This document discusses options for developing a financing strategy to promote energy efficiency retrofits in Armenia. It notes that buildings account for a large portion of Armenia's energy use and emissions. Energy costs burden many lower-income households. The document proposes using energy efficient retrofits but identifies barriers like lack of awareness, an immature market, and the high upfront costs retrofits pose for many. It assesses various financial instruments and recommends a package involving grants from the Green Climate Fund to subsidize low-income households, technical assistance, and concessional loans from the EIB to local banks to finance retrofits. The strategy aims to maximize private and public finance to achieve energy efficiency goals while ensuring affordability.

1. International Development Practitioner Perspective:
Climate change investments for Armenia: development finance strategy for energy efficiency
Jana Imrichova I July 2019 I World Bank Course

2. • 50% of energy use in buildings depends on imported fossil fuels
• 24% of CO2 emissions come from energy use in buildings
• Approximately 30% households spend more than 10% of their income on energy
bills (this poses a challenge for lower income segment of population)
• 45% of apartments in multi-family buildings have indoor temperatures in winter
below 19 Celsius degrees (source: UNDP)
POSSIBLE SOLUTION:
Energy efficient (EE) retrofits
Barriers to overcome
• Lack of awareness about EE retrofit benefits among residents and public buildings
• The market for EE products and services is immature
• Regulatory and policy environment not fully set for EE
• The lower and middle income families cannot afford to cover capital costs in one go
• Local banks reluctant to provide loans (perception of risk)
• Monitoring, reporting and verifications (MRV) systems for EE not in place
TASK: Identify the most cost-effective package of financial
instruments to achieve a risk-return profile that catalyses
private sector investment at scale while keeping in mind
investment criteria
OPTION ASSESSMENT
• Policy de-risking needed (prepare policies and regulations) - no financial return
• Capacity building and technical assistance needed (MRV, home owners, ESCOs etc.) -
no financial return
• Financial de-risking needed:
1. Capital limited - grant not justifiable to be used to simply pay for EE for all (possible market
disruption) – targeted incentives for low and middle income to ensure EE uptake likely
needed
2. Loans of limited availability/if available making EE expensive at the local market –
concessional loans likely needed to increase the interest among the target beneficiaries
Armenia: case study
PROBLEM
DEVELOPMENT GOAL: Enable the lower income
households to access finance for Energy
Efficiency solutions (while promoting low-
carbon/climate change mitigation solutions)

3. Sources of finance for
energy efficiency
retrofits

4. Finance options to roll our EE solutions on the
ground:
• Residents´ own resources (limited especially
among the lower income segment)
• ESCOs (financing with internal funds of the ESCO
and may involve own capital or equipment lease)
• Debt financing – third party (either loan taken by
the residents or ESCOs)
Finance options for policy de-risking and capacity
building (non-reimbursable grant required – no
financial return on these types of needed
interventions):
• Government (national budget)
• Bilateral donors willing to finance technical
assistance for EE
• National or international financial institutions
(subject to availability of their internal funding
that is earmarked for this type of activities)

5. FINANCIAL SOLUTION

6. Green Climate
Fund
UNDP
EIB
Local banks
Ministry of Natural Protection
(executing entity)
Concession
al loan
(i.e. better
than market
rates)
Subsidy
(partial
costs
covered)
Grant
Residents and public
sector/municipalities
Grant
• UNDP to request grant from Green Climate Fund for the
capacity building and policy de-risking as well as partial
subsidies that would target the low-income population
only – based on clearly defined social and economic
eligibility criteria
• Management of the grant to be done at the national level
(country ownership)
• UNDP is not a loan provider = partnership needed with an
international financial institution
• EIB consulted and agreed to provide concessional term
loans to the local banks for the residential EE
• Local banks add their margin to the EIB loan and provide
loan products to the residents (without EIB loan the terms
of those lose products would be higher and not affordable
for most interested residents)
• For the socially most vulnerable even cheaper loans would
not be sufficient motivating factors – part of grant from
Green Climate Fund is translated into partial subsidy for
the lowest income households (keeping in mind that in
Armenia higher income population often lives in the same
blocks of flats of higher income residents, thus leaving no
one behind is crucial to successfully implement EE.)
Financing structure
Private resources of the
residents

7. Maximizing Finance for Development approach
Private finance of the residents invested into energy efficient retrofits
+ National Funding (government support)
+ Multilateral Financial Institution Funding (loan)
+ Dedicated Climate Change Mitigation Funding (Green Climate Fund - grant)
+ UNDP support (in-kind contribution)
= development objective achieved

8. Thank you for your attention!