-mation-related costs. Georgia streamlined itspermission and tender processes by provid-ing a clear set of procedures to obtain landuse, water use and construction permits forpotential SHP developers. Other countrieshave chosen to exempt small RES powerplants from the otherwise obligatory licencefor electricity generation. SHPP less than13MW in Georgia and RES power plants lessthan 1MW in Serbia are exempt from elec-tricity production licences. Such exemptionscan benefit small RES developers with lowcapital resources and relatively high costs.

Capital scarcity Strengthen in-vestors’ (debt andequity) capacityand familiaritywith regard to re-newable energyprojects throughindustry-financedialogues, work-shops and public-private partner-ship building

-Financial prod-ucts by develop-ment banks to as-sist project devel-opers to gain ac-cess tocapital/funding.These can includepublic loans; pub-lic loan guaran-tees; public equity

A number of development banks and inter-national financial institutions offer loans,guarantees and grant programmes - TheUNDP-GEF project “Removing Barriers toWind Power Development” will focus on acombination of financial de-risking instru-ments for wind energy investments. Instru-ments such as grant funding to cover the ini-tial high risk, early development stage costsof wind energy projects, and negotiatingFiTs for wind power developers, will signifi-cantly increase the possibility of attractinginvestment for large-scale wind investment.

Polit

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nanc

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Countries still suffering from investment barriersshould not simply copy existing promotionalschemes in order to scale up commercially-drivenRES. Instead, a number of complementary in-centives and de-risking instruments should beintroduced to target the residual risks that singleinstruments alone cannot address (Waissbein, O.,et al., 2013). Several possible policy and financialde-risking options exist (Table 3.8). 63

Although a FiT or other instrument may havebeen in place for several years, this may not di-

rectly translate to investment and deployment ofRE. This demonstrates that market transforma-tion takes time and other barriers to investmentmay remain as pertinent risks to address. Many ofthese barriers are deeply embedded, such as fos-sil fuel subsidies, country specific political risksand high financing costs from commercial banks.These non-price barriers require additional de-risking efforts. Policy de-risking, rather than work-ing to transfer risk like a financial instrument,aims to systematically remove the underlyingbarriers to investor risk (Waissbein, O., et al., 2013).

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Policyde-riskingInstrument


Example

Market distortions

- Reform fossilfuel subsidies

- Establish a har-monised, well-regulated and un-bundled energymarket61

Many countries in the region have commit-ted to tariff reforms, elimination of crosssubsidies and to energy price increases.Countries have begun to undertake assess-ments of fuel subsidies; to phase- out/downsubsidies; to introduce awareness cam-paigns; to design transfer programmes thatprovide subsidies to vulnerable socialgroups.

Accessto energy market

- Establish a har-monised, wellregulated and un-bundled energymarket

- Reform FossilFuel Subsidies

Uzbekistan and Tajikistan have both startedto liberalise and unbundle their energy mar-kets (generation, transmission, distributionnetworks).

Opposition Awareness-rais-ing campaignsand communityinvolvement withproject end-users

In 2007 Turkey introduced the RenewableEnergy Law which develops the principlesand procedures applicable to increasingand supporting energy developing publicawareness about energy and to the use ofrenewable energy resources in energy gen-eration, transmission, distribution and con-sumption.62

61 „Unbundling of vertically integrated energy markets refers to the process by which energy companies’ generation andsale operations are separated from their transmission networks via legislation. This is often done to break up monopo-lies and achieve more competitive markets“.

62 Government of Turkey, 2007 Law No.5346 on Utilisation of Renewable Energy Resources for the Purpose of GeneratingElectrical Energy

63 This does not represent a comprehensive list of de-risking instruments. A country level assessment should be undertaken ona country-by-country basis. For a comprehensive list of risk barriers and de-risking instruments please refer to: Waissbein, O.,et al (2013) http://www.undp.org/content/dam/undp/library/Environment%20and%20Energy/Climate%20Strategies/UNDP%20Derisking%20Renewable%20Energy%20Investment%20-%20Full%20Report%20(April%202013).pdf

Soci

al

Countries should identify critical barriers andaddress them with tailored and country spe-cific public de-risking instruments where pos-sible. Only where risks and incremental costs re-main, should public de-risking instruments becombined with direct financial incentives.

3.11 Tracking Renewable Energy

The SE4ALL Global Tracking Framework hasbeen exploring energy issues that should beaddressed and knowledge that has to be gen-erated in order to monitor the progress of theSE4ALL initiative. However, the lack of avail-able data and the limited access to informationon RES for the ECIS region as a whole, as seenfrom the findings in this report, are issues thatrequire further investigation. Some countrieslack the capacity to produce high-quality dataand analysis, and only a few countries havethe ability to track private sector investmentsand energy budgets. This lack of capacityposes an impediment to the effective moni-toring and tracking of the RE market. Further-more, there is the issue of access to existing information and data, as many ECIS adminis-trations choose not to share environmentaland energy information.

The identification of suitable data for the indi-cators required in the Global Tracking Frame-work (GTF) can pose significant methodologicalchallenges. However, the analysis in this chap-ter has attempted to address most of them.64


An analysis of the renewable energy situation inthe ECIS clearly shows that despite excellentgrowth potential, actual deployment remainscomparatively low and the energy mix is dom-

inated by fossil fuels (coal, oil, and natural gas).Although some countries in the region havebegun ambitious journeys to expand their RESin the near future, a number of existing barriersprevent investments from reaching their fullpotential. In particular, high initial investmentcosts for renewable energy projects and a lackof competitiveness when compared to fossilfuels remain major limitations to scaling up theuse of RES and engaging the private sector. Anumber of key conclusions emerge from thisanalysis:

Higher financing costs reflect a number ofperceived or actual informational, technical,regulatory, financial and administrative bar-riers and their associated investment risks inthe region. Whilst countries employ a numberof promotional schemes for RE in the region,analysis reveals important barriers to invest-ment remain.

Whilst there is evidence that favourable RESpromotional schemes have led to increased de-ployment, the correlation between promotionand deployment is not always so clear. Experi-ence has shown that investment barriers andrisks should be targeted with policy and fi-nancial de-risking instruments first, beforeselecting a financial incentive instrument totarget the remaining incremental cost nec-essary to make each technology price compet-itive.

The high level of fossil fuel subsidies distortsmarket price signals and reduces the competi-tiveness of RES over fossil fuels. To achieve thegoals of SE4ALL by 2030 the competitivenessof RE technologies must grow unhinderedagainst their fossil fuel counterparts. This re-quires the reduction and gradual phasing out offossil fuel subsidies, not only in the ECIS regionbut globally.

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64 For more information about the indicators suggested from the Global Tracking Framework and the indicators usedfor the chapter on renewable energy in the ECIS, please see Annex 20

There is a noticeable absence of diversificationin RES in the region, with hydropower account-ing for some 63.9% of TPES and LHP represent-ing over 93% of the electricity capacity fromRES. In order to increase RES diversification,emphasis must be placed on promoting andsupporting other forms of renewable energy(solar PV, wind, biomass, geothermal) andon helping to drive down the associated costsand risk factors of each technology. This can bereinforced through long-term commitments tospecific renewable energy targets and detailedrenewable energy roadmaps. Targets are anindication to investors that governments arecommitted to pursuing a strategy of in-creasing the share of RES.

The findings reiterate the need for selectedpolicy and financial de-risking instrumentsto attract private investment. Access to en-ergy markets needs to be simple and transpar-ent. Improvements can be made in the provi-

sion of qualified and detailed informationabout RES opportunities and, in particular,commercial banks need to be better educatedabout the risks and returns associated with fi-nancing renewable energy projects. The en-hanced engagement of the banking sector iscritical in increasing investment in RES. How-ever, banks must first have a clear understand-ing of the investment risks involved in order tobe in a better position to finance renewable en-ergy projects.

Public policy instruments can play an importantrole in de-risking RE projects and help to driveand encourage private sector investment inRES. Ultimately, it is the private sector thatwill drive new investment in renewable en-ergy, as public and international donor fundingon its own is not enough to drive the level of in-vestment needed to develop RES. Thus, RE in-vestment de-risking must be at the core of anystrategy that promotes renewable energy.

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ANNEXES

In the interests of the environment, the Annexes to this Report have not been printed. They are in-stead available on the UNDP RBEC Regional Centre website and can be accessed via the followinglink: http://www.scribd.com/collections/4298634/Environment-Energy

Annex 1: Energy Access - Overview of data gaps

Annex 2: Energy Access -Tracking

Annex 3: Energy Access - Draft Questionnaires for Measuring Household Access to Electricity

Annex 4: Energy Access - Draft Questionnaires for Measuring Household Access to Cooking Solutions

Annex 5: Energy Access - Mapping Data

Annex 6: Energy Access - Additional Regional Data and Information

Annex 7: Energy Efficiency - Additional Regional Data

Annex 8: Energy Efficiency - Sector-Specific Data (other than the Building Sector)

Annex 9: Energy Efficiency - Residential Buildings Sector-Specific Data

Annex 10: Energy Efficiency - Legislation and Policies in the ECIS Region

Annex 11: Energy Efficiency - Finance

Annex 12: Renewable Energy – Total Energy Supply

Annex 13: Renewable Energy – Total RES Electric Installed Capacity by Technology

Annex 14: Renewable Energy – Potential for Renewable Energy in Thousands of MW by Type of Technology

Annex 15: Renewable Energy - RES Policy Instruments in the ECIS Region

Annex 16: Renewable Energy - RES Policy Instruments in the ECIS Region (Definitions of Indicators)

Annex 17: Renewable Energy – Renewable Energy Targets

Annex 18: Renewable Energy – Evolution of Renewable Energy in the ECIS Region

Annex 19: Renewable Energy – Imports and Exports in Terms of Renewable and Non-renewable in the ECIS Region

Annex 20: Renewable Energy - Tracking Issues

Annex 21: UNDP - SE4ALL Regional Questionnaire on Renewable Energy


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Sustainable Energy and HumanDevelopment in

Europe and the CIS

U N I T E D N A T I O N S D E V E L O P M E N T P R O G R A M M E


UNDP Europe and the CISBratislava Regional CentreGrosslingova 35811 09 BratislavaSlovak RepublicTel.: +421 2 5933 7111Fax: +421 2 5933 7450http://europeandcis.undp.org


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