Renewable and Efficient Energy: Pathways to a Better Future May 19, 2009 Sophia, Bulgaria Brian T. Castelli Executive Vice President Alliance to Save Energy The Role of Energy Efficiency in Energy Security & Climate Change

Current Energy Situation Security Climate Change Energy Efficiency’s Importance & Potential The Challenges of Energy Efficiency in the Region Private Sector Role in Energy Efficiency Overcoming Barriers to Energy Efficiency Alliance work in the region Presentation Outline

Current Energy Situation

Security

Climate Change

Energy Efficiency’s Importance & Potential

The Challenges of Energy Efficiency in the Region

Private Sector Role in Energy Efficiency

Overcoming Barriers to Energy Efficiency

Alliance work in the region

Features of the Current Energy Market Tight Supplies Growing Demand Limited Spare Capacity Heightened Geopolitical and Investment risk Higher Prices Climate Concerns … an UNSUSTAINABLE TRACK CLIFF AHEAD (sorry) Source: Frank Verrastro, CSIS

Tight Supplies

Growing Demand

Limited Spare Capacity

Heightened Geopolitical and Investment risk

Higher Prices

Climate Concerns

Global Energy Consumption Source: EIA /IEO 2007 & Frank Verrastro, CSIS Liquids Natural Gas Coal Nuclear Hydro/Renewables 23% 7% 26% 38% 6% 2005: 447 Quad Btu 24% 34% 28% 8% 6% 2030: 702 Quad Btu

Geopolitical Concerns Abound Russia Policy US Refinery Bottlenecks Europe Gas Supplies Europe Oil Supplies Iran Nuclear Ambition Iraq: Sabotage Nigeria Civil Unrest Latin America Resource Nationalism N-Korea Nuclear Ambition US Hurricanes China Demand increase Strait of Malacca Piracy Pakistan Political Turmoil Source: Frank Verrastro, CSIS

Climate Change !

Imperatives for Energy Efficiency: Energy Use is a Global Climate Issue Source: Energy Information Administration

CO 2 Emissions - 450 Stabilisation Case By 2030, emissions are reduced to some 23 Gt, a reduction of 19 Gt compared with the Reference Scenario Source: IEA World Energy Outlook 2007 & Frank Verrastro 10 15 20 25 30 35 40 45 2005 2010 2015 2020 2025 2030 Gt of CO 2 CCS in industry CCS in power generation Nuclear Renewables Switching from coal to gas End Use electricity efficiency End Use fuel efficiency Reference Scenario 450 Stabilisation Case 27 Gt 42 Gt 23 Gt Energy-Related CO 2 Emissions

So, Where Are We???? Facing Simultaneous Challenges of: Poverty/Equity, Climate Change with New Players, New Alignments, New Rules, and Outmoded Institutions

Facing Simultaneous Challenges of:

Poverty/Equity,

Climate Change with New Players,

New Alignments,

New Rules, and

Outmoded Institutions

As an energy resource, efficiency is: CHEAPER Each $1 invested in Energy Star program = $75 in energy cost savings and $15 of investment in new efficiency technologies QUICKER In 2001, California cut peak electricity use by 10% in less than a year CLEANER “ Negawatts” produce NO ENVIRONMENTAL FOOTPRINT MORE SECURE A “homegrown” resource! Why Energy Efficiency?

As an energy resource, efficiency is:

CHEAPER

Each $1 invested in Energy Star program = $75 in energy cost savings and $15 of investment in new efficiency technologies

QUICKER

In 2001, California cut peak electricity use by 10% in less than a year

CLEANER

“ Negawatts” produce NO ENVIRONMENTAL FOOTPRINT

MORE SECURE

A “homegrown” resource!

Globally, EE is One Possible Means to Contain Demand

Energy Efficiency at the Nexus Source: Frank Verrastro, CSIS Economic Objectives Environmental Objectives Security & Foreign Policy Objectives Energy Efficiency Renewable Energy Nuclear Oil Coal Natural Gas Carbon Capture and Storage Affordable/Accessible Promotes/Supports Economic Growth & Employment Environmentally Benign Low/no emissions Promotes/Supports Sustainable Environment Defensible Reliable and Secure

Plenty of Opportunity for Improving Energy Intensity Source: Frank Verrastro, CSIS

Energy Efficiency: Powering the U.S. Economy for 30 Years

Huge EE Potential Remains 40% Energy Efficiency Adapted from McKinsey Analysis Energy Efficiency should be fully considered in GHG reductions. All items to the left of the arrow represent “negative marginal costs”

• Russia is very rich in energy resources and self-sufficient in fuels. Energy sector highly significant in Russian economy. Very high Energy Intensity (energy needed to produce per unit of GDP) in Russia and many FSU countries. • Supplying HEAT accounts for about 45% of all domestic energy use; close to 50% of fossil fuel use . • Potential estimated at 45% of current consumption. Huge Potential for Energy Efficiency Source: Wall Street Journal, 8 May 2006

• Russia is very rich in energy resources and self-sufficient in fuels. Energy sector highly significant in Russian economy.

Very high Energy Intensity (energy needed to produce per unit of GDP) in Russia and many FSU countries.

• Supplying HEAT accounts for about 45% of all domestic energy use; close to 50% of fossil fuel use .

• Potential estimated at 45% of

current consumption.

Inefficiencies Strain Poor Households in Region

2 major EE markets:  privately held industrial enterprises  municipal utilities and housing. District heating, formerly fully municipal, has a growing share of private ownership through leasing or privatization . Private sector provides:  equity for investments  energy-saving goods and services. Private sector in financing : • ESCOs, public-private partnerships, third party financing • Proven effective for utility infrastructure but seldom applied. • Negotiations to create ESCOs and use performance contracting were especially slow and difficult. Private Sector Role in EE in the FSU

2 major EE markets:

 privately held industrial enterprises

 municipal utilities and housing.

District heating, formerly fully municipal, has a growing share

of private ownership through leasing or privatization .

Private sector provides:

 equity for investments

 energy-saving goods and services.

Private sector in financing :

• ESCOs, public-private partnerships, third party financing

• Proven effective for utility infrastructure but seldom applied.

• Negotiations to create ESCOs and use performance contracting

were especially slow and difficult.

Legal reforms attracting some investment: • Private participation now allowed in urban heating • Gradual privatization and elimination of subsidies • Prices expected to rise over time to cost-recovery levels When done properly:  More effective management  Transparent accounting  Improved customer service & QC But a common pitfall in FSU countries: • CHPs privatized, DH remained municipal, & municipal facilities given priority in sales • RESULT: private CHPs failed (under-loaded, therefore less efficient and higher priced) Environment for Private Sector is Improving

Legal reforms attracting some investment:

• Private participation now allowed in urban heating

• Gradual privatization and elimination of subsidies

• Prices expected to rise over time to cost-recovery levels

When done properly:

 More effective management

 Transparent accounting

 Improved customer service & QC

But a common pitfall in FSU countries:

• CHPs privatized, DH remained municipal, & municipal

facilities given priority in sales

• RESULT: private CHPs failed

(under-loaded, therefore less efficient and higher priced)

1) POLICY Legal & regulatory frameworks must be improved…  Create incentives for promoting energy efficiency  Open the energy sector to private participation  Promote metering and DSM measures  Eliminate subsidie s ~ Energy tariffs should recover costs ~  Modernize energy standards & technical regulations  Promote energy efficiency services market Overcoming Barriers to EE in the Region

1) POLICY

Legal & regulatory

frameworks must be

improved…

 Create incentives for

promoting energy efficiency

 Open the energy sector to private participation

 Promote metering and DSM measures

 Eliminate subsidie s

~ Energy tariffs should recover costs ~

 Modernize energy standards & technical regulations

 Promote energy efficiency services market

2) CAPACITY and AWARENESS • Strengthen national agencies for:  setting energy efficiency targets  developing programs  ensuring implementation • Train energy managers and auditors • Cultivate partnerships among: energy consumers, service providers, financiers • Provide Information : test EE models, document case studies, prepare guidelines, advocate. 3) FINANCING - Need mechanisms, such as…  loan funds  vendor credits  leasing  credit guarantees  carbon finance Overcoming Barriers to EE in the Region, cont.

2) CAPACITY and AWARENESS

• Strengthen national agencies for:

 setting energy efficiency targets

 developing programs

 ensuring implementation

• Train energy managers and auditors

• Cultivate partnerships among:

energy consumers, service providers, financiers

• Provide Information : test EE models, document case

studies, prepare guidelines, advocate.

3) FINANCING - Need mechanisms, such as…

 loan funds  vendor credits  leasing

 credit guarantees  carbon finance

Purpose: to provide EE knowledge to municipalities, utilities and housing associations to improve heating and water supply Scope: 17 countries in Eastern Europe and FSU Vehicle: dissemination through web site and events. Topics:  project financing  public awareness campaigns  municipal planning, but mainly…  POLICY REFORM - improving & creating laws to promote EE Our Most Recent MUNEE Work: In-depth assessments of policies, programs and key issues on 1) urban residential heating 2) the impact of EE on ability of poor to afford heating Municipal Network for EE: MUNEE (http://www.ase.org/section/program/munee/)

Purpose: to provide EE knowledge to municipalities, utilities

and housing associations to improve heating and water supply

Scope: 17 countries in Eastern Europe and FSU

Vehicle: dissemination through web site and events.

Topics:

 project financing

 public awareness campaigns

 municipal planning, but mainly…

 POLICY REFORM - improving & creating laws to promote EE

Our Most Recent MUNEE Work:

In-depth assessments of policies, programs and key issues on

1) urban residential heating

2) the impact of EE on ability of poor to afford heating

Supported creation of RENEUER in 1999 ( with Bulgarian Center for EE, EnEffect ) • Regional Network for Efficient Use of Energy & Water Resources for Southeastern Europe • Albania • Bosnia-Herzegovina • Bulgaria • Croatia • FYR Macedonia • Moldova • Romania • Serbia & Montenegro Alliance in Southeastern Europe Common state of windows in CIS countries Gabrovo, Bulgaria

Supported creation of RENEUER in 1999 ( with Bulgarian Center for EE, EnEffect )

• Regional Network for Efficient Use of Energy & Water Resources

for Southeastern Europe

• Albania • Bosnia-Herzegovina • Bulgaria • Croatia

• FYR Macedonia • Moldova • Romania • Serbia & Montenegro

Contact Us! Brian T. Castelli Executive Vice President [email_address] 202-857-0666 www.ase.org