Unlocking the Building Energy Efficiency Retrofit Market in Moldova. Republic of Moldova United Nations Development Programme (UNDP)

Transcription

1 Unlocking the Building Energy Efficiency Retrofit Market in Moldova Republic of Moldova United Nations Development Programme (UNDP) 29 June 2017

2 Project/Programme Title: Unlocking the Building Energy Efficiency Retrofit Market in Moldova Country/Region: Moldova/ Europe and the CIS Accredited Entity: United Nations Development Programme National Designated Authority: Ministry of Environment of the Republic of Moldova

3 GREEN CLIMATE FUND PAGE 1 OF 5 A. Project / Programme Information Please submit the completed form to fundingproposal@gcfund.org 1 A.1. Project / programme title A.2. Project or programme A.3. Country (ies) / region A.4. National designated authority(ies) A.5. Accredited entity Unlocking Building Energy Efficiency Retrofit Market in Moldova Project Moldova/ Europe and the CIS Ministry of Environment UNDP Executing Entity: Ministry of Economy A.6. Executing entity / beneficiary Beneficiaries: 75,000 people, including 48,000 women and children - Occupants of public buildings: 40,000 people, including at least 60% women - Occupants of residential buildings: 35,000 people, including at least 50% women - The emerging ESCO sector in Moldova, currently around 20 SMEs A.7. Access modality Direct International A.8. Project size category (total investment, million USD) A.9. Mitigation / adaptation focus Micro ( 10) Small (10<x 50) Medium (50<x 250) Large (>250) Mitigation Adaptation Cross-cutting A.10. Public or private Which of the following targeted results areas does the proposed project/programme address? A.11. Results areas (mark all that apply) Reduced emissions from: Energy access and power generation (E.g. on-grid, micro-grid or off-grid solar, wind, geothermal, etc.) Low emission transport (E.g. high-speed rail, rapid bus system, etc.) Buildings, cities, industries and appliances (E.g. new and retrofitted energy-efficient buildings, energy-efficient equipment for companies and supply chain management, etc.) Forestry and land use (E.g. forest conservation and management, agroforestry, agricultural irrigation, water treatment and management, etc.) Increased resilience of: Most vulnerable people and communities (E.g. mitigation of operational risk associated with climate change diversification of supply sources and supply chain management, relocation of manufacturing facilities and warehouses, etc.) Health and well-being, and food and water security (E.g. climate-resilient crops, efficient irrigation systems, etc.) Infrastructure and built environment (E.g. sea walls, resilient road networks, etc.) Ecosystems and ecosystem services (E.g. ecosystem conservation and management, ecotourism, etc.) A.12. Project / programme life span 8 years 1 Please use the following naming convention for the file name: [CN]-[Agency short name]-[date]-[serial number] (e.g. CN-ABC ).

4 GREEN CLIMATE FUND PAGE 2 OF 5 A.13. Estimated implementation start and end date Start: January 2018 End: December 2025 B. Project/Programme Details The Fund requires the following preliminary information in order to promptly assess the eligibility of project/programme investment. These requirements may vary depending on the nature of the project/programme. Significant cost-effective energy savings remain untapped in the Moldova s building sector, which accounts for 40% of primary energy use and GHG emissions. Increasing efficiency of buildings energy use is therefore essential to enable Moldova achieving its ambitious national GHG emission reduction target by 67% by 2030 compared 1990 baseline, as presented in Moldova s Intended Nationally Determined Contribution (INDC). Further, building sector s energy use cost Moldova 25% of its state annual budget or about 550 mln US$/year. Comprehensive and deep energy efficiency retrofit activity and investment are limited despite significant potential: up to 60% energy savings could be cost-effectively achieved across the entire stock of existing public and residential buildings, resulting in an 330 mln US$ market annually over the next decades (which corresponds to 5% of Moldova s GDP). Description of barriers to EE investment: financial and structural To date, financing for building retrofits in the Republic of Moldova comes for the most part from the scarce national and municipal budgets, donors and IFIs (See Section B.3 for detailed overview of on-going investment in EE buildings). Market-based investments, such as via energy performance contract (EPCs) are virtually non-existent due to a number of legislative, regulatory, and financial and non-financial (structural) barriers. The prevailing financial barriers are those related to poor financial viability of building retrofit projects and high-cost of financing. B.1. Project / programme description (including objectives) The reason for this is two-fold. First, most of the buildings are at very poor state of repair as a result of decades of under-investment and inadequate building maintenance. According to UNECE 2 : Approximately 60% of the housing stock was built between 1976 and Though it is relatively new, due to lack of maintenance and capital repairs, its condition in general is very poor; Some 20-30% of the housing stock, which dates from more than 60 years ago, needs to be replaced because of old age and lack of maintenance and repair. If these houses continue to be inhabited without being replaced, they will become a serious risk for the health and safety of the dwellers. The necessity to include capital repairs and basic reconstruction measures in the scope of EE projects render them prohibitively expensive yielding long payback periods (over 10 years) and effectively making them not bankable under usual commercial banking terms. In addition, low existing comfort levels reduce the share of achievable energy cost savings. Underheating, i.e. the difference between calculated final energy demand for heating based on building audits and indoor temperature requirements, and the real energy consumption based on energy bills, is common. The vast majority of public buildings and residential apartments in Moldova are under-heated: they use 60-70% (Table 1) less energy than required to ensure sufficient thermal comfort (approx C). Consequently, after a building retrofit is implemented, thermal comfort normally improves, but the rebound effect leads to insufficient cash flow to ensure attractive returns and the payback period is typically longer than 4 years: it varies on average between 8-9 years for public buildings up to years for residential buildings (see Annex II Financial analysis). 2

5 GREEN CLIMATE FUND PAGE 3 OF 5 Under such circumstances, no commercial involvement of private sector (ESCO-based on EPC model) could succeed. Table 1 Calculated and Real Energy Consumption in Residential Buildings Series, block addess Heat demand before the implementation of EE measures, kwh/m2 year Average (over the last three years) heat consumption (for heating), kwh/m2 year Underheating, % 143, Balcani, 6/1, 72 apartments 135, Alba Iulia, 194/2, 54 apartments 102, Docuceaev, 2/2, 29 apartments MS, Balcani, 4/3, 55 apartments 190,8 136,6 72% 219,7 135,0 61% 184,5 122,0 66% 224,3 139,0 62% To be attractive for the targeted customers, building energy efficiency investments typically require a financing environment, by which the combined amount of the new energy bills and the annual costs of paying back the investments does not exceed what the occupants or owners of the buildings used to pay for meeting their energy needs before. To make this to happen, there is a need for: i) accessing long term financing preferably in local currency with attractive interest rates, ii) tariff levels that reflect the real costs of supply; and iii) flexible social support schemes, by which the lower energy consumption does not automatically lead to lower subsidies, but which can be converted to also support the pay-back of energy efficiency investments. Such a financing environment does not currently exist in Moldova, where the loans currently available for building retrofits are offered in foreign currency only (in which case the foreign exchange risk lies entirely with the client, while at the same time tariffs remain relatively stable in local currency or when loans in local currency are available, the interest rates are prohibitively high. Loans in local currency are for the most part not available. Neither option can be considered as attractive enough for typical building EE investments as it concerns, in particular, the thermal refurbishment of the building envelope. This is clearly demonstrated, for instance, by the low subscription of the loans currently offered under existing IFI-funded programs in Moldova. In addition, there is a range of non-financial (structural) barriers, which hamper investment, in particular in residential sector. Those are related to the week institutional, legal and regulatory framework enabling investment in the sector, as well as low capacities at the level of building management, public and residential alike. Institutional, legal and regulatory barriers: In public buildings, the people accommodating or operating the buildings often lack the incentives to promote energy efficiency, because the energy bills are paid by a different entity, which, on the other hand, may not be responsible for the overall public budget management either. The current public procurements rules also not yet geared towards doing the procurement on the basis of the lowest life cycle costs or using new type of services and financing modalities such as those of Energy Service Companies (ESCOs). In private residential buildings (similar to many other countries of the region), major barriers are the absence of functioning building management bodies, procedures for collective decision-making, use and ownership of common property, payment enforcement and a supporting legal and regulatory framework, by which the adequate maintenance and repair of the buildings, the related investment decisions and getting financing for them becomes a hugely challenging task. Such institutional barriers typically make the multi-apartment buildings less attractive clients also to the potential financiers, as the risks are considered too high. Awareness and capacity barriers: Energy efficiency is not a major concern for most people in Moldova yet. There is both lack of information and low level of awareness among building owners, public authorities and residents of private buildings about their energy costs and potential energy and money saving opportunities. As the building energy efficiency retrofit market is still in its infancy, there is also a lack of adequately trained professionals such as designers and installers as well as adequate quality control schemes to ensure that the materials and works performed

6 GREEN CLIMATE FUND PAGE 4 OF 5 produce the expected results and do not create any consequent problems e.g. with the buildings moisture management. The role of energy service companies in Moldova remains somewhat limited due to a number of barriers. Typically, ESCOs are either companies that provide energy audit services or energy service providers that offer audits and then also a technical solution for a fee. These companies do not provide both a technical and a financial solution, and there is limited experience with energy performance contracts (EPCs) in Moldova which is made even more problematic by the fact that financing is often difficult to obtain at affordable terms. Energy service providers typically do not like the idea of entering into public-private partnership type relationships with the municipal sector due to their limited payment ability and discipline. Policy, legal, regulatory, awareness and information barriers have all prevented the ESCO market from taking off in Moldova. Due to the presence of the financial and structural barriers discussed above, the overall risk-return profile of EE building retrofit investments is still largely prohibitive in Moldova, despite the vast potential for economically highly cost-effective energy-saving and GHG emission reduction opportunities. By specifically targeting these barriers and investment risks, the project will contribute towards more commercially-driven and also financially feasible EE building retrofit market. Project strategy The objective of the proposed project is to scale-up investment in energy efficiency retrofits of public and residential buildings by supporting the design and implementation of the National Building Retrofit Program, comprising an integrated package of policy, regulatory, and informational measures, as well as specific investment design in such a way as to cost-effectively addressed the prevailing barriers and promote market for EE. The key innovations of the proposed project, which shall trigger envisaged market transformation approach, are the following: A. Residential sector: on-bill repayment mechanism. the project will implement in partnership with heat supply companies the repayment mechanism for EE investment whereby the cost of EE retrofits will be incorporated in the monthly heat (or other utility costs when DH systems do not exist) bills of the tenants/building end-users, gradually repaid and accumulated at the EE fund. Monthly payments remain at the baseline level until the investment costs are fully recovered. B. Public sector: Energy performance contracting (EPC). The project will implement EE retrofit on performance-based model whereby a certain share of payments will be linked and based on the actual energy saving achieved by the project. The project consists of two closely related sub-components aimed at addressing financial and nonfinancial barriers respectively, as follows. Sub-component 1: Investment in EE Building Retrofits It will support the National EE Building Retrofit Programme by providing investment and technical assistance to identify, prepare, implement, and monitor EE building retrofits in up to 70 public and 250 residential buildings via a blended finance structure, which will combine the following instruments (see Table 2 for overview of the project financing structure and Section C for detailed information): Concessional loan from EIB: 60 mln Euro, 25 years maturity (5 years grace period), below 1,5% interest rate (to be fixed at disbursement): to cover the costs of EE retrofits Grant from GCF: 25,2 mln Euro to cover the costs of EE retrofits, as well as TA required for project identification, preparation, and oversight; Loans from EE Fund for private ESCOs: 5,38 mln Euro.

7 Table 2 Overview of project financing structure PROJECT / PROGRAMME CONCEPT NOTE GREEN CLIMATE FUND PAGE 5 OF 5 Under sub-component 1, the following activities are envisaged: Activity 1.1 Building selection Buildings will be selected based on an open call for request of interest. in a transparent and open way based on pre-agreed criteria (to specify/confirm at project design stage) with a view of ensuring: - regional balance and the need to target most vulnerable group of building end-users and population, including women; - acceptable building conditions - existence of home owner association and/or building management company (legal status, no bankruptcy procedures, etc) for residential buildings; - connection to district-heating (DH) networks (for residential buildings in cities with DH); - existence of data on building energy use for at least last two/three years (degree of underheating 30% maximum). Buildings legal representatives (e.g. municipal authorities, national agencies, home-owners associations) can apply to participate in the programme on a rolling base. The PIU (see section B.5 below) will assess compliance with established criteria and submit the list of eligible buildings to the Project Board for approval (on quarterly basis). For approved building grouped in lots the following activities will be implemented. Activity 1.2 Detailed Energy Audits (DEAs) Services to conduct DEAs for selected building lots will be procured by PIU and implemented by qualified service providers. The results of DEAs shall include: - baseline energy use information for each building (to serve as a basis for estimating repayments) - proposed technical EE measures for each building; - financial and economic analysis of the proposed investment, as well as proposal for the size and duration of the repayment; - proposal regarding financing structure for each building (combination of loan, grant and private investment EPC, wherever applicable). Activity 1.3 Technical design Based on proposed technical measures, services to deliver technical design will be procured by PIU and delivered by qualified companies ensuring compliance (technical, environmental, etc) with all applicable Moldovan regulations and in line with basic principles for EE projects financed by EIB, as follows: Long term efficiency and quality of the building refurbishment The deterioration of energy performance of a refurbished building over the lifetime of 25 years must be minimal and guaranteed.

8 GREEN CLIMATE FUND PAGE 6 OF 5 This can only be achieved with best quality highly detailed design and by using long lasting materials applied according to best practices. Third party verification of detailed design and implementation, as well as the certification of materials, must be mandatory. Cost optimal level in line with the requirements of the EU EPB Directive The Republic of Moldova has not fully transposed the EU EPB Directive yet. Therefore, local standards do not reflect the cost optimal design principles under the EU EPB Directive. The Bank s eligibility criteria include compliance with the EU directives as specified by EIB (to the extent not transposed into local laws) and, accordingly, the design must reflect the cost optimum principle in line with the requirements of the EU EPB Directive. By way of example, a cost optimum refurbishment level could be defined as follows: energy performance of buildings after completion of the works in the range of kwh/m2/y (standardized thermal conditions) achieved with investment cost between EUR 45/m2 and EUR 80/m2 (excl. VAT), with the optimum being at the bottom of a parabolic function between specific energy consumption (per EUR 1 invested) and specific investment cost (to be reflected in an evaluation formula for proposals). Comprehensive building refurbishment Thermal refurbishment of buildings must at the very minimum include the following works: facade, roof and basement (ceiling) insulation; window replacement; ventilation; and structural reinforcement, adaptation and/or repairs for the purposes of installing insulation and windows. All works must include finishing works (weather resistant covers and plastering, painting, ventilation grills, reinstallation of equipment, etc.). Best practise regarding health and safety for workers and environment during the implementation of works By way of example, measures must include (without limitation) proper scaffolding with adapted protections, use of adapted lifting equipment, respect of maximum working hours per worker, avoiding workers to work in unacceptable climatologic conditions, etc. The output of this activity will be prepared technical specifications for EE works for each particular building. Activity 1.4 Procurement of EE works PIU will undertake procurement of required EE works based on technical specifications prepared under Activity 1.3 based on UNDP rules and procedures (see Section B5 for details) and in compliance with EIB Guide to procurement). Important part of this activity will be planning for EE work to ensure minimum disturbance to building end-users and compliance with environmental safeguards. PIU will work with selected sub-contractors to ensure these issues are properly addressed and agreed upon with building end-users. Activity 1.5 Legal arrangement for repayment In parallel with selecting contractors for EE works in buildings, the PIU will work with applicants and facilitate the signature of legal agreements which will govern the repayment mechanism. This will include developing model ESCO contracts and other relevant legal documents. For the residential sector: this will include signature of tri-partite agreements between tenants/home owner

9 GREEN CLIMATE FUND PAGE 7 OF 5 association, DH company and EE Fund. For the public sector, this will include agreements between municipalities, EE Fund, as well as selected ESCO companies (for measures with short pay-back period). For the residential buildings located in the towns without DH system in place, alternative repayment mechanism will be defined (e.g. on-bill repayment via other utilities and municipal service providers, water or electricity supply companies). Activity 1.6 Technical oversight over EE works After completion of Activity 1.4 (procurement of EE works) and Activity 1.5 (legal arrangement), the PIU will carry on technical oversight over the implementation of works. For this purpose services of competent independent company will be procured by PIU. Detailed work plan regulating oversight activities by contractor will be prepared and agreed upon with sub-contractor and building end-users. Activity 1.7 Verification of results and issuance of energy passports After project completion, verification will be undertaken by independent qualified service providers and each building will receive energy passport, as per relevant Moldovan and EU regulation (see also Activity 2.3). Sub-component 2: Legal and Regulatory Framework & Capacity Buildings Activity 2.1 Energy management and EMIS introduction Energy management plays a critical role in this project as a monitoring tool to track and monitor the impact of EE measures in terms of energy/cost saving, improvement in comfort and other benefits, but is also essential to sustain achieved results. For each approved building, the project will support the installation of Energy Management Information System (EMIS) software, the appointment and training of appointed building energy managers, collection and input of primary data, training and advice on data collection, analysis. Services of qualified company will be procured by PIU to support EMIS implementation. This activity will also involve the creation of a national database on energy consumption in all public buildings and the appointment of the Energy Efficiency Agency as the institution responsible for managing and updating this database. The national database will cover energy consumption data for all buildings in all of Moldova. Activity 2.2 Awareness raising and mobilization of building end-users Throughout all stages of the building selection, approval, implementation of EE works, the project will work with tenants and building managers to raise their awareness about EE matters, as well as support consultations regarding the practical aspect of project implementation and repayment mechanism. Awareness raising will also be carried out on the EMIS system. Activity 2.3 Home owners association (HOA) capacity building For the residential sector specifically the project will assess capacities and gaps of the HOAs and provide required technical assistance (training, advisory services) on energy management in residential buildings, as well as on all essential operational and financial aspects of building management. The project will also help design and apply effective set of functional models and rules for multi-apartment building management bodies to undertake EE retrofits. Activity 2.4 ESCO support The project will support outreach and capacity building to potential ESCO companies by organizing training and consultation sessions to interested companies. The training will cover issues such as risk management, EPC contract development, energy audits, and other related issues. Activity 2.5 Legal and regulatory framework development Several regulatory provisions need to be developed and adopted before implementation of the envisaged repayment mechanism can be implemented. The project will provide technical assistance and will work with relevant governmental agencies to develop and facilitate their adoption, including for example the following:

10 GREEN CLIMATE FUND PAGE 8 OF 5 - revision of the social support (heat subsidy) scheme to ensure that lower energy consumption resulting from EE investments does not automatically lead to lower subsidies and that poor households can maintain the earlier subsidy level until their share for the EE investment has been paid back; - regulations concerning building certification and issuance of energy passports; - regulations enabling implementation of the repayment mechanism by municipalities (currently being limited to their annual budget cycle) - other policy and regulatory gaps as identified though the policy and regulatory gap analysis to be conducted at Funding Proposal development stage. Activity 2.6 Knowledge management, M&E Through the course of the project efforts will be made to regularly and systematically collect information about project results and lessons learnt in both quantitative and qualitative forms. They will be presented in the form of technical and analytical reports and disseminated widely in Moldova and beyond. Towards the end of the project National Conference or similar event will be organized to present the findings. UNDP is one of the world s largest providers of technical assistance for climate change grants for developing countries, with a current portfolio of US$ 1.34 billion in mitigation and adaptation grantfinanced projects in over 140 countries, supported by co-financing of $6.7 billion. In the Europe & CIS region, UNDP currently has a portfolio of over $120 million USD of project that deal with issues related to energy-efficiency. Since 1992, UNDP, in conjunction with government and nongovernment partners from more than 40 countries, including Moldova, has been developing and implementing projects on EE in buildings. The Global Environment Facility (GEF) has provided over US $161 million in support to 55 projects, supplementing US$ 1 billion in co-financing contributions from national and international partners. The focus of UNDP s work is on removing barriers, creating enabling market environments and catalysing financing for increased investment in energy efficient buildings. B.2. Background information on project/programme sponsor UNDP has considerable experience in Moldova in developing blended financing instruments and working with the Energy Efficiency Fund (EEF) in order to attract investments in energy-efficiency in buildings. The objective of the UNDP ESCO Moldova project which started in Transforming the market for Urban Energy Efficiency in Moldova by introducing Energy Service Companies, funded by the Global Environment Facility (GEF) and is currently under implementation has an objective to create a functioning, sustainable and effective ESCO market in Moldova by converting existing energy service provider companies into ESCO companies, as the basis for scaling up mitigation efforts in the whole municipal building sector in Moldova, leading to CO2 emission reductions by implementing energy performance contracts. The project combines grants, soft loans, and a loan guarantee mechanism which will make it more attractive for ESCOs to enter into the market in Moldova. The project was started in 2015 and is expected to be completed in 2019 with a budget of US$1.3 million US$ allocated by GEF, US$150,000 by UNDP and it includes an estimated US$7.465 million of co-financing by other sources By building on UNDP s long experience in supporting the Government of Moldova and the different sectors and levels of the society in the area energy and environment with a specific focus on support for energy efficiency and renewable energy in Moldova, UNDP will be in a good position and can be viewed as a trusted partner to work with the Government, local public authorities, private sector stakeholders (incl. CSOs), local banks, the building owners and users and the international financing community to deploy the most cost-effective combination of technical assistance, policy and financial de-risking instruments and targeted financial incentives to address the identified barriers and achieve a risk-return profile for EE building retrofits that can attract also financing for them and produce the projected results. The project can also build on the experiences and lessons learnt from the GEF supported and UNDP implemented project in Romania "Improving Energy Efficiency in Low-Income Households and Communities in Romania" with a particular focus on fuel poverty issues. B.3. Market overview In accordance with the Moldova 2020 National Development Strategy to reduce energy consumption in buildings by 10% by 2020, the most recent National Energy Efficiency Action Plan (NEEAP ) is proposing an ambitious program to facilitate EE retrofits of public buildings with cumulative savings of 50 ktoe by the end of 2020 and EE retrofits of multi-apartment residential

11 GREEN CLIMATE FUND PAGE 9 OF 5 buildings, in frame of a separate Programe, with a total floor area of 2,00 million square meters by the end of 2020 with average annual savings of 80 kwh/m2 (or cumulative savings of 13,71 ktoe by the end of 2020). The overall target for residential building sector is set at 72 ktoe by To reach the stated NEEAP targets in 2020, the related investment needs were estimated at USD 125 million for public buildings and USD 216 million for residential buildings. The envisaged financing sources consist of a mix of Government budget financing and grants, loans and eventually guarantees from a variety of international donors, partnerships and private financing entities. Using private sector lending for buildings energy efficiency improvements in Moldova is extremely difficult at the moment, however, due to the foreign exchange risks, high interest rates and low financial viability of the EE retrofit projects, in particular in residential sector. Current financing paradigm for EE buildings The market for investment in EE retrofits is in its infancy in Moldova. The exist only one on-themarket financing instrument for such projects - the Moldovan Residential Energy-Efficiency Financing Facility (MoREEFF). The MoREEFF was set up by EBRD in cooperation with Moldovan banks in 2012 with a loan amount of EUR 35 million to support energy efficiency investments in the residential sector. The project consists of credit lines disbursed through local banks to: i) individuals or groups of individuals and households registered under the laws of the Republic of Moldova as residents or owners in the building for which they intend to perform eligible subprojects; associations/condominiums of apartment owners registered under the laws of the Republic of Moldova; and ii) legal entities, including housing management companies, energy service companies or any other service company providing maintenance, operation, construction or refurbishment services for the purpose of the implementation of eligible energy-efficiency projects in the residential sector. The loan can be used for a dwelling-level project or a buildinglevel one. The programme also provides incentives to borrowers. The European Union Neighbourhood Investment Facility (EU NIF) and SIDA have earmarked EUR 11 million to award incentives to the eligible borrowers. Any borrower who takes a MoREEFF loan is entitled to receive an incentive of up to 20%, 30% or 35% of the loan amount for a dwelling-level, building-level, or building-level project of an association of apartment owners, respectively, with a restriction that the total lump sum should not exceed EUR 6,000 per borrower. Despite availability of subsidies, for building-level EE projects no application has been received since the program started. Beside short tenors and high interest rates of the loans (when disbursed through the local banks in local currency), there are also other barriers and challenges in lending to the residential sector EE investments, as discussed in the previous sections (see Section B1 - description of barriers to investment in EE retrofit). Other, non-market, sources of capital for EE in buildings are municipalities and other end-users own financing, grants from the Energy Efficiency Fund (EE Fund), bilateral and multilateral donors, and International Financial Institutions (IFIs). The national Energy-Efficiency Fund (EEF) was founded and financed by the CEB through Government Decision No. 401 of 12 June As per its stated mission and objectives 3 : The objective of the Fund is to attract and manage financial resources to finance and implement projects in the field of energy efficiency and renewable energy projects, in accordance with strategies and programs developed by the Government, by: i) promoting investment projects in energy efficiency and renewable energy sources; ii) providing technical assistance for energy efficiency and renewable energy projects development; iii) providing financial assistance to the projects; iv) direct financial contributions; v) acting as the agent or mediator for other sources of financing; vi) providing full or partial guarantees in case of financing by banks; and vii) providing assistance in identifying optimal combinations for projects funding. Measures Since 2012, the EEF has launched six calls for proposals for energy efficiency and renewable energy projects in both the public and private sector in Moldova. It has received 841 proposals for some US$800 million (1698 milllion lei). From these 841 proposals some 195 have been selected for financing for which the total project cost is approximately US$23 million of which the EEF contribution was approx. US$16 million. Disbursements as of the end of 2016 stand at approximately $6 million USD and total CO2 emission reductions as of the end of 2016 are 3

12 GREEN CLIMATE FUND PAGE 10 OF 5 estimated as approximately 16,500 tonnes of CO2e. While the EEF is able to provide a variety of financial instruments including in addition to grants, loans, leasing, and loan guarantees it currently to date has only provided grants. However, this situation is changing as the EEF moves more towards a blended financing approach. UNDP is currently working together with the EEF in the context of the GEF funded ESCO Moldova project and has established within the EEF a Loan Guarantee Fund of USD 900,000 to leverage financing from commercial banks for the implementation of EE projects in the residential and public sectors by using the ESCO project implementation and financing modality. The individual investments funded by the project will include the renovations of some 20 private residential and public buildings. Among IFIs, the European Investment Bank (EIB) is very active in the field of Energy Efficiency. It has recently completed some EE investment programmes in the cities of Bucharest and Galati in Romania targeting residential buildings. This experience is very relevant in the context of Moldova as firstly the type of buildings are similar in Romania to Moldova and secondly Romanian construction companies are expected to be present on the Moldovan market. Moreover, the EIB is also currently involved in an Energy Efficiency project with the Municipality of Chisinau co-financed by the European Bank for Reconstruction and Development (EBRD) and supported by a grant from the Eastern Europe Environment and Energy Efficiency Partnership (E5P). The operation is a framework loan in support of sustainable energy efficiency improvements targeting mainly public buildings in Chisinau. The first allocations under this loan have already been identified and consist of the refurbishment of a number of public buildings (hospitals, schools and kindergarten). They are the result of a thorough feasibility study conducted by a consultant and whose results are being used to design the current operation. Other allocations may also include residential buildings. To that purpose, the consultant has also been requested to envisage the possibility to develop a pay-back mechanism to enable targeting the residential sector. The investments will focus mainly on improvements to the building envelope (wall, roof, slab insulation, windows and door replacement), HVAC systems (heating, ventilation, air-conditioning). The programme will also include energy efficiency measures targeting lighting systems, heat distribution systems and the integration of renewable energy sources. Moreover, some demand side management measures will be developed, in particular with regard to metering systems. The lessons learnt from this project will be used to structure and develop the proposed operation at a national level. All in all, considering the total number of buildings and potential for energy saving and GHG emission reduction in the building sector, available financing support is negligible and fall short of meeting the estimated needs of 342 mln US$ to reach the targets set-up in NEEAP and NDC. Current financing paradigm for investment in EE buildings can be summarized as follows: Public buildings: EE Fund: limited funding base (no regular source of income), financing modality: grants to municipalities (no reflows), limited scale of operations (approx. 30 buildings per year); EE Fund/UNDP-GEF Loan Guarantee Facility for ESCOs: pilot stage, limited scope of projects includes only 20 demonstration projects (only EE investment with highreturns) EIB/EBRD Loan to Municipality of Chisinau: comprehensive EE building retrofits; regional focus only Chisinau; (repayment from municipality s regular budget) Residential buildings: MoREEFF: commercial loans via local banks complemented by subsidies from EU (up to 35%); no demand from multi-apartment residential buildings (too high rates and other barriers means that there is low uptake). B.4. Regulation, taxation and insurance UNDP projects in Moldova are exempted from VAT payment in line with conditions stipulated in the Standard Basic Assistance Agreement (SBAA). For activities related to procurement of goods and services through UNDP, according to the SBAA taxes are not applicable. Section 7 of the Convention on the Privileges and Immunities of the United Nations provides, inter alia, that the United Nations, including its subsidiary organs, is exempt from all direct taxes, except charges for utilities services, and is exempt from customs duties and charges of a similar nature in respect of

13 articles imported or exported for its official use. PROJECT / PROGRAMME CONCEPT NOTE GREEN CLIMATE FUND PAGE 11 OF 5 The project will be implemented following UNDP s National Implementation Modality (NIM), according to the Standard Basic Assistance Agreement (SBAA) between UNDP and the Government of Moldova, the UNDP Country Programme Document (CPD) and the Moldova United Nations Development Assistance Framework for (UNDAF), and as per policies and procedures outlined in the UNDP POPP (see The Implementing Partner (UNDP terminology) Executing Partner (GCF terminology) for this project is the Ministry of Economy (MoE) of the Republic of Moldova, as the national authority responsible for energy efficiency. In line with UNDP NIM s rules, other organizations, such as the Energy Efficiency Fund (EE Fund), can be involved as Responsible Partners for implementation of specific project components. The MoE will be responsible for the overall supervision of the project to ensure synergy with other energy efficiency mitigation policies and measures in the country. MoE has the capacity and knowledge to guide and oversee the conceptual aspect of project implementation, including professional guidance on achieving the set targets and previous experience on working with UNDP, for instance, in the context of the on-going GEF funded, UNDP implemented Moldova ESCO project. The day-to-day implementation of the project will be carried out through the Project Implementation Unit (PIU) located at the EE Fund and coordinated by the MoE. B.5. Implementation arrangements GCF funds will not be used to pay the salaries of Government personnel, whose costs will be fully covered by the Government. The National Project Director (NPD) will be assigned by the MoE and will be paid by MoE as s/he is a full-time senior officer. NPD will bear the following responsibilities: - coordination of project realization on behalf of the national implementing agency; - coordination among project action steps and corresponding steps made in the framework of government programs and relevant parallel initiatives; - provision of support for the successful execution of the project and corresponding steps after completion of the project, including the long-term persistence of project results, as well as dissemination of lessons learned; - approves Annual Work Plans and budget; - ensuring collaboration with partners and coordination with departments of the National Implementing Agency. The Project Manager and other members of the PIU will be paid using GCF funds. The management arrangements for this project are summarised in Figure 1. UNDP s overall role as an Accredited Entity is to provide oversight and quality assurance through its Headquarters, Regional and Country Office units. This role includes: (i) project preparation oversight; (ii) project implementation oversight and supervision, including financial management; and (iii) project completion and evaluation oversight. It also includes oversight roles in relation to reporting and knowledge-management. The project assurance function of UNDP is to support the Project Board by carrying out objective and independent project oversight and monitoring functions. This role ensures appropriate project management milestones are managed and completed. The senior supplier role of UNDP is to represent the interests of the parties that provide funding and/or technical expertise to the project (designing, developing, facilitating, procuring, implementing). The senior supplier s primary function within the Board is to provide guidance regarding the technical feasibility of the project. The UNDP Country Office will receive the GCF funds from UNDP Head Office on the basis of approved Annual Work Plans. When payments are to be effected by UNDP, the treasury and cashier functions will be performed by the UNDP Moldova Country Office Finance Department. The financial management and procurement of this project will be subject to UNDP financial rules and regulations, available here: Regulations_E.pdf. Further guidance is outlined in the financial resources management section of the UNDP Programme and Operations Policies and Procedures, available at UNDP has comprehensive procurement policies in place, as outlined in the Contracts and Procurement section of UNDP s Programme and Operations Policies and Procedures (POPP). The policies outline formal procurement standards and guidelines across each phase of the procurement process, and they

14 GREEN CLIMATE FUND PAGE 12 OF 5 apply to all procurements in UNDP. See here: The Technical Advisory Committee will be established to serve as a platform for sharing knowledge and lessons learnt from the project, as well as to solicit advice from the broader expert community in Moldova regarding specific aspects of project implementation. It will comprise representatives of relevant Ministries, as well as relevant international organizations and projects, such as the EU, EIB, EBRD, SIDA, GIZ and other development partners active in the EE field. Figure 1 Project Management Structure Project Board Senior Beneficiaries: Municipalities Home-Owner Associations Executive: Ministry of Economy Senior Suppliers: UNDP-GCF Ministry of Finance (EIB Loan), EE Fund Project Assurance (UNDP and other Board members or delegated to other individuals) Technical Advisory Committee Project Project Implementation Unit (PIU) Sub-contractors for design and implementation of EE retrofits works and EE service delivery Public buildings

15 GREEN CLIMATE FUND PAGE 13 OF 5 Residential buildings C. Financing / Cost Information C.1a) Tentative breakdown of cost estimates by major cost categories, mln : C.1. Description of financial elements of the project / programme Kindergarten Lyceum Hospital Subtotal Public Residential TOTAL # of bldgs m2 53, , , , , ,234 Beneficiaries 5,310 12,257 22,390 39,957 34,931 74,888 Component 1: Investment in EE Building Retrofit Envelope EE 2,68 4,53 3,68 10,89 48,23 59,12 Lighting 0,23 0,52 0,43 1,17 1,17 Automation 0,11 0,25 0,20 0,55 3,66 4,21 Other EE measures (long pay-back) 0,26 0,49 7,06 7,81 3,75 11,56 All CAPEX 3,27 5,78 11,37 20,42 55,64 76,06 Detailed Energy Audits 0,21 0,49 0,45 1,15 2,79 3,94 Design 0,16 0,37 0,34 0,86 2,10 2,96 Oversight 0,16 0,37 0,34 0,86 2,10 2,96 Verification/Energy Passports 0,03 0,03 0,01 0,07 0,25 0,32 ALL Technical Assistance 0,56 1,26 1,13 2,95 7,24 10,18 Sub-total Component 1 3,83 7,04 12,50 23,37 62,88 86,25 Component 2: Legal and Regulatory Framework & Capacities EMIS 0,05 0,05 0,02 0,11 0,38 0,48 Training for end-users 0,02 0,02 0,01 0,04 0,50 0,54 Owners Association - capacity building 0,50 0,50 Awareness Raising Campaign 1,00 ESCO Support 1,30 Legal and regulatory framework 1,20 Sub-total Component 2 0,06 0,06 0,02 0,14 1,38 5,02 Project Management 3,58 TOTAL 94,85 C.1b) Financial model that includes projection covering the period from financial closing through final maturity of the proposed GCF financing with detailed assumptions and rationale is provided in the Annex III, but needs to be elaborated further during full funding proposal drafting stage. C.1c) How the choice of financial instruments will overcome barriers and achieve project objectives, and leverage public and private finance. The project involves a combination of financial instruments and sources, as illustrated in the table below. GCF EIB MinEconomy EE Fund GEF Total

16 GREEN CLIMATE FUND PAGE 14 OF 5 Grant Loan In-kind Loan In-kind Guarantee Grant Component 1: Investment in EE Building Retrofit Envelope EE 59,12 59,12 Lighting 1,17 1,17 Automation 4,21 4,21 Other EE measures with long pay-back 11,56 11,56 All CAPEX 11,56 59,12 5,38 76,06 Detailed Energy Audits 3,94 3,94 Design 2,96 2,96 Oversight 2,96 2,96 Verification/Energy Passports 0,32 0,32 ALL Technical Assistance 10,18 10,18 Sub-total Component 1 21,74 59,12 5,38-86,25 Component 2: Legal and Regulatory Framework & Capacities EMIS 0,32 0,16 0,48 Training for endusers 0,54 0,54 HOA - capacity building 0,50 0,50 Awareness Raising Campaign 0,60 0,40 1,00 ESCO Support 0,30 1,00 1,30 Legal and regulatory framework 0,40 0,50 0,20 0,10 1,20 Sub-total Component 2 2,66 0,50 1,00 0,66 5,02 Project Management 0,80 0,88 0,10 1,10 0,60 0,10 3,58 TOTAL 25,20 60,00 0,60 6,48 0,80 1,00 0,76 94,85 In the Investment component 1, GCF Grant may cover (to be clarified and estimates at full funding proposal drafting stage): a) The costs of EE measures with long pay-back (over 10 years the exact threshold to be determined at FP stage based on financial analysis) (11,56 mln ) b) Technical assistance (10,18 mln ) required to prepare and ensure quality implementation of the retrofit projects, including the cost of detailed energy audits (DEAs), technical design, works supervision, verification and issuance of buildings energy passports. Detailed estimates of these costs are provided in the Annex III. Technical assistance is needed to provide for sufficiently high quality level of retrofits preparation and implementation and by doing so to ensure that expected returns on investment do materialize. This TA will address major barrier, as described above, related to low technical capacities among local contractors to implement retrofit works, as well as among municipal and residential building managers to prepare and oversee implementation of such projects. GCF Grant in the Component 1 will be complemented by concessional loan from the EIB (60 mln ) to cover the cost of EE measures with longer pay-back (above 3 years); and loan from EE Fund for ESCO companies to undertake measures with shorter pay-back period, namely EE lighting (up to 2 years pay-back) and heat supply automation - up to 3 years pay-back (5,38 mln ). There is also a need to secure guarantee to cover the currency exchange risks in line with IMF requirements.

17 GREEN CLIMATE FUND PAGE 15 OF 5 All in all, the proposed level of concesionality for investment in EE building retrofit is based on and aligned with different financial viability of the individual measures, which cumulatively comprise a comprehensive EE Building retrofit package. In the Policy & Regulatory component 2, GCF grant (2,66 mln ) is requested to address structural barriers to investment in EE retrofits, in particular those which blocks private sector financing. GCF contribution will be complemented by in-kind co-financing from the Ministry of Economy and EE Fund, as well as grant from the GEF. Financial Instrument Amount Currency Tenor Pricin g Total project financing (a) = (b) + (c) EURO (i) Senior Loans (ii) Subordinated Loans (iii) Equity (iv) Guarantees (b) Requested GCF amount (v) Reimbursable grants * (vi) Grants * EURO C.2. Project financing information * See Financial and economic analysis in the Annex X Total Requested (i+ii+iii+iv+v+v i) EURO Financial Instrument Amount Currency Name of Institution Senior ity (c) Cofinancing Loan Loan Grant Guarantee In-kind In-kind EURO EIB EE Fund GEF GEF EE Fund MinEconomy Lead financing institution: EIB (d) Covenants (e) Conditions precedent to N/a N/a

18 GREEN CLIMATE FUND PAGE 16 OF 5 disbursemen t D. Expected Performance against Investment Criteria Please explain the potential of the Project/Programme to achieve the Fund s six investment criteria as listed below. Specify the climate mitigation and/or adaptation impact. Provide specific values for the below indicators and any other relevant indicators and values, including those from the Fund s Performance Measurement Frameworks. D.1a GHG emission reduction: Direct and Indirect (See Annex III for details of calculations) D.1. Climate impact potential [Potential to achieve the GCF's objectives and results] Total Direct GHG Emission Savings (tco 2) 736,059 - Indirect Bottom-up Emission Savings (tco 2) 2,944,237 Indirect Top-down Emission Savings (tco 2) 1,540,387 D.1b Number of direct and indirect beneficiaries and number of beneficiaries relative to total population Kindergarten Lyceum Hospital Subtotal Public Residential TOTAL % of the Total All Direct, including 5,310 12,257 22,390 39,957 34,931 74,888 2% Women & children 5,310 12,257 13,434 31,001 17,465 48,466 1% Provide the estimates and details of the below and specify other relevant factors. Potential for scaling-up and replication (e.g. multiples of initial impact size) Moldova has around 6,900 multi-apartment buildings. Once this working model for financing EE retrofits of this type of buildings has been established, in particular the repayment mechanism, and the skills for performing such retrofits have been built with direct support from the GCF project targeting an initial sub-set 250 multi-apartment residential buildings, it will be much more straightforward to scale-up the project to the rest of the sector thus multiplying the initial impact by a factor of 25. The key elements D.2. Paradigm shift potential [Potential to catalyze impact beyond a one-off project or programme investment] Potential for knowledge and learning The project will contribute to knowledge creation and sharing by all market players. To ensure that the strengthening of knowledge will be a focus throughout the project s life, the project includes an output 2.6 which deals specifically with the existence and implementation of a plan for sharing lessons learned. In addition, the provision of technical assistance to the construction sector, Government (national and sub-national) and HOAs will result in collective learning in those target groups. Energy and financial savings information will be collected, analysed and disseminated via the project website and through various other channels and activities such as workshops and advertising. The project will support the implementation of building Energy Management Information Systems (EMIS) in retrofitted buildings. The information gained from these systems will be disseminated, helping to establish the business case for energy efficiency building retrofits, inform better policymaking and providing information for national documents on climate change such as future National Communications to the UNFCCC. Contribution to the creation of an enabling environment The project will systematically target the barriers and investment risks that currently result in a prohibitive overall investment risk profile of EE building retrofits in Moldova. The barriers (described earlier) fall under the general categories of policy, financial, market and technical / capacity barriers.

19 GREEN CLIMATE FUND PAGE 17 OF 5 The project is designed to ensure that each of these barrier categories will be eliminated or reduced as far as possible in activities specifically designed for that purpose, resulting in the creation of a favourable market environment for investment in EE retrofits in buildings that will be sustained beyond the scope of the project. The project will contribute to the creation of an enabling environment for investment in EE building retrofits by removing such barriers. The principal characteristics of such an enabling environment (which are currently lacking) are: Existence of energy use data for public buildings and the system to enable their systematic collection and analysis; Existence of municipal energy managers and building management bodies in public and residential buildings respectively capable of identifying and carry out EE projects; Existence of ESCO companies that are interested in, and capable of, undertaking EE building retrofits based on an EPC model; Existence of appropriate regulatory framework enabling execution of EPC contracts; Availability of appropriate financing package for EE retrofits through National EE Fund, including grants, soft loans and loan guarantees. Contribution to the regulatory framework and policies Activity 2.6 of the project will support national and local authorities to adopt and implement an enabling policy framework for EE retrofits. This Component will support on-going legal reform in the field of energy efficiency, such as introduction of binding legislation on energy auditing, energy passports/certificates and labelling for existing buildings. Measures will include: the modernisation and enforcement of EE standards and mandatory energy performance standards for retrofitted buildings; the development, introduction and enforcement of adequate secondary legislation for providing a clear and effective set of functional models and rules for multi-apartment building management bodies to undertake EE retrofits; legislation that will assist the management of energy efficiency building retrofits for different types of building; and assistance to residents and common-share building organisations on collective decision-making in the context of EE retrofit investment. D.3. Sustainable development potential D.3 Economic, Social and Environmental Co-benefits Economic impacts Total number of jobs created # full-time employment (FTE) 1,700 Amount of foreign currency savings mln /year 5 mln /lifetime 130 Reduction of fuel poverty # people 5,000 Social impacts Improved access to education # people 17,567 Improved access to health-care # people 22,390 Gender-sensitive development impact Number of female beneficiaries # women 48,466 Number of female-headed households # households 6,000 Other benefits: Energy costs constitute a large share of annual expenses incurred by public buildings. In a survey of educational, municipal and healthcare buildings, 35% of those surveyed state that electricity bills amount to 11-20% of their total annual spending. Electricity costs are particularly high for educational buildings, where 27% of respondents report the share of electricity costs to be above 20%. In large public buildings such as hospitals, the total energy savings possible as a result of changing the heating system and better insulating the building is 43%, with an improvement in lighting electricity needs of 80%. In smaller public buildings such as schools, the total energy

20 GREEN CLIMATE FUND PAGE 18 OF 5 saving possible as a result of better insulating the building is 49%. This means that retrofits could potentially save public buildings 10% or more of their budget. 4 Moldova has practically no indigenous fossil fuel reserves and only limited hydroelectric potential, which has led to high energy dependence on other countries with more than 90% of energy resources (primarily natural gas and oil products) imported from Russia, Ukraine and Romania. Energy imports, worth over $1.2 bn and accounting for over 21% of the total imports in 2014 the single largest import product category has put a considerable strain on the nation's budgets, with a trade balance deficit reaching over 44% of the national GDP in 2014 The Household Survey Data (HSD 2013) indicates that 80% of Moldova s population may be considered to be in Energy Poverty, meaning they spend more than 10% of their budgets on energy bills. D.4. Needs of recipient D.5. Country ownership In its Intended National Determined Contribution (INDC) submitted to the UNFCCC in September 2015, the Republic of Moldova committed to an unconditional target to reduce its GHG emissions by at least 64% by 2030 compared to the 1990 levels and by up to 78% subject to a global agreement addressing access to low-cost financial resources, technology transfer and technical cooperation. The provisional GHG emissions of Moldova in the base year of 1990 were defined at 43.4 Mt CO2eq (without LULUCF) and 37.5 Mt CO2eq (with LULUCF) in the INDC document submitted to the UNFCCC, while the current baseline scenario is projecting the emissions of Mt CO2eq (without LULUCF) and Mt CO2eq (with LULUCF) in Centre for Energy Efficiency (2015), Final Report: Energy Efficiency Orbits for Transition Economies 5 Moldova Low Emission Development Strategy