ECONOMIC COMMISSION FOR EUROPE

FINANCING ENERGY EFFICIENCY INVESTMENTS FOR CLIMATE CHANGE MITIGATION

REGIONAL ANALYSIS OF POLICY REFORMS TO PROMOTE ENERGY EFFICIENCY AND RENEWABLE ENERGY INVESTMENTS

UNITED NATIONS

Disclaimer The designations employed and the presentation of the material in this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area, or of its authorities, or concerning the delimitation of its frontiers or boundaries. In particular, the boundaries shown on the maps do not imply official endorsement or acceptance by the United Nations. Mention of any firm, licensed process or commercial products does not imply endorsement by the United Nations.

Acknowledgement This report has been prepared by Pyry Energy Consulting (Schweiz) AG in the framework of the UNECE Financing Energy Efficiency Investments for Climate Change Mitigation Project. Valuable contributions of the following organizations and experts are acknowledged: National Participating Institutions and National Coordinators from the countries participating in the project Project supporting institutions, namely the United Nations Foundation/United Nations Fund for International Partnership (UNF/UNFIP), United Nations Environment Programme/Global Environment Facility (UNEP/GEF), Fonds Franais pour lEnvironment Mondiale/Agence Franais de Dveloppement (FFEM/AFD) and European Business Congress e.V. (EBC) Members of the Steering Committee of the Energy Efficiency 21 Project and the Ad Hoc Group of Experts on Energy Efficiency and Renewable Energy Investments for Climate Change Mitigation Monitoring and Evaluation Adviser of the project, Mr. Glen Skovholt (UNF) and Regional Policy Adviser, Mr. Thierry Meraud, Agence de lEnvironment et de la Maitrise de lEnergie (ADEME) Information cut-off date: 10 February 2010

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TABLE OF CONTENTSLIST OF FIGURES ........................................................................................................................................... vii LIST OF TABLES............................................................................................................................................. xii LIST OF BOXES ............................................................................................................................................xvii ACRONYMS AND ABBREVIATIONS ............................................................................................................xix SIGNS AND MEASURES .............................................................................................................................xxiv CURRENCIES ................................................................................................................................................xxv EXECUTIVE SUMMARY .................................................................................................................................... 1 Goals, Scope and Approach of the Analysis ................................................................................ 1 Overview of the Energy Sector in the Project Region .................................................................. 2 Overview of the Energy Sector and Policy Framework in the Project Countries ...................... 3 Barriers to Investments in Energy Efficiency and Renewable Energy Projects in the Project Region .................................................................................................................................. 9 Barriers to Investments in Energy Efficiency and Renewable Energy Projects in the Project Countries ........................................................................................................................... 12 Case Studies ................................................................................................................................... 16 Recommendations for Policy Reforms at the Regional Level ................................................... 18 Recommendations for Policy Reforms for the Project Countries ............................................ 20 Conclusions .................................................................................................................................... 24 PART I: INTRODUCTION .............................................................................................................................. 25 Chapter 1: UNECE Project Financing Energy Efficiency Investments for Climate Change Mitigation ..................................................................................................... 25 Chapter 2: Goals and Scope of the Regional Analysis ............................................................ 27 Chapter 3: Overview of the Project Region from the Point of View of Energy Efficiency and Renewable Energy Investments .................................................... 29 3.1. General Economic Development and Climate for Investments ....................... 29 3.2. Energy Supply and Utilization in the Region .................................................... 32 3.3. Legislative and Regulatory Framework ............................................................ 40 3.4. Needs for Investments in Energy Efficiency and Renewable Energy Sources ............................................................................................................ 48 3.5. Barriers to the Implementation of Investment in Energy Efficiency and Renewable Energy Projects ............................................................................. 53 PART II: REGIONAL ANALYSIS METHODOLOGY ..................................................................................... 54 Chapter 4: Key Assumptions Concerning Energy Efficiency Market Formation in the Participating Countries............................................................................................. 54 Chapter 5: Overall Project Approach ......................................................................................... 55 Chapter 6: Methodology for Collection and Consolidation of Data........................................ 56 6.1. Analysis of Energy Market Development and Progress in Policy Reforms and Development of Regulatory Frameworks ................................... 56 6.2. Sources and Contributions to the Project ......................................................... 58 6.3. Cooperation with National Participating Institutions in the Project Countries .......................................................................................................... 59 6.4. Structure of Country Analyses.......................................................................... 60

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Chapter 7: Synthesis of Data and Validation of Results .......................................................... 62 7.1. Synthesis of Data in the Report........................................................................ 62 7.2. Energy Balances .............................................................................................. 62 7.3. Data Gaps and Inconsistencies........................................................................ 67 7.4. Validation of Data ............................................................................................. 68 Chapter 8: Methodology for Identification and Replication of Case Studies ........................ 69 8.1. Criteria for Identification of the Case Studies ................................................... 69 8.2. Criteria for Replication of Case Studies ........................................................... 69 Chapter 9: Methodology for Development of Recommendations .......................................... 70 9.1. Development of Recommendations from Country Analyses ........................... 70 9.2. Development of Recommendations from Case Studies .................................. 70 9.3. Final Consolidations and Development of Country-Specific Recommendations ........................................................................................... 70 PART III: ANALYSIS OF POLICY FRAMEWORK AND EXISTING BARRIERS TO THE IMPLEMENTATION OF ENERGY EFFICIENCY AND RENEWABLE ENERGY PROJECTS ...... 72 Chapter 10: Introductory Considerations .................................................................................... 72 Chapter 11: Country Analysis....................................................................................................... 73 11.1. Albania.............................................................................................................. 73 11.2. Belarus ............................................................................................................. 90 11.3. Bosnia and Herzegovina ................................................................................108 11.4. Bulgaria ..........................................................................................................127 11.5. Croatia ............................................................................................................147 11.6. Kazakhstan .....................................................................................................173 11.7. Republic of Moldova .......................................................................................192 11.8. Romania .........................................................................................................215 11.9. Russian Federation ........................................................................................234 11.10.Serbia .............................................................................................................259 11.11.The former Yugoslav Republic of Macedonia ................................................277 11.12.Ukraine ...........................................................................................................300 Chapter 12: Regional Summary from the Analysis of the Policy Framework .......................321 12.1. Legal, institutional and administrative barriers ...............................................321 12.2. Economic and financial barriers .....................................................................322 12.3. Lack of awareness, human capacities and professional skills .......................323 PART IV:CASE STUDIES ON OVERCOMING BARRIERS TO ENHANCED ENERGY EFFICIENCY AND USE OF RENEWABLE ENERGY THROUGH POLICY REFORMS ....................................324 Chapter 13: Introductory Considerations ..................................................................................324 Chapter 14: Overview of Barriers to Investments Addressed by the Case Studies .............324 Chapter 15: Correlation between the Case Studies and the Countries in the Project Region and Overview of Recommendations for Replication .............................326 Chapter 16: Analysis of the Case Studies .................................................................................329 16.1. Energy Efficiency Demonstration Zone Case Study of Bulgaria (recommendations for replication in Kazakhstan, Serbia, the former Yugoslav Republic of Macedonia and Ukraine) .............................................329 16.2. Water Efficiency Tariff Reform Programme Case Study of the Russian Federation (recommendations for replication in Bulgaria and Ukraine) ..........................................................................................................345 16.3. TSKB - Environmental Impact Assessment of Projects Case Study of Turkey (recommendations for replication in Albania, Bosnia and Herzegovina and the Republic of Moldova) ...................................................356

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16.4. Incentives for Foreign Investments Case Study of Bosnia and Herzegovina (recommendations for replication in Kazakhstan, the Republic of Moldova) ......................................................................................368 16.5. Sustainable Energy Financing Facilities - Dedicated Loan Facilities to Local Banks Undertaking Energy Efficiency Projects Case Study of Bulgaria (recommendations for replication in Albania, the Republic of Moldova and the former Yugoslav Republic of Macedonia) ..........................378 16.6. Enhancement of Awareness-Raising through the Development of a Network of Certified Energy Auditors Case Study of Slovenia (recommendations for replication in Albania and the former Yugoslav Republic of Macedonia)..................................................................................390 16.7. Green Facility State Environmental Fund (SEF) and Green Investment Scheme (GIS) Case Study of Czech Republic (recommendations for replication in Bulgaria, Romania and the Russian Federation) ......................399 16.8. Market Transformation on Solar Water Heating Case Study of Albania (recommendations for replication in Belarus, Bosnia and Herzegovina, Kazakhstan, Republic of Moldova, Serbia and the former Yugoslav Republic of Macedonia)..................................................................................412 16.9. Establishment of an ESCO Case Study of Croatia (recommendations for replication in Albania, Belarus, Bosnia and Herzegovina, the Republic of Moldova and Serbia) ...................................................................427 16.10.Ukraine Energy Efficiency Programme for Banks (UKEEP) Case Study of Ukraine (recommendations for replication in Albania, Bosnia and Herzegovina, the Russian Federation and the former Yugoslav Republic of Macedonia)..................................................................................438 16.11.Municipal Finance Facility Case Study of Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovak Republic and Slovenia (recommendations for replication in Kazakhstan, Republic of Moldova and Romania) .................................................................................................449 16.12.Forest Resources and Technology Project (FOREST) Case Study Russian Federation (recommended for replication in Albania, Romania and the former Yugoslav Republic of Macedonia) .........................................462 PART V: CONCLUSIONS AND RECOMMENDATIONS .............................................................................473 Chapter 17: Introductory Considerations ..................................................................................473 Chapter 18: Conclusions and Recommendations for the Project Countries ........................474 18.1. Conclusions and Recommendations for Albania ...........................................474 18.2. Conclusions and Recommendations for Belarus ...........................................480 18.3. Conclusions and Recommendations for Bosnia and Herzegovina ................484 18.4. Conclusions and Recommendations for Bulgaria ..........................................489 18.5. Conclusions and Recommendations for Croatia ............................................492 18.6. Conclusions and Recommendations for Kazakhstan.....................................497 18.7. Conclusions and Recommendations for the Republic of Moldova.................503 18.8. Conclusions and Recommendations for Romania .........................................509 18.9. Conclusions and Recommendations for the Russian Federation ..................512 18.10.Conclusions and Recommendations for Serbia .............................................516 18.11.Conclusions and Recommendations for the former Yugoslav Republic of Macedonia ......................................................................................................521 18.12.Conclusions and Recommendations for Ukraine ...........................................526 Chapter 19: Conclusions and Recommendations at the Regional and Sub-Regional Levels .......................................................................................................................530 19.1. Recommendations to Overcome Legal, Institutional and Administrative Barriers ...........................................................................................................531 19.2. Recommendations to Overcome Economic and Financial Barriers ...............534 19.3. Recommendations to Overcome Lack of Awareness and Human Capacities for the Preparation of Bankable Projects......................................536

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ANNEXES ......................................................................................................................................................538 LIST OF SOURCES .......................................................................................................................................597

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LIST OF FIGURESFigure 2.1: Figure 2.2: Figure 3.1: Figure 3.2: Figure 3.3: Figure 3.4: Figure 3.5: Figure 3.6: Figure 3.7: Figure 3.8: Figure 3.9: Figure 3.10: Figure 3.11: Figure 3.12: Figure 3.13: Figure 3.14: Figure 3.15: Figure 3.16: Figure 3.17: Figure 3.18: Figure 3.19: Figure 3.20: Figure 3.21: Figure 6.1: Figure 11.1: Figure 11.2: Figure 11.3: Figure 11.4: Figure 11.5: Figure 11.6: Figure 11.7: Figure 11.8: Figure 11.9: Goals of the Regional Analysis .............................................................................................. 27 Geographic scope of the Regional Analysis .......................................................................... 28 Per capita Gross Domestic Product (at Purchasing Power Parity) of the project countries in 2008 ................................................................................................................................... 29 Absolute GDP and GDP at PPP values 2008........................................................................ 29 Average growth of the Gross Domestic Product of the project countries in the period 2003-2008 .............................................................................................................................. 30 Net balance of primary energy sources in the project countries in 2007 ............................... 32 Total supply of primary energy sources per capita in project countries in 2007.................... 33 Total production of electricity per capita in project countries in 2007 .................................... 34 Electricity generation by sources in project countries in 2007 (in per cent/rounded) ............ 34 Total losses from the electricity grid in the project countries in 2007 .................................... 35 Total final consumption of primary energy sources per capita in project countries in 2007 .. 36 Total consumption of electricity per capita in project countries in 2007 ................................ 36 Total consumption of electricity of the residential sector per capita in project countries in 2007 ....................................................................................................................................... 37 Total consumption of gas per capita in project countries in 2007.......................................... 37 Sources of heat per country in 2007 (in per cent/rounded) ................................................... 38 Total consumption of heat per capita in project countries in 2007 ........................................ 39 Heat distribution losses in project countries in 2007.............................................................. 39 Primary energy intensity at Purchasing Power Parity in 2007 ............................................... 48 Decrease of primary energy intensity from 1997 to 2007 ...................................................... 48 Deployment of renewable energy sources in the project countries in 2007 (as per cent of total primary energy supply)................................................................................................... 49 Deployment of renewable energy sources in the project countries in 2007 (as per cent of total domestic electricity production) ...................................................................................... 50 Carbon dioxide emissions per capita in 2006 ........................................................................ 52 Carbon intensity (2006) - Emissions from the consumption and flaring of fossil fuels per thousand USD of Gross Domestic Product using Purchasing Power Parities ...................... 52 Overview of missions performed in the participating countries ............................................. 59 Real GDP growth of Albania .................................................................................................. 74 Repartition of the Gross Domestic Product in Albania in 2008.............................................. 74 Energy balance of Albania by primary energy sources in 2007 ............................................ 75 Supply of primary energy by sources in 2007........................................................................ 75 Electricity generation by sources in 2007 .............................................................................. 76 Supply of heat by sources in 2007 ......................................................................................... 76 Final consumption of primary energy sources by sectors in 2007......................................... 77 Final consumption of electricity by sectors in 2007 ............................................................... 77 Primary energy intensity at Purchasing Power Parity in 2007 ............................................... 80

Figure 11.10: Primary energy intensity in Albania by sector at Purchasing Power Parity ........................... 80 Figure 11.11: Real GDP growth of Belarus .................................................................................................. 90

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Figure 11.12: Repartition of the Gross Domestic Product in Belarus in 2008 ............................................. 91 Figure 11.13: Energy balance of Belarus by primary energy sources in 2007 ............................................ 92 Figure 11.14: Supply of primary energy by sources in 2007........................................................................ 93 Figure 11.15: Electricity generation by sources in 2007 .............................................................................. 93 Figure 11.16: Supply of heat by sources in 2007 ......................................................................................... 93 Figure 11.17: Total final energy consumption by sectors in 2007................................................................ 94 Figure 11.18: Final consumption of electricity by sectors in 2007 ............................................................... 94 Figure 11.19: Final consumption of gas by sectors in 2007......................................................................... 95 Figure 11.20: Final consumption of heat by sectors in 2007 ....................................................................... 95 Figure 11.21: Primary energy intensity at Purchasing Power Parity in 2007 ............................................... 97 Figure 11.22: Primary energy intensity in Belarus by sector at Purchasing Power Parity ........................... 98 Figure 11.23: Structure of capital investments for 2006-2010 ................................................................... 105 Figure 11.24: Real GDP growth of Bosnia and Herzegovina..................................................................... 109 Figure 11.25: Repartition of the Gross Domestic Product in Bosnia and Herzegovina in 2007 ................ 109 Figure 11.26: Energy balance of Bosnia and Herzegovina by primary energy sources in 2007 ............... 110 Figure 11.27: Supply of primary energy by sources in 2007...................................................................... 110 Figure 11.28: Electricity generation by sources in 2007 ............................................................................ 111 Figure 11.29: Supply of heat by sources in 2007 ....................................................................................... 111 Figure 11.30: Total final energy consumption by sectors in 2007.............................................................. 112 Figure 11.31: Final consumption of electricity by sectors in 2007 ............................................................. 112 Figure 11.32: Final consumption of gas by sectors in 2007....................................................................... 113 Figure 11.33: Transport and distribution structures of natural gas in Bosnia and Herzegovina ................ 114 Figure 11.34: Real GDP growth of Bulgaria ............................................................................................... 128 Figure 11.35: Repartition of the Gross Domestic Product in Bulgaria in 2008 .......................................... 128 Figure 11.36: Energy balance of Bulgaria by primary energy sources in 2007 ......................................... 129 Figure 11.37: Supply of primary energy by sources in 2007...................................................................... 130 Figure 11.38: Electricity generation by sources in 2007 ............................................................................ 130 Figure 11.39: Supply of heat by sources in 2007 ....................................................................................... 130 Figure 11.40: Total final energy consumption by sectors in 2007.............................................................. 131 Figure 11.41: Final consumption of electricity by sectors in 2007 ............................................................. 132 Figure 11.42: Final consumption of gas by sectors in 2007....................................................................... 132 Figure 11.43: Final consumption of heat by sectors in 2007 ..................................................................... 132 Figure 11.44: Primary energy intensity at Purchasing Power Parity in 2007 ............................................. 135 Figure 11.45: Primary energy intensity in Bulgaria by sector at Purchasing Power Parity ........................ 136 Figure 11.46: Real GDP growth of Croatia ................................................................................................ 148 Figure 11.47: Repartition of the Gross Domestic Product in Croatia in 2008 ............................................ 148 Figure 11.48: Energy balance of Croatia by primary energy sources in 2007 ........................................... 149 Figure 11.49: Supply of primary energy by sources in 2007...................................................................... 150 Figure 11.50: Electricity generation by sources in 2007 ............................................................................ 150 Figure 11.51: Supply of heat by sources in 2007 ....................................................................................... 150 Figure 11.52: Total final energy consumption by sectors in 2007.............................................................. 151

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Figure 11.53: Final consumption of electricity by sectors in 2007 ............................................................. 151 Figure 11.54: Final consumption of gas by sectors in 2007....................................................................... 152 Figure 11.55: Final consumption of heat by sectors in 2007 ..................................................................... 152 Figure 11.56: Primary energy intensity at Purchasing Power Parity in 2007 ............................................. 155 Figure 11.57: Primary energy intensity in Croatia by sector at Purchasing Power Parity ......................... 156 Figure 11.58: Potential savings by sector in per cent ................................................................................ 157 Figure 11.59: Financial resources provided for the Energy Efficiency Project in Croatia .......................... 158 Figure 11.60: Revenue and profit of HEP ESCO ....................................................................................... 160 Figure 11.61: Installed renewable capacity (in MW) from renewable energy sources in Croatia (2007) .. 160 Figure 11.62: Real GDP growth of Kazakhstan ......................................................................................... 174 Figure 11.63: Repartition of the Gross Domestic Product in Kazakhstan in 2008 ..................................... 174 Figure 11.64: Energy balance of Kazakhstan by primary energy sources in 2007.................................... 175 Figure 11.65: Supply of primary energy by sources in 2007...................................................................... 176 Figure 11.66: Electricity generation by sources in 2007 ............................................................................ 176 Figure 11.67: Total final energy consumption by sectors in 2007.............................................................. 177 Figure 11.68: Final consumption of electricity by sectors in 2007 ............................................................. 177 Figure 11.69: Final consumption of gas by sectors in 2007....................................................................... 178 Figure 11.70: Final consumption of heat by sectors in 2007 ..................................................................... 178 Figure 11.71: Primary energy intensity at Purchasing Power Parity in 2007 ............................................. 181 Figure 11.72: Primary energy intensity in Kazakhstan by sector at Purchasing Power Parity .................. 182 Figure 11.73: Real GDP growth of the Republic of Moldova ..................................................................... 193 Figure 11.74: Repartition of the Gross Domestic Product in the Republic of Moldova in 2008 ................. 193 Figure 11.75: Energy balance of the Republic of Moldova by primary energy sources in 2007................ 194 Figure 11.76: Supply of primary energy by sources in 2007...................................................................... 195 Figure 11.77: Electricity generation by sources in 2007 ............................................................................ 196 Figure 11.78: Supply of heat by sources in 2007 ....................................................................................... 196 Figure 11.79: Total final energy consumption by sectors in 2007.............................................................. 197 Figure 11.80: Final consumption of electricity by sectors in 2007 ............................................................. 197 Figure 11.81: Final consumption of gas by sectors in 2007....................................................................... 198 Figure 11.82: Final consumption of heat by sectors in 2007 ..................................................................... 198 Figure 11.83: Primary energy intensity at Purchasing Power Parity in 2007 ............................................. 201 Figure 11.84: Primary energy intensity in the Republic of Moldova by sector at Purchasing Power Parity .................................................................................................................................... 202 Figure 11.85: Real GDP growth of Romania.............................................................................................. 216 Figure 11.86: Repartition of the Gross Domestic Product in Romania in 2008 ......................................... 216 Figure 11.87: Energy balance of Romania by primary energy sources in 2007 ........................................ 217 Figure 11.88: Supply of primary energy by sources in 2007...................................................................... 217 Figure 11.89: Electricity generation by sources in 2007 ............................................................................ 218 Figure 11.90: Supply of heat by sources in 2007 ....................................................................................... 218 Figure 11.91: Total final energy consumption by sectors in 2007.............................................................. 219 Figure 11.92: Final consumption of electricity by sectors in 2007 ............................................................. 220 Figure 11.93: Final consumption of gas by sectors in 2007....................................................................... 220

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Figure 11.94: Final consumption of heat by sectors in 2007 ..................................................................... 220 Figure 11.95: Primary energy intensity at Purchasing Power Parity in 2007 ............................................. 223 Figure 11.96: Primary energy intensity in Romania by sector at Purchasing Power Parity ....................... 224 Figure 11.97: Real GDP growth of the Russian Federation....................................................................... 235 Figure 11.98: Repartition of the Gross Domestic Product in the Russian Federation in 2007 .................. 235 Figure 11.99: Energy Balance of primary energy sources of the Russian Federation (2007) ................... 236 Figure 11.100: Supply of primary energy by sources in 2007...................................................................... 237 Figure 11.101: Electricity generation by sources in 2007 ............................................................................ 237 Figure 11.102: Supply of heat by sources in 2007 ....................................................................................... 237 Figure 11.103: Final consumption of primary energy sources by sectors in 2007....................................... 238 Figure 11.104: Final consumption of electricity by sectors in 2007 ............................................................. 238 Figure 11.105: Final consumption of gas by sectors in 2007....................................................................... 239 Figure 11.106: Final consumption of heat by sectors in 2007 ..................................................................... 239 Figure 11.107: Primary energy intensity at Purchasing Power Parity .......................................................... 241 Figure 11.108: Primary energy intensity in the Russian Federation by sector at Purchasing Power Parity 242 Figure 11.109: Real GDP growth of Serbia.................................................................................................. 260 Figure 11.110: Repartition of the Gross Domestic Product in Serbia in 2007 ............................................. 260 Figure 11.111: Energy balance of Serbia by primary energy sources in 2007 ............................................ 261 Figure 11.112: Supply of primary energy by sources in 2007...................................................................... 262 Figure 11.113: Electricity generation by sources in 2007 ............................................................................ 262 Figure 11.114: Supply of heat by sources in 2007 ....................................................................................... 262 Figure 11.115: Total final energy consumption by sectors in 2007.............................................................. 263 Figure 11.116: Final consumption of electricity by sectors in 2007 ............................................................. 263 Figure 11.117: Final consumption of gas by sectors in 2007....................................................................... 264 Figure 11.118: Final consumption of heat by sectors in 2007 ..................................................................... 264 Figure 11.119: Real GDP growth of the former Yugoslav Republic of Macedonia ...................................... 278 Figure 11.120: Repartition of the Gross Domestic Product in 2008............................................................. 278 Figure 11.121: Energy balance of the former Yugoslav Republic of Macedonia by primary energy sources in 2007 .................................................................................................................... 279 Figure 11.122: Supply of primary energy by sources in 2007...................................................................... 280 Figure 11.123: Electricity generation by sources in 2007 ............................................................................ 280 Figure 11.124: Supply of heat by sources in 2007 ....................................................................................... 281 Figure 11.125: Total final energy consumption by sectors in 2007.............................................................. 281 Figure 11.126: Final consumption of electricity by sectors in 2007 ............................................................. 282 Figure 11.127: Final consumption of gas by sectors in 2007....................................................................... 282 Figure 11.128: Final consumption of heat by sectors in 2007 ..................................................................... 283 Figure 11.129: Primary energy intensity at Purchasing Power Parity in 2007 ............................................. 285 Figure 11.130: Primary energy intensity in the former Yugoslav Republic of Macedonia by sector at Purchasing Power Parity...................................................................................................... 286 Figure 11.131: Real GDP growth of Ukraine................................................................................................ 301 Figure 11.132: Repartition of the Gross Domestic Product in 2008............................................................. 301 Figure 11.133: Energy balance of Ukraine by primary energy sources in 2007 .......................................... 302

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Figure 11.134: Supply of primary energy by sources in 2007...................................................................... 303 Figure 11.135: Electricity generation by sources in 2007 ............................................................................ 303 Figure 11.136: Supply of heat by sources in 2007 ....................................................................................... 303 Figure 11.137: Total final energy consumption by sectors in 2007.............................................................. 304 Figure 11.138: Final consumption of electricity by sectors in 2007 ............................................................. 304 Figure 11.139: Final consumption of gas by sectors in 2007....................................................................... 305 Figure 11.140: Final consumption of heat by sectors in 2007 ..................................................................... 305 Figure 11.141: Primary energy intensity at Purchasing Power Parity in 2007 ............................................. 308 Figure 11.142: Primary energy intensity in Ukraine by sector at Purchasing Power Parity ......................... 309 Figure 16.1: Figure 16.2: Figure 16.3: Breakdown of costs of the demonstration projects in Gabrovo ........................................... 334 Case Study of Czech Republic Development of Greenhouse Gas Emission .................. 401 Development of Energy Intensity of Gross Domestic Product in Ukraine ........................... 439

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LIST OF TABLESTable E.1: Table 3.1: Table 3.2: Table 3.3: Table 3.4: Table 3.5: Table 3.6: Table 3.7: Table 3.8: Table 3.9: Table 3.10: Table 3.11: Table 3.12: Table 3.13: Table 3.14: Table 3.15: Table 6.1: Table 6.2: Table 6.3: Table 7.1: Table 7.2: Table 11.1: Table 11.2: Table 11.3: Table 11.4: Table 11.5: Table 11.6: Table 11.7: Table 11.8: Table 11.9: Table 11.10: Table 11.11: Table 11.12: Table 11.13: Table 11.14: Table 11.15: Table 11.16: Table 11.17: Table 11.18: Overview of Case Studies...................................................................................................... 16 Economical forecast of the project region in per cent ............................................................ 31 Share of population connected to district heating (in per cent) ............................................. 38 National legislation for energy efficiency ............................................................................... 40 National legislation for renewable energy sources ................................................................ 40 Availability of national funds for energy efficiency in the project region ................................ 41 Availability of incentive mechanisms for electricity from renewable energy sources ............ 41 Progress of electricity market liberalization in the project region........................................... 42 Commitment to the Kyoto Protocol of project countries ........................................................ 42 JI projects in the project countries ......................................................................................... 44 CDM project development in the project countries ................................................................ 45 EU membership status of project countries ........................................................................... 45 Current EU relationships of the project countries .................................................................. 46 Membership of the Energy Community of project countries .................................................. 46 Membership of the Energy Charter Conference of project countries .................................... 47 Number of identified ESCOs in the project region ................................................................. 51 Information collected for the analysis of energy markets and their development.................. 56 Information collected for the analysis of policy reforms and their regulatory frameworks ..... 57 Structure of the country analyses .......................................................................................... 60 Glossary of energy balance input variables ........................................................................... 63 Definition of indicators used in the report .............................................................................. 66 Mid- and long-term energy saving goals of Belarus .............................................................. 99 Current renewable power plant projects in Belarus ............................................................. 100 Preliminary list of JI projects in Belarus (extract) ................................................................. 103 Gas prices in 2007 ............................................................................................................... 114 Total planned small hydro capacity in Bosnia and Herzegovina ......................................... 117 Relevant energy sector laws in Bosnia and Herzegovina ................................................... 119 Relevant energy sector laws at entity level .......................................................................... 120 Feed-in tariffs for electricity from renewable energy sources in Bosnia and Herzegovina .. 122 Feed-in tariffs in Bulgaria ..................................................................................................... 143 Extract of energy efficiency projects of HEP ESCO ............................................................ 159 Heat generation from renewable energy sources in 2007 ................................................... 161 Solid and liquid biofuel production in 2007 .......................................................................... 161 Relevant energy sector laws in Croatia ............................................................................... 163 Relevant secondary legislation regarding energy efficiency in Croatia ............................... 164 Relevant regulations of the Energy Law of Croatia ............................................................. 165 Investment conditions of the Environmental Protection and Energy Efficiency Fund ......... 167 Feed-in tariff for electricity from renewable energy sources (in EUR/MWh) ....................... 168 Expected capacity of potential wind power plants in Kazakhstan ....................................... 184

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Table 11.19: Table 11.20: Table 11.21: Table 11.22: Table 11.23: Table 11.24: Table 11.25: Table 11.26: Table 11.27: Table 11.28: Table 11.29: Table 11.30: Table 11.31: Table 11.32: Table 11.33: Table 11.34: Table 11.35: Table 11.36: Table 11.37: Table 11.38: Table 14.1: Table 15.1: Table 15.2: Table 16.1: Table 16.2:

Energy Framework of the Republic of Moldova ................................................................... 206 Current CDM projects of the Republic of Moldova .............................................................. 208 Estimated potential energy savings by sector ..................................................................... 225 Estimated potential of renewable energy sources in Romania............................................ 226 List of selected wind power plants under construction in Romania ..................................... 227 Renewable electric power generation in the Russian Federation in 2005 .......................... 244 Relevant energy sector laws in the Russian Federation ..................................................... 246 Legislative framework regarding renewable energy sources in the Russian Federation .... 250 Federal financial support for electricity from renewable energy sources (2009-2020) ........ 252 Premium on market prices for electricity from renewable energy sources .......................... 253 Project examples of NEFCO in the Russian Federation ..................................................... 254 Project examples of the UNDP/GEF in the Russian Federation ......................................... 255 Estimated potential for renewable energy sources in Serbia .............................................. 268 Projects of the Serbian Energy Efficiency Agency financed by European Agency for Reconstruction ..................................................................................................................... 274 Feed-in tariffs for the sale of electricity produced by small hydropower plants ................... 295 Feed-in tariffs for the sale of electricity produced by renewable energy sources other than hydropower .................................................................................................................. 295 Estimated potential for energy savings by sector ................................................................ 310 Project examples of UkrESCO............................................................................................. 311 Laws and policy documents on renewable energy sources ................................................ 314 Feed-in tariff coefficients in Ukraine .................................................................................... 316 Barriers to investments in energy efficiency and renewable energy projects addressed by the Case Studies ........................................................................................... 325 Overview of barriers to investments in energy efficiency and renewable energy projects identified in the project countries ......................................................................................... 327 Correlation between Case Studies and project countries and overview of recommendations for replication .......................................................................................... 328 Key benefits from the Case Studies demonstration projects in the city of Gabrovo ........... 333 Costs and cost bearers of the Case Studies demonstration projects in the city of Gabrovo ............................................................................................................................... 334

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LIST OF TABLES IN THE ANNEXTable A.1.1: Table A.1.2: Table A.1.3: Table A.1.4: Table A.1.5: Table A.1.6: Table A.1.7: Table A.1.8: Table A.1.9: VAT rates in the project region ............................................................................................ 538 Currency exchange rate averages in the project region ...................................................... 538 Main economic indicators in Albania ................................................................................... 539 Main economic indicators in Belarus ................................................................................... 539 Main economic indicators in Bosnia and Herzegovina ........................................................ 539 Main economic indicators in Bulgaria .................................................................................. 540 Main economic indicators in Croatia .................................................................................... 540 Main economic indicators in Kazakhstan ............................................................................. 541 Main economic indicators in the Republic of Moldova ......................................................... 541

Table A.1.10: Repartition of the Gross Domestic Product of the Republic of Moldova (1993-2008) ......... 542 Table A.1.11: Main economic indicators in Romania ................................................................................. 542 Table A.1.12: Main economic indicators in the Russian Federation .......................................................... 543 Table A.1.13: Main economic indicators in Serbia ..................................................................................... 543 Table A.1.14: Main economic indicators in the former Yugoslav Republic of Macedonia ......................... 544 Table A.1.15: Main economic indicators in Ukraine ................................................................................... 544 Table A.2.1: Table A.2.2: Table A 2.3: Table A.2.4: Table A.2.5: Table A.2.6: Table A.2.7: Table A.2.8: Table A.2.9: Total primary energy supply in Albania in 2007 ................................................................... 546 Total primary energy supply in Belarus in 2007................................................................... 546 Total primary energy supply in Bosnia and Herzegovina in 2007 ....................................... 546 Total primary energy supply in Bulgaria in 2007.................................................................. 546 Total primary energy supply in Croatia in 2007 ................................................................... 547 Total primary energy supply in Kazakhstan in 2007 ............................................................ 547 Total primary energy supply in the Republic of Moldova in 2007 ........................................ 547 Energy balance of the Republic of Moldova (excluding Transnistria) within 2000-2008 time series, ktoe ................................................................................................................... 547 The structure of main energy resource in the Republic of Moldova (excluding Transnistria) within 2000-2008 time series (in %)................................................................ 548

Table A.2.10: Total Primary Energy Supply in Romania in 2007 ............................................................... 548 Table A.2.11: Total Primary Energy Supply in the Russian Federation in 2007 ........................................ 548 Table A.2.12: Total Primary Energy Supply in Serbia in 2007 ................................................................... 548 Table A.2.13: Total Primary Energy Supply in the former Yugoslav Republic of Macedonia in 2007 ....... 549 Table A.2.14: Total primary Energy Supply in Ukraine in 2007 ................................................................. 549 Table A.2.15: Energy use in Albania in 2007 ............................................................................................. 550 Table A.2.16: Energy use in Belarus in 2007 ............................................................................................. 551 Table A.2.17: Energy use in Bosnia and Herzegovina in 2007 .................................................................. 552 Table A.2.18: Energy use in Bulgaria in 2007 ............................................................................................ 553 Table A.2.19: Energy use in Croatia in 2007.............................................................................................. 554 Table A.2.20: Energy use in Kazakhstan in 2007 ...................................................................................... 555 Table A.2.21: Energy use in the Republic of Moldova in 2007 .................................................................. 556 Table A.2.22: Primary energy consumption by sectors in the Republic of Moldova (excluding Transnistria) within 2000-2008 time series, ktoe ................................................................. 556

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Table A.2.23: Electricity consumption by sectors in the Republic of Moldova (excluding Transnistria) within 2000-2007 time series, GWh ..................................................................................... 557 Table A.2.24: Heat consumption by sectors in the Republic of Moldova (excluding Transnistria) within 2000-2007 time series, thousand Gcal ................................................................................ 557 Table A.2.25: Energy use in Romania in 2007 ........................................................................................... 558 Table A.2.26: Energy use in the Russian Federation in 2007 .................................................................... 559 Table A.2.27: Energy use in Serbia in 2007 ............................................................................................... 560 Table A.2.28: Energy use in the former Yugoslav Republic of Macedonia in 2007 ................................... 561 Table A.2.29: Energy use in Ukraine in 2007 ............................................................................................. 562 Table A.2.30: Balance of electricity and heat in Albania in 2007 ............................................................... 563 Table A.2.31: Balance of electricity and heat in Belarus in 2007 ............................................................... 564 Table A.2.32: Balance of electricity and heat in Bosnia and Herzegovina in 2007 .................................... 565 Table A.2.33: Balance of electricity and heat in Bulgaria in 2007 .............................................................. 566 Table A.2.34: Balance of electricity and heat in Croatia in 2007................................................................ 567 Table A.2.35: Balance of electricity and heat in Kazakhstan in 2007 ........................................................ 568 Table A.2.36: Balance of electricity and heat in the Republic of Moldova in 2007 .................................... 569 Table A.2.37: Electricity Production on the Right Bank of Dniester River in the Republic of Moldova within the 1994-2007 time series, GWh ............................................................................... 569 Table A.2.38: Electricity Production on the Left Bank of the Dniester River within 1990-2006 time series, GWh ......................................................................................................................... 570 Table A.2.39: Balance of electricity and heat in Romania in 2007 ............................................................. 570 Table A.2.40: Balance of electricity and heat in the Russian Federation in 2007 ...................................... 571 Table A.2.41: Balance of electricity and heat in Serbia in 2007 ................................................................. 572 Table A.2.42: Balance of electricity and heat in the former Yugoslav Republic of Macedonia in 2007 ..... 573 Table A.2.43: Balance of electricity and heat in Ukraine in 2007 ............................................................... 574 Table A.2.44: Installed electricity generation capacity in Albania .............................................................. 574 Table A.2.45: Installed electricity generation capacity in Belarus .............................................................. 575 Table A.2.46: Power plants in Bosnia and Herzegovina ............................................................................ 575 Table A.2.47: Power plants in Bulgaria with more than 100MW installed capacity ................................... 575 Table A.2.48: Installed renewable energy sources capacity in Croatia (2007) .......................................... 576 Table A.2.49: Installed capacity in Kazakhstan .......................................................................................... 577 Table A.2.50: Installed capacity in the Republic of Moldova ...................................................................... 577 Table A.2.51: Installed capacity in Serbia .................................................................................................. 577 Table A.3.1: Table A.3.2: Table A.3.3: Table A.3.4: Table A.3.5: Table A.3.6: Table A.3.7: Table A.3.8: Table A.3.9: Electricity tariffs in Albania ................................................................................................... 578 Electricity tariffs in Albania ................................................................................................... 578 Electricity tariffs in the Federation of Bosnia and Herzegovina ........................................... 579 Electricity tariffs in Bulgaria for enterprises and households (in BGN/kWh) ........................ 579 Electricity tariffs in Croatia ................................................................................................... 580 Electricity and heating tariffs in the Republic of Moldova .................................................... 580 Electricity tariffs in Romania................................................................................................. 580 Electricity tariffs for end users in Serbia .............................................................................. 581 Electricity tariffs in the former Yugoslav Republic of Macedonia (in MKD/kWh) ................. 581

Table A.3.10: Electricity tariffs in Ukraine for customers up to 35 kV ........................................................ 581

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Table A.3.11: Gas tariffs in Bulgaria ........................................................................................................... 582 Table A.3.12: Average selling price of natural gas in Croatia .................................................................... 582 Table A.3.13: Tariffs for gas supply in the Republic of Moldova ................................................................ 582 Table A.3.14: Tariffs for gas supply in Romania ........................................................................................ 582 Table A.3.15: Gas tariffs in Ukraine ........................................................................................................... 583 Table A.3.16: Tariffs and related information on district heating companies in Croatia ............................. 584 Table A.3.17: Tariffs and related information on district heating companies in Serbia .............................. 585 Table A.3.18: Information on heat tariffs in Ukraine ................................................................................... 587 Table A.4.1: Table A.4.2: Table A.4.3: Table A.4.4: Table A.4.5: Table A.4.6: Table A.4.7: Table A.4.8: Table A.4.9: Energy intensity indicators of Albania in 2007 ..................................................................... 588 Energy intensity indicators of Belarus in 2007 ..................................................................... 588 Energy intensity indicators of Bulgaria in 2007 .................................................................... 588 Energy intensity indicators of Croatia in 2007 ..................................................................... 588 Energy intensity indicators of Kazakhstan in 2007 .............................................................. 589 Energy intensity indicators of the Republic of Moldova in 2007 .......................................... 589 Energy intensity indicators of Romania in 2007................................................................... 589 Energy intensity indicators of the Russian Federation in 2007............................................ 589 Energy intensity indicators of the former Yugoslav Republic of Macedonia in 2007 ........... 589

Table A.4.10: Energy intensity indicators of Ukraine in 2007..................................................................... 590 Table A.4.11: Energy intensity indicators of Albania from 1997 to 2007 ................................................... 590 Table A.4.12: Energy intensity indicators of Belarus from 1997 to 2007 ................................................... 590 Table A.4.13: Energy intensity indicators of Bulgaria from 1997 to 2007 .................................................. 591 Table A.4.14: Energy intensity indicators of Croatia from 1997 to 2007 .................................................... 591 Table A.4.15: Energy intensity indicators of Kazakhstan from 1997 to 2007............................................. 591 Table A.4.16: Energy intensity indicators of the Republic of Moldova from 1997 to 2007 ......................... 592 Table A.4.17: Indices on consumption of energy resources and energy intensity in the Republic of Moldova (excluding Transnistria), 2000-2008...................................................................... 592 Table A.4.18: Energy intensity indicators of Romania from 1997 to 2007 ................................................. 592 Table A.4.19: Energy intensity indicators of Russian Federation from 1997 to 2007 ................................ 593 Table A.4.20: Energy intensity indicators of the former Yugoslav Republic of Macedonia from 1997 to 2007 ..................................................................................................................................... 593 Table A.4.21: Energy intensity indicators of Ukraine from 1997 to 2007 ................................................... 593 Table A.5.1: Table A.5.2: Table A.5.3: National Participating Institutions ......................................................................................... 594 National Coordinators .......................................................................................................... 595 Government representatives................................................................................................ 596

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LIST OF BOXESBox 1: Box 2: Box 3: Box 4: Box 5: Box 6: Box 7: Box 8: Box 9: Box 10: Box 11: Box 12: Box 13: Box 14: Box 15: Box 16: Box 17: Box 18: Box 19: Box 20: Box 21: Box 22: Box 23: Box 24: Box 25: Box 26: Box 27: Box 28: Box 29: Box 30: Summary of barriers to the implementation of energy efficiency and renewable energy projects in Albania .................................................................................................................. 88 Summary of barriers to the implementation of energy efficiency and renewable energy projects in Belarus ............................................................................................................... 106 Summary of barriers to the implementation of energy efficiency and renewable energy projects in Bosnia and Herzegovina .................................................................................... 124 Summary of barriers to the implementation of energy efficiency and renewable energy projects in Bulgaria .............................................................................................................. 145 Summary of barriers to the implementation of energy efficiency and renewable energy projects in Croatia ................................................................................................................ 170 Summary of barriers to the implementation of energy efficiency and renewable energy projects in Kazakhstan ......................................................................................................... 190 Summary of barriers to the implementation of energy efficiency and renewable energy projects in the Republic of Moldova ..................................................................................... 212 Summary of barriers to the implementation of energy efficiency and renewable energy projects in Romania ............................................................................................................. 233 Summary of barriers to the implementation of energy efficiency and renewable energy projects in the Russian Federation ...................................................................................... 256 Summary of barriers to the implementation of energy efficiency and renewable energy projects in Serbia ................................................................................................................. 274 Summary of barriers to the implementation of energy efficiency and renewable energy projects in the former Yugoslav Republic of Macedonia ..................................................... 297 Summary of barriers to the implementation of energy efficiency and renewable energy projects in Ukraine ............................................................................................................... 318 Energy Efficiency Demonstration Zone ............................................................................... 329 Water Tariff Reform in the Russian Federation ................................................................... 345 Environmental Impact Assessment in Turkey...................................................................... 356 Incentives for Foreign Investments ...................................................................................... 368 Loan Facilities for Energy Efficiency Projects ...................................................................... 378 Network of Certified Energy Auditors ................................................................................... 390 Green Facility State Environmental Fund and Green Investment Scheme ...................... 399 Market Tranformation on Solar Water Heating .................................................................... 412 Establishment of an Energy Service Company ................................................................... 427 Ukraine Energy Efficiency Programme for Banks................................................................ 438 Municipal Finance Facility .................................................................................................... 449 Forest Resources and Technology Project.......................................................................... 462 Summary of proposed recommendations for future policy reforms in Albania .................... 474 Summary of proposed recommendations for future policy reforms in Belarus.................... 480 Summary of proposed recommendations for future policy reforms in Bosnia and Herzegovina ......................................................................................................................... 484 Summary of proposed recommendations for future policy reforms in Bulgaria................... 489 Summary of proposed recommendations for future policy reforms in Croatia .................... 492 Summary of proposed recommendations for future policy reforms in Kazakhstan ............. 497

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Box 31: Box 32: Box 33: Box 34: Box 35: Box 36:

Summary of proposed recommendations for future policy reforms in the Republic of Moldova................................................................................................................................ 503 Summary of proposed recommendations for future policy reforms in Romania ................. 509 Summary of proposed recommendations for future policy reforms in the Russian Federation ............................................................................................................................ 512 Summary of proposed recommendations for future policy reforms in Serbia ..................... 516 Summary of proposed recommendations for future policy reforms in the former Yugoslav Republic of Macedonia......................................................................................... 521 Summary of proposed recommendations for future policy reforms in Ukraine ................... 526

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ACRONYMS AND ABBREVIATIONSAAU ADEME AEER AEI AFD AKBN AL AlbInvest ANRE ARCE BA BAS BEERECL BEH EAD BG BgEEF BY CAS CDM CEDB CER CERA CHP CIDA CIF CIS CPI CTF DNA DPA EAR EBC EBRD ECSEE EEA EEC EIA EIB EIHP Assigned Amount Unit Agence de lEnvironment et de la Maitrise de lEnergie Alliance for Energy Efficiency and Renewables (Moldova) Alliance for European Integration Agence Franais de Dveloppement Albanian National Agency of Natural Resources Albania Albanian Foreign Investment Promotion Agency National Agency for Energy Regulation Romanian Agency for Energy Conservation Bosnia and Herzegovina EBRD Business Advisory Services Programmes Bulgarian Energy Efficiency and Renewable Energy Credit Line Bulgarian Energy Holding EAD Bulgaria Bulgarian Energy Efficiency Fund Belarus Country Assistance Strategy Clean Development Mechanism Citizens for the Development of a European Bulgaria Certified Emission Reductions Croatian Energy Regulatory Agency Combined Heat and Power Canadian International Development Agency World Banks Climate Investment Fund Commonwealth of Independent States Corruption Perception Index Clean Technology Fund Designated National Authority Democratic Party of Albania European Agency for Reconstruction European Business Congress e.V. European Bank for Reconstruction and Development Energy Community South East Europe Treaty Energy Efficiency Agency (Bulgaria) Albania-EU Energy Efficiency Centre Environmental Impact Assessment European Investment Bank Energy Institute Hrvoje Poar (Croatia)

ARENA-ECO Ukraine Agency for Rational Energy Use and Ecology

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EnC EPBIH EPC EPHZHB EPRS ERE ERU ESCO ETS EU EUR EPS FDI FEC FEEI FERK FFEM FIPA FISF FREE FTS GDP GEF GHG GIS GNP HBOR HEP HERA HPP HR HROTE IBA IEA IET IFC IFI IPA IPP IRENA ISEDC

Energy Community Treaty Electricity Company of Bosnia and Herzegovina Energy Performance Contracting Electricity Company of Herzeg-Bosnia Electricity Company of the Republika Srpska Albanian Energy Regulatory Entity Emission Reduction Units Energy Service Company Emission Trading Scheme European Union Euro (common currency of the 16 European Union member states) Electric Power Industry of Serbia Foreign Direct Investment Fuel-Energy-Complex (Russia) Financing Energy Efficiency for Climate Change Mitigation Project Regulatory Commission for Electricity in the Federation Bosnia and Herzegovina Fonds Franais pour lEnvironment Mondiale (French Global Environment Facility) Foreign Investment Promotion Agency (Bosnia and Herzegovina) Foreign Investors Support Fund (Bosnia and Herzegovina) Romanian Energy Efficiency Fund Free Trade Sector Gross Domestic Product Global Environment Facility Greenhouse Gas Emissions Green Investment Scheme Gross National Product Croatian Bank for Reconstruction and Development Hrvatska elektroprivreda (Croatian Power Utility) Croatian Energy Regulatory Agency Hydro Power Plants Croatia Croatian Energy Market Operator Invest Bulgaria Agency International Energy Agency International Emission Trade International Finance Corporation International Financing Institution Instrument for Pre-Accession Assistance Independent Power Producer International Renewable Energy Agency International Sustainable Energy Development Centre

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ISIC ISO JI KAZSEFF KEGOC KESH KfW KIDSF KM KZ LEF LNG LPG LRP MD MEN METE MIEE MIEPO MK MoEFWA MoELE MoEPPPC MoF MoFTER MoSEFF MoU MUNEE NAP NAEC NAER NC NEFCO NEK NERC NGO NIA NIS NPI OJSC

International Standard Industrial Classification Independent System Operator Joint Implementation Sustainable Energy Financing Facility in Kazakhstan Kazakhstan Electricity Grid Operating Company Korporata Energjitike Shqiptare (Albania) Kreditanstalt fr Wiederaufbau Kozloduy International Decommissioning Support Fund (Bulgaria) Kyoto Mechanism Kazakhstan Local Enterprise Facility Liquefied Natural Gas Liquefied Petroleum Gas Local Reference Prices Republic of Moldova Ministry of Environment of the Republic of Moldova Albanian Ministry of Economy, Trade and Energy Industrial Energy Efficiency Network Programme (Croatia) Moldovan Investment and Export Promotion Organization The former Yugoslav Republic of Macedonia Albanian Ministry of Environment, Forests and Water Administration Ministry of Economy, Labor and Entrepreneurship (Croatia) Ministry of Environmental Protection, Physical Planning and Construction (Croatia) Albanian Ministry of Finance Ministry of Foreign Trade and Economic Relations (Bosnia and Herzegovina) Moldova Sustainable Energy Financing Facility Memorandum of Understanding Municipal Network for Energy Efficiency (Bosnia and Herzegovina) National Allocation Plan National Agency for Energy Conservation (Moldova) National Agency of Ukraine for the Effective Use of Energy Sources National Coordinator Nordic Environment Finance Corporation National Electricity Company (Bulgaria) National Electricity Regulation Commission of Ukraine Non-governmental Organization Russian National Investment Agency Petroleum Industry of Serbia National Participating Institutions Open Joint Stock Company

KAZINVEST Kazakhstan Investment Promotion Center

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OSSH OST PCF PCRM PDD PEEREA PPP RAEF RAO UES REECL RERS REU RO RS RSEFP RU RusDB SAA SEAF SEEA SEF SERK SEWRC SFA SIEPA SME SMI SPDF TAM TFC UA UCTE UKEEP UNDP UNECE UNEP UNESCO UNF UNFCCC UNFIP UNMIK

Albanian Distribution System Operator Albanian Transmission Grid Operator World Banks Prototype Carbon Fund Party of Communists of the Republic of Moldova Project Design Documents Protocol on Energy Efficiency and Related Environmental Aspects Purchasing Power Parity Romanian American Investment Fund Unified Energy System of Russia Bulgarian Residential Energy Efficiency Credit Line Regulatory Commission for Energy of the Republika Srpska Regional Distribution System Operators Romania Serbia Russia Sustainable Energy Finance Programme Russian Federation Russian Development Bank EU Stabilization and Association Agreement Macedonian Small Enterprise Assistance Fund Serbian Energy Efficiency Agency State Environmental Fund (Czech Republic) State Electricity Regulatory Commission (Bosnia and Herzegovina) State Energy and Water Regulatory Commission (Bulgaria) State Forestry Agency (Bulgaria) Serbian Investment and Export Promotion Agency Small- and medium enterprises Socialist Movement for Integration Special Purpose Debt Facility EBRD Turn-Around Management Programme Total Final Consumption Ukraine Union for the Co-ordination of Transmission of Electricity Ukraine Energy Efficiency Programme United Nations Development Programme United Nations Economic Commission for Europe United Nations Environment Programme United Nations Educational, Scientific and Cultural Organization United Nations Foundation United Nations Framework Convention on Climate Change United Nations Fund for International Partnership Interim Administration Mission in Kosovo

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USAID USD VAT WIIW

United States Agency for International Development United States Dollar (currency of the United States of America) Value Added Tax Vienna Institute for International Economic Studies

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SIGNS AND MEASURESCO2 Gcal GJ GW GWh ha km km2 kg kgoe ktoe kV kW kWh m m2 m3 Mtce MtCO2eq Mtoe MW MWh MWth C PJ Sm3 tce tCO2eq TJ toe TW TWh carbon dioxide gigacalorie gigajoule gigawatt (if not stated otherwise, always means electric gigawatt [GWe]) gigawatt hour hectare kilometre square kilometre kilogram kilogram of oil equivalent kiloton of oil equivalent (1 ktoe=42 GJ; 1 ktoe=11.6 GWh) kilovolt kilowatt (if not stated otherwise, always means electric kilowatt [kWe]) kilowatt hour metre square metre cubic metre million ton of coal equivalent million ton of CO2 equivalent million ton of oil equivalent megawatt (if not stated otherwise, always means electric megawatt [Mwe]) megawatt hour megawatt thermic degree Celsius petajoule standard cubic metre (standard means standard temperature and pressure [STP]) ton of coal equivalent ton of CO2 equivalent terajoule ton of oil equivalent terawatt (if not stated otherwise, always means electric terawatt [TWe]) terawatt hour

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CURRENCIESCountry Albania Belarus Bosnia and Herzegovina Bulgaria Croatia Kazakhstan Republic of Moldova Romania Russian Federation Serbia The former Yugoslav Republic of Macedonia UkraineSource: Oanda

National currency Albanian Lek Belarussian Ruble Convertible Marka Bulgarian Lev Croatian Kuna Kazakhstan Tenge Moldovan Leu Romanian New Lei Russian Rouble Serbian Dinar Macedonian Denar Ukrainian Hryvnia

Abbreviations ALL BYR BAM BGN HRK KZT MDL RON RUB RSD MKD UAH

Exchange rate USD 2008, period average (national currency/USD) 85.59 2151.5 1.34 1.34 4.94 122.38 10.58 2.53 24.87 56.14 42.36 5.37

EXECUTIVE SUMMARY 1

EXECUTIVE SUMMARYSouth-Eastern European, Eastern European and Central Asian countries are confronted with a wide range of economic and environmental problems caused by their inefficient and polluting energy systems. At the same time, their energy economies provide some of the most promising opportunities for reducing global greenhouse gas emissions. This will require the use of costeffective energy efficiency improvements and renewable energy technologies the main selffinancing methods to implement climate change mitigation. The investment potential for energy efficiency in these countries is so large that only the private sector can provide the capital needed to achieve meaningful results. This in turn will require a market for energy efficiency in which large investments can be made with low transaction costs at an acceptable risk-to-returns ratio and within a reasonable period of time. At present, private investors do not often finance energy efficiency projects in these countries because dedicated sources of financing are lacking and local banks are generally unfamiliar with such investments. Another obstacle in financing energy efficiency projects is the absence of policy and institutional support for their implementation. The lack of knowledge and experience on how to select and formulate energy efficiency investment projects is often a challenge for local experts. In order to address these obstacles, in January 2008 the UNECE began implementing the Financing Energy Efficiency for Climate Change Mitigation (FEEI) Project. The project is designed to assist countries from Eastern Europe, South-Eastern Europe and Central Asia to enhance their energy efficiency and reduce air pollution and greenhouse gas emissions in order to meet international obligations under the United Nations Framework Convention on Climate Change (UNFCCC) and UNECE environmental conventions. Twelve countries from Eastern Europe, South Eastern Europe and Central Asia are included in the scope of the activities: Albania, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Kazakhstan, Republic of Moldova, Romania, the Russian Federation, Serbia, the former Yugoslav Republic of Macedonia and Ukraine. The goal of the FEEI Project on Financing Energy Efficiency Investments for Climate Change Mitigation is to promote market formation so that self-sustaining energy efficiency and renewable energy projects can be identified, developed, financed and implemented locally in participating countries. Funding for the project has been provided by the following supporting institutions: United Nations Foundation/UN Fund for International Partnerships (UNF/UNFIP); United Nations Environment Programme/Global Environment Facility (UNEP/GEF); Fonds Franais pour lEnvironnement Mondiale/Agence Franais de Dveloppement (FFEM/AFD); European Business Congress e.V. (EBC). In-kind contributions for the project are provided by the participating countries and by the UNECE secretariat.

Goals, Scope and Approach of the AnalysisThe Regional Analysis for Policy Reforms to Promote Energy Efficiency and Renewable Energy Investments is conceived as a wide-ranging regional assessment, including case studies, expert workshops and senior policymaker seminars. The main goal of the analysis is to provide recommendations addressed to the policymakers of the participating countries in order to develop and implement policy reforms that will support market formation and foster a favorable climate for investments in the sectors of energy efficiency and renewable energy sources. To achieve this goal, an interactive approach has been applied with active involvement of the designated National Coordinators (NCs) and National Participating Institutions (NPIs) from the project countries and direct contributions from experts which have been collected and consolidated in the final report.

EXECUTIVE SUMMARY 2

Overview of the Energy Sector in the Project RegionThe countries in the project region show huge differences in their economic development, energy supply and legislative and regulatory framework, while the common aspect appears to be the urgent need for investments in energy efficiency and renewable energy sources. While half of the reviewed countries have a per capita Gross Domestic Product (GDP) which is above the worlds average, some countries, in particular the Republic of Moldova and Albania, are well below this threshold. On the other hand, Croatia and the Russian Federation are not far from reaching the average of the 27 member states of the European Union (EU), while the two new EU member states Bulgaria and Romania are still well below that indicator. Apart from Kazakhstan and the Russian Federation, who are large energy exporters, all other project countries have significant dependency on energy imports, which can reach 86 per cent and 97 per cent in the case of Belarus and the Republic of Moldova, respectively. This fact points out that enhancing efficiency in the primary energy use and exploiting the domestic potential of renewable energy sources is the most sustainable way to reduce dependency on foreign energy imports. All countries in the project region are in the process of deregulation and liberalization of their energy markets, with electricity markets having generally the highest degree of progress and gas and heat markets very often lagging behind. Regulations and provisions regarding the energy sector are available in all project countries, but the structure, the goals and the scope of the national legislation differ significantly between the countries. Regarding energy intensities, all countries of the project region (with Albania and Croatia being the only exceptions), are well above the EU-27 average, with such countries as Kazakhstan, Serbia and the Russian Federation being among the countries with the highest energy intensity in the world. While a rather satisfactory situation can be observed with respect to deployment of renewable energy sources in many project countries, it must be noted that the major contribution to renewable energy sources comes from the widespread use of large hydropower stations for the generation of electricity and use of fuel wood for domestic heating purposes, while other renewable energy sources (geothermal, solar, wind and small hydropower) have only a negligible share.

EXECUTIVE SUMMARY 3

Overview of the Energy Sector and Policy Framework in the Project Countries AlbaniaAlbania has one of the lowest per capita GDP in the project region; however, economic growth has been steady in the last five years before the financial crisis in late 2008. The Albanian economy is based more on agriculture than any other country in the project region, while the industrial sector has a rather modest contribution to GDP. Albania has the lowest electricity consumption per capita in the project region and power generation is nearly entirely based on hydropower (98 per cent). These facts imply that energy intensity in Albania is low and the share of renewable energy sources very high; however, there are major problems of electricity supply in the country that need to be addressed with consistent investments in the energy infrastructure and therefore Albania faces the challenge of ensuring sufficient electricity supply to the population while maintaining sustainability standards. Several policy reforms have been undertaken in Albania in recent years, mainly the implementation of the National Power Law in 2003, which led to the establishment of the National Energy Regulator, the unbundling of the power sector and the privatization of electricity distribution activities. The Concession Law of 2007 introduced a competitive and transparent concession policy, which is very favorable for development of renewable energy projects.

BelarusBelarus is the country in the project region that has experienced the strongest economic growth in the past years, with an average yearly growth of GDP of over nine per cent between 2003 and 2008 and reaching GDP per capita above the worlds average and very close to the GDP per capita of the two most recent EU members Bulgaria and Romania in 2008. The industrial sector (mainly based on heavy industry, machinery and agricultural equipment) plays a strong role in the Belarussian economy, followed by the agricultural sector. In order to stimulate the creation of private enterprises and attract foreign investors in the country, the Belarussian Government has created six free economic zones that offer tax and custom duty exemptions. Belarus is major strong energy importer, having a deficit of primary energy sources of 86 per cent. Electricity production is entirely based on fossil fuels, in particular on gas imports from the Russian Federation. For these reasons, energy efficiency has been a top priority for the Government of Belarus since mid-1990s. The application of a combination of administrative and market measures has brought tangible results, with energy intensity being almost halved between 1997 and 2007. Examples of administrative measures are ministerial energy saving plans for state-owned companies, while the energy incentives introduced comprise preferential loans, reduced interest rates and tax exemptions. Furthermore, the Belarussian Government is improving the efficiency of the district heating system by replacing heating pipes at a rate of 1,000 km per year.

Bosnia and HerzegovinaThe state of Bosnia and Herzegovina is composed of two entities, the Federation of Bosnia and Herzegovina and Republika Srpska, and the District of Brko as set up by the Dayton Peace Agreements of 1995. The Dayton Agreements also allocated the regulatory authority to the two entities, while the state Government has more of a coordinating role. After recovery from the civil war, Bosnia and Herzegovina has seen a steady economic growth over the last five years. The power system of Bosnia and Herzegovina was developed to supply the remaining parts of the former Yugoslavia: based on its electricity surplus and good interconnection capacities, the country still exports electricity to most of its neighbouring countries. Electricity production is based for a large part on domestic lignite reserves and for the rest on hydropower, placing the country among those with high share of utilization of renewable energy sources. Unfortunately, there are no reliable data on energy consumption in Bosnia and Herzegovina; however, overall energy intensity of the country is rather low.

EXECUTIVE SUMMARY 4

BulgariaBulgaria has experienced strong economic growth since the mid-1990s; successive governments have demonstrated commitment to economic reforms and responsible fiscal planning, mainly with the objective of accession to the European Union, which has been achieved in 2007. However, despite the strong economic growth and significant amounts of foreign direct investments, Bulgarias per capita income was only 37 per cent of the EU-27 average in 2007. Bulgaria shows a moderate energy import dependency and has an overall balanced fuel mix. However, the security of supply is highly dependent upon future political decisions regarding nuclear generation, since four out of six reactors of the Kozloduy nuclear power plant (the countrys only nuclear power plant) have been decommissioned between 2003 and 2006 and the construction of a new nuclear power plant in Belene is still under discussion. Even in case of a positive decision, the original goal of commissioning the new plant by 2013 is no longer realistic and its operation will have to be postponed of at least t