This document discusses energy efficiency reforms in Ukraine's building sector. It finds that Ukraine's heating sector is highly inefficient compared to EU countries, consuming over 2x more energy per square meter. Success requires coordinated action in 3 pillars: legislation, financial mechanisms, and communications. Estimates suggest reforms could save over $5 billion annually through reduced subsidies and gas imports while creating thousands of new jobs. Key actions proposed include establishing an S2I Fund to finance projects, prioritizing thermoregulation and insulation, and expanding the role of municipalities in initiating and administering efficiency projects based on Lithuania's successful model. Significant financing sources were also identified to support municipal energy efficiency projects.

1. МІНІСТЕРСТВО РЕГІОНАЛЬНОГО РОЗВИТКУ
Energy Efficiency of buildings reform
Strategic vision and the role of municipalities
December 1, 2015

2. 2
Current state of the heating sector (selected indicators)
2.0х
higher heat consumption per m2 comparing to EU countries with similar
climate
40%
multistory buildings with heat meters installed
20%
multistory buildings have condominiums (HOA) and can independently
perform EE measures
10 bcm
excessive gas consumption in heating sector
Source: Team analysis

3. 3
Economic potential estimated at USD 5 bln per annum
2 bln USD 2 bln USD
Annual reduction of HUS
subsidies
Annual reduction of
natural gas imports
1 bln USD
EE buildings market
capacity per annum
Energy independence
and decrease of Russia`s
political influence
50-100 ths
New jobs
20 million tons
Annual reduction of CO₂
emissions
Source: Team analysis

4. 4
Success of the reform relies on 3 pillars
Legislation environment
~8 Primary Laws,
~40 Secondary Laws
Financial mechanism
investment needs of
~USD 50 bn
Communicational
campaign
83% of population consider tariffs
as non transparent and unfair
Target – 10 bcm
decrease of annual gas consumption
and imports
CONFIDENTIAL

5. 5
EE market is the tool to achieve the goal of the reform
Funding sources
State Budget Consumers
Banks
Donors and
IFOs
Business
(ESCO)
0,9 bcm
Reduction of annual gas
consumption and import
2,0 million tons
Reduction of annual CO₂
emissions
250 mln USD
Annual reduction of
utility bills for consumers
Constant exposure
to trade balance
(cost of gas imports)
200 mln USD
The predicted effect on 1 bln USD
investments in EE projects
Source: Team analysis

6. 6
Mid-term effect forecast (5-7 years)
The amount of
investments
The annual reduction in
energy consumption
(in gas equivalent)
New jobs creation
Reform effect depending on investments attracted
1,5 3,0 5,0
USD bln
1,2 1,7 2,3
bcm
30 50 100
Source: Team analysis

7. 7
7
Legislative environment development progress (selected acts)
Framework EE legislation
• Law “On EE” (Directive 2010/27/EU)
• Methodology of EE indicators monitoring
Energy efficiency in consumption
• Law “On ESCO” (adopted)
• Law “On condominiums” (adopted)
• Law “On EE of buildings” (Directive 2010/31/EU)
• Law “On HUS” and “Commercial metering”
EE in heat supply and of distribution
• Law “On mandatory thermoregulation stimulation”
• Law “On regulation of heating areas”
Key changes in legislation
~8 Laws, ~40 Secondary Acts
Coordination with Donors
and IFIs
(monthly meetings)

8. 8
8
EE support program launched in late 2014
Government compensates certain percent of loan principal
(for loans provided for EE measures)
UAH 1 050 mln
loans granted as of 11.23.2015
20% 30% 40% 70%
of loan principal for
solid fuel boilers for
ind. houses
of loan principal for
other EE equipment
materials for
households
of loan principal for
EE equipment and
materials for HOA
of loan principal for
households, who
receive HUS subsidies
Since Nov 2014 Since May 2015 Since Aug 2015
Source: SAEE as of 11.23.2015

9. 9
9
2.3
12.4 28.0 29.4 35.0 41.4 50.2 71.0
130.4
250.1
389.5
583.1
810.9
1,054.5
140 737 1,604 1,688 2,007 2,339 2,838 3,983 7,400
14,461
23,107
34,756
49,113
64,981
11/1/2014 12/1/2014 1/1/2015 1/28/2015 3/12/2015 4/1/2015 5/5/2015 6/8/2015 7/6/2015 8/3/2015 8/31/2015 28.09.2015 26.10.2015 23.11.2015
Solid fuel
boilers
27%
Materials for
households
72%
Materials for
HOA
1%
Program participation rate increases, but HOA share is low
EE loans dynamics (accumulated)
Number of loans, ths
Amount of loans, UAH mln
EE loans segmentation as of 23.11.2015
Source: SAEE as of 11/23/2015

10. 10
Local authorities support makes a difference
43.9
114.9
Average for Ukraine Lviv oblast
Additional
compensation of 15-
20% interest rate for
loan (Lviv oblast)
Amount of loans granted under the Program, UAH mln
х 2,6 times
Source: SAEE as of 11/23/2015

11. 11
EE measures prioritization should be done properly
Thermoregulation
and heat metering
(Installation of
meters and IHU)
House insulation
Heat production and
supply
In the absence of metering and
regulation there is no possibility to
reduce HUS bills
Will avoid redundant production
capacity and infrastructure
1
2
3
 Measures can be implemented simultaneously (e.g. installation of IHU and insulation)
 Measures at HOA level are much more effective than individual measures at
apartments level
Source: Team analysis

12. 12
S2I Fund shall provide financing and institutional support
S2I Fund
International
Donors
State
Budget
Households/HOA*
Return on investments
through savings and
subsidies
EE Projects
Funding
Savings
Subsidies
Funding
Banks, IFOs,
ESCO
25%
current interest rate
5-10%
interest rate for EE projects
financing through the S2I Fund
Technical and administrative
projects support:
 Energy audit and technical supervision
 Fund institutional Support at CEB level
 Municipalities and local authorities
 Programs of technical assistance from
donors and IFOs
S2I Fund (simplified model)
*HOA – house owners association

13. 13
Municipalities’ role in EE buildings renovation (example of Lithuania)
State support program for multistory buildings renovation
(preferential loans, grants, technical assistance)
HOA MunicipalitiesProject Administrator
(private or municipal)
Energy audit
(investment plan)
Project
documentation
Technical
supervision
Projects
works
Up to 35% grant
3% loan
Up to 100%
reimbursement
Up to 100%
reimbursement
Up to 100%
reimbursement
oror
751 (20%)
approved projects
2 907 (80%)
approved projects
 3 658 approved projects (10% of total multistory building stock) in 2013-15
 80% of the projects initiated and administered by municipalities
Source: BETA, as of 11.06.2015

14. 14
Local authorities support of EE programs in the housing sector
The program for EE loans
principal reimbursement
extended for 2016
(CMU №929 of 11.11.2015)
S2I Fund launch planed
for 2016
(supported by the German
Government and the EU
Commission)
UREEFF program launch
scheduled for 2016
(administered by EBRD)
Local authorities support for EE projects implementation in
residential sector
Popularization of EE
measures among
population and creation of
condominiums
Active participation in
initiation and administration
of projects
(Lithuanian experience)
Participation in projects
financing
(Lviv experience)

15. 15
UAH 4,7 bln
for 2016
State Regional Development Fund
USD 382 mln
Ukraine District Heating Energy Efficiency
Project
EUR 500 mln
(part on EE)
Untied financial loan
EUR 200 mln
(part on EE)
Ukraine Early Recovery loan
EUR 400 mln
(part on EE)
Ukraine Municipal Infrastructure Program
EUR 96 mln
Eastern Partnership on Energy Efficiency and
Environment (E5P Fund)
Sources of EE financing for municipal projects
Source: Team analysis

16. 16
Technical Assistance in EE
~ USD 100 mln
total budget of technical
assistance in EE*
 Technical assistance for projects
implementation
 Grant funding component
 Institutional development
 Trainings/seminars
Source: Team analysis
* donors projects only subjected to registration in METD