Methodological and Technological issues in Technology Transfer

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Case Study 10

Demand Side Management (DSM) in Ukraine
Sergey Surnin, ARENA-ECO, Kiev
Stefan Kessler, INFRAS, CH 8002 Zurich
William U. Chandler, Battelle Washington

Keywords: Ukraine, Switzerland, USA, buildings, energy efficiency, government driven transfer, bilateral and multilateral assistance, business & dissemination model, N N.

This case study highlights the transfer mechanisms leading to municipally and cooperatively owned energy efficiency investments at the end user level in public or residential buildings in Kiev. The transfer has been managed by the Agency for Rational Energy Use and Ecology (ARENA-ECO, 1998) Kiev, supported by the bilateral cooperation agencies of the US and Switzerland. The cooperation has strengthened the capacity for implementing larger multilateral assistance projects.

In Kiev as in many other Central and Eastern European cities, the energy for heating and warm water is supplied to buildings through district heating systems with high transmission/distribution losses and low energy efficiency at the end user level. The supplied heat is produced on the basis of natural gas imported mostly from the Russian Federation - the consumption is paid by public, commercial and private building owners in local currency. With the goal of economic transformation, energy pricing and related government policies are in a painful process of restructuring to make prices reflect market realities at a politically acceptable social cost. The energy pricing reform is interlinked with investments increasing the efficiency in generation, distribution and use of the energy. A loan agreement to upgrade the district heating supply infrastructure and to strengthen capacity in consumption-based billing was signed between the World Bank and Kiev Energo in 1998. The US Dept. of Energy (DoE) and the Swiss Agency for Cooperation and Development (SDC) as bilateral donors have since 1996 supported the development of transfer models for demand side management in selected public and residential buildings in cooperation with the local private agency ARENA-ECO. ARENA-ECO was in charge of project implementation and institutional networking. At the micro level the Swiss sponsored residential building project investigated the social acceptability of DSM investments at soft loan terms. The U.S. sponsored project focused on feasibility of cost-effective efficiency improvements in public buildings and financing arrangements that involved Ukrainian budgetary organisations and international financial institutions.

Both bilateral projects have demonstrated the feasibility of DSM investments (regulated building substations with energy meters, building energy conservation of short payback below 3 years) and software innovations in demonstration projects at four schools and two cooperatively owned apartment buildings in one district of Kiev.

Prior to investment in the residential buildings (which was pre-financed jointly by the local district authorities and the Swiss agency) the cooperatives had to sign a repayment agreement based on a monthly rate of 75% of the estimated reduction in the energy bill. If energy prices are increased the monthly rate increases in proportion. The repayments establish a fund at the level of the district authorities.

Investments in public buildings are financed jointly from the municipal budget and a World Bank loan, and the loan agreement requires ratification of sovereign guarantees by the Ukrainian Parliament. The investments are repaid by reducing budgetary expenditures for heat supply.

By spreading information and raising awareness about the potential for energy saving in the buildings sector, the two projects increase acceptability of the transfer model among end-users and policymakers. The projects also help develop energy service infrastructure, create new job and business opportunities and improve the situation for investing public and private money in energy efficiency, making the effort replicable and self-sustainable. By reducing energy consumption at the end-user level by 15-25%, suggested efficiency measures reduce fuel consumption by generating facilities lowering emissions of GHG and other combustion-related pollutants and reducing reliance on imported fuel supplies.

Lessons Learned
A key barrier to energy efficiency in residential or public buildings for economies in transition is not the technology itself, but the policy framework for the transfer mechanism needed to catalyse investments. An entirely market-based technology transfer approach is not socially or politically acceptable. There should be financial facilities providing softer financing, as well as mechanisms encouraging investments in energy efficiency and support at the district and municipal levels. Projects will only be self-sustainable if soft public finance remains available.

Bilateral donors have played an important role in enhancing the policy dialogue with stakeholders involved at the local level, in capacity-building and in facilitating institutional learning.

ARENA ECO, 1998: Experiences gained under the public buildings project Newsletter 3/1998, Kiev.

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