Energy Efficiency and Investments in Focus as World Bank Launches its Regional Flagship Report on Energy in Kyiv in March

May 4, 2010

This year`s long and cold winter in Ukraine forced all of us to think and worry about the electricity, gas and heating supplies in our houses, the often critical conditions of district heating systems and the need for investments. And in the wake of further import price increases from Russia the topic of moving household and utility prices for the gas to cost recovery levels has remained prominent in discussions. Indeed, the energy sector remains widely discussed among all levels of Ukrainian society, from the everyday citizens to top decision makers.

It is thus only logical that the World Bank dedicated its March 2010 “topic of the month” to the energy sector. Jointly with International Finance Corporation the Bank Office in Ukraine initiated a series of events with wide stakeholder involvement: leading experts of the industrial and energy sectors, government officials, professional organizations, financial institution, think tanks, NGOs and academia.

The central event of the month was the official launch of the recent ECA flagship report Lights Out? The Energy Outlook in Eastern Europe and the Central Asia that resulted in more than 150 articles in the press and thoughtful discussions with the government and market players.

According the new Report the Eastern Europe and Central Asia region, will face an energy crunch unless investments of more than $3 trillion are made over the next 20 years, despite Russia and Central Asia’s current role as a major energy supplier to both Eastern and Western Europe. Before the current financial crisis hit in 2008, several importing countries in the region had begun to experience difficulties with supplies. The financial crisis has slowed demand for energy and has created some breathing room to allow countries to take action to mitigate the impact of the anticipated energy crunch.

Ukraine would be particularly hard hit should the energy crunch materialize. This is the message Peter Thomson, Sector Director for Sustainable Development in the Europe and Central Asia emphasized in his article in Zerkalo Nedeli (see link), a leading Ukrainian weekly, picked up by about 30 electronic media. Ukraine is heavily dependent on gas supplies from Russia. In addition, Ukraine’s energy infrastructure is old, inefficient, and deteriorating. Much thermal generation requires modernization or replacement, and the district heating systems are in critical condition and at high risk of outages and technical failures as experienced in Alchevsk in 2006. The gas transport system is in serious need of modernization – its compressor stations use about 50 percent more gas than state of the art equipment. Overall, the country’s energy intensity (its consumption of energy per unit of GDP) is among the worst in the region, two times higher than the OECD average.

By adjusting tariffs, improving regulation, and attracting investments, Ukraine can save millions of US dollars, avoid the energy crunch, and improve its energy security in an environmentally sustainable manner. Significant international assistance is available if the new government acts now to address the legacies of several decades of neglect.

“The World Bank stands ready to assist countries in meeting their energy needs,” said Peter Thomson, Director for Sustainable Development in the World Bank’s Europe and Central Asia region,“by helping them create an attractive climate for investment, and by helping secure access to various sources of funding, including carbon finance. However, countries need to act swiftly – time is of the essence.”

Within the planned activities on Energy the World Bank and IFC has carried out two Business breakfasts covering the topic of Financing Sustainable Energy Efficiency Projects in Ukraine in industry and banking sectors.

“IFC report showed that over 80 percent of Ukrainian companies list energy efficiency as their top business priority. Demand for energy efficiency financing from the companies is strong. Commercial banks see it as a possible source of innovative and sustainable investment. But so far there is a disconnect on what the opportunities are. We are trying to fill this gap by working with banks and companies,” said Olena Voloshyna, IFC Country Manager in Ukraine.

Main aim of the business breakfast with industrial sector was to raise awareness among local industry and governmental institutions about the existing barriers of energy efficiency projects’ implementation and ffacilitate a face-to-face practical dialogue among all parties on obstacles and specifics of such projects’ realization. The discussions were timely, as the World Bank is now well advanced in the preparation of an energy efficiency credit line to benefit both industrial and municipal users, for which support from the global Clean Technology Fund has been mobilized.

“Ukraine has enormous potential for increasing energy efficiency, and good progress has already been made in addressing some sectors of the economy.” – said Dmytro Glazkov, Energy and Infrastructure Operations Officer. “ Drawing on lessons learned in other countries in Eastern Europe and the Former Soviet Union, progress would require access to concessional financing to address the many barriers to energy efficiency investments. World Bank and IFC are ready to take this challenge on and be instrumental in bringing new instruments of financing energy efficiency in Ukraine in all sectors of Ukrainian economy starting with Municipal and Industrial Energy Efficiency”.