Energy efficiency in Ukraine: on the way to reforms

Transcription

1 Energy efficiency in Ukraine: on the way to reforms

2 Published by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH Project Establishment of Energy Agencies in Ukraine On behalf of Federal Ministry of the Enviroment, Nature Conservation, Building and Nuclear Safety (BMUB) 16b Antonovycha St Kyiv, Ukraine T F E info@eeau.org.ua I I Responsible ic consulenten LLC 003 Kyiv, Ukraine T E e.rybak@ic-group.org E v.shapovalenko@ic-group.org І Authors Vitalii Shapovalenko, ic consulenten LLC, Ukraine Elena Rybak, ic consulenten LLC, Ukraine Slavtcho Neykov, Bulgaria Coverage photo GIZ/Ivan Smuk Layout/Design Tetiana Yershova As of November 201 GIZ

3 Content List of Abbreviations Executive summary Background Methodology Energy efficiency on the local level does it exist? Implementation of energy efficiency measures by consumers: where is the iceberg hidden? Influence of energy efficiency measures on the economy of local communities Energy efficiency reform bottlenecks: focus on solutions Legislative barriers Organisational and institutional barriers Evaluation of functions and powers of the authorities at national and local levels Evaluation of energy management status on the level of local community Economic barriers Financial barriers Regulatory barriers Technical barriers Informational and educational barriers International Finance Institutions and Donors political recommendations on energy efficiency: brief summary of the status quo Evaluation of potential for reforms in the field of energy efficiency Evaluation of State government influence in the area of energy efficiency Evaluation of readiness and capacity to reform in the area of energy efficiency Evaluation of human resources for energy efficiency reform Role of regional and municipal energy agencies: objectives, duties and powers Results of the Online questionnaire International experience in Energy Management EU vs. National requirements On the status of the national authorities - some illustrative examples Established and existing organizational structures to ensure the functionality of energy management on the national, regional and municipal levels Some necessary pre-clarifications on the topic On the institutional set up at the national level: some common aspects On the national institutional set up specific approaches On the regional and municipal set up... 3

4 10.. Tasks and functions performed Typical organizational HR structure of an energy management institution Performance and effectiveness evaluation criteria Financing of Energy Management Institutions Problems and Challenges to be tackled how to pursue the success in Energy management Functioning aspects of energy management: applying international experience in Ukraine On the effectiveness of the institutional status More visibility More active move towards establishing energy efficiency fund Conclusions: priority list Annex 1. Interviews data Assessment of factors, that motivate consumers to energy saving Assessment of sufficiency in legislation Assessment of organisational and institutional barriers Assessment of economic barriers Assessment of financial barriers Assessment of regulatory barriers Assessment of technical barriers Assessment of informational, scientific and educational barriers Assessment of international donors projects and financial institutions activities Assessment of influence of executive authorities in the field of energy efficiency Assessment of measures to create municipal energy agencies Assessment of priority measures to reform the energy efficiency Annex 2. National Priorities to improve energy efficiency by sectors of the national economy Annex 3. Questionnaire form for personal interviews and online survey... 6

5 Tables Table 1. Breakdown of average values for the focus groups of factors that motivate stakeholders to introduce energy efficiency measures... Table 2. Breakdown of answers provided by focus groups to the question about legislative conditions for implementation of energy efficiency measures... Table 3. Breakdown of focus group answers to the question about alignment of the tasks and functions of central authorities in the field of energy efficiency and energy saving with current needs... Table. Breakdown of focus group answers to the question about sufficiency of competence of the local authorities to implement energy efficiency measures... Table. Breakdown of average scores by each focus group on factors that stimulate or constrain implementation of energy management on the local level... Table 6. Breakdown of average values according to the focus groups of mechanisms that have priority importance and need to be implemented to stimulate implementation of energy efficiency measures... Table 7. Breakdown of average values according to the focus groups of the ways of increasing the availability of financial resources...6 Table 8. Breakdown of responses according to the focus groups to the question whether the current tariff policy performs a stimulating function for implementing energy efficiency measures...6 Table 9. Breakdown of responses according to the focus groups on the question whether there are technical barriers that prevent the implementation of energy efficiency measures...7 Table 10. Breakdown of average values according to the focus groups concerning possible ways to influence on formation of public awareness to energy saving...7 Table 11. Evaluation of international donors and international financial institutions activities in specific sectors of energy efficiency...7 Table 12. Evaluation of international experience in energy efficiency sector, which should be implemented in Ukraine...8 Table 13. Priority directions of international community activities for reforming Ukraine s energy efficiency sector...8 Table 1. Breakdown of average scores by the focus groups on activities of central authorities in the area of energy efficiency...9 Table 1. Breakdown of average scores by the focus groups on reforms potential in the area of energy efficiency...60 Table 16. Breakdown of average scores by the focus groups on competence level of specialists in the area of energy efficiency...60 Table 17. Breakdown of scores by the focus groups on possible state actions for stimulation of establishment and effective work of Municipal Energy Agency...61 Table 18. Breakdown of assessments according to the focus groups concerning priority measures of the reform in the are of energy efficiency...61 Table 19. Breakdown of assessment by the focus groups on the state priorities in increasing energy efficiency by the sectors of national economy...62

6 Figures Figure 1. Natural gas price dynamics for industry, public sector, other businesses and households during (including VAT)...1 Figure 2. Electricity price dynamics for industry, public sector, other businesses and households during (including VAT)...1 Figure 3. Rating of factors that motivate consumers to implement energy efficiency measures according to the groups of respondents...1 Figure. The structure of the Ukrainian legislation system in the field of energy efficiency...18 Figure. Distribution of answers provided by focus groups to the question about legislative conditions for implementation of energy efficiency measures...19 Figure 6. Distribution of focus group answers to the question about alignment of the tasks and functions of central authorities in the field of energy efficiency and energy saving with the current needs...20 Figure 7. Breakdown of focus group responses to the question about sufficiency of competence of the local authorities to implement energy efficiency measures...21 Figure 8. Evaluation of factors which hinder energy management implementation on the local level...22 Figure 9. Assessment of economic barriers for implementation of energy efficiency measures by groups of respondents...23 Figure 10. Assessment of ways of facilitation access to financial recourses for the consumer...2 Figure 11. Breakdown of answers to the question whether the current tariff policy performs a stimulating function for implementing energy efficiency measures...26 Figure 12: Breakdown of answers to the question whether there are technical barriers that prevent the implementation of energy efficiency measures...28 Figure 13. Assessment of the ways of influence on formation of consumers conscious attitude to energy saving...29 Figure 1. Assessment according to focus groups of international donors and international financial institutions activities in specific directions in the field of energy efficiency...30 Figure 1. Evaluation of international experience in energy efficiency sector which should be implemented in Ukraine...31 Figure 16. Priority directions of international community activities for reforming Ukraine s energy efficiency sector...31 Figure 17. Evaluation of activities of central authorities in the area of energy efficiency...33 Figure 18. Evaluation of potential of the reforms in the area of energy efficiency...3 Figure 19. Evaluation of competence level of specialists in the area of energy efficiency...36 Figure 20. Evaluation of possible measures to establish and to work effectively of Municipal Energy Agency...38 Figure 21. Comparison of assessment of factors that motivate consumers to energy saving...39 Figure 22. Comparison of respondents assessment about adequacy of legislative conditions for implementation of energy efficiency measures

7 Figures Figure 23. Comparison of assessments results on the correspondents of functions and powers of central authorities in the field of energy efficiency to the requirements of present time...0 Figure 2. Comparison of assessments of sufficient powers of local authorities in the field of energy efficiency...0 Figure 2. Comparison of assessment results of authorities activities in the field of energy efficiency...1 Figure 26. Comparison of assessment results of priority directions of reforms in the field of energy efficiency...1 Figure 27. Assessment of state priority in increasing energy efficiency by sectors of national economy

8 List of abbreviations AV (Average value) CMU EBRD EC EE measures EU GIZ IFIs/DP MEA Ministry of Ecology Ministry of Economy Ministry of Energy Ministry of Finance Ministry of Regional Development municipal authorities NEURC NGOs OSBB SAEE SG USAID VRU ZHBK average indicative sample rate Cabinet of Ministers of Ukraine (the Government of Ukraine) European Bank for Reconstruction and Development European Commission energy efficiency measures European Union Deutsche Gesellschaft für Internationale Zusammenarbeit international financial institutions, donor projects (international technical assistance projects) Municipal Energy Agency Ministry of Ecology and Natural Resources of Ukraine Ministry of Economic Development and Trade of Ukraine Ministry of Energy and Coal Industry of Ukraine Ministry of Finance of Ukraine Ministry of Regional Development, Construction and Housing and Communal Services of Ukraine local authorities National Commission for State Regulation of Energy and Utility Services sectors non-governmental organizations unions of co-owners of apartment blocks State Agency on Energy Efficiency and Energy Savings of Ukraine State government United States Agency for International Development Verkhovna Rada of Ukraine (the Ukrainian Parliament) building cooperative 8

9 Executive summary For a long time the state policy in the field of energy efficiency and energy saving in Ukraine has not received proper attention and practical implementation, thus energy consumption of the state economy remains extremely high. With lots of on-going activity to address energy efficiency reforms the tangible progress and the actual energy savings remain too small compared to the non-tackled potential. Upon request of the Ministry of Regional Development, Construction and Housing of Ukraine, the project Establishment of Energy Agencies in Ukraine, which Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH is implementing on behalf of the German Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety, GIZ contracted ic consulenten Ukraine to carry out analyses of the key barriers to the energy efficiency reforms and ways to address them. The target of the resulting study was to answer the following question: What are the main steps to overcome the barriers to energy efficiency reforms and allow scaled energy savings?. The Ministry of Regional Development, Construction and Housing of Ukraine requested this study in order to receive a comprehensive analysis and assessment of the necessary next steps in the energy efficiency reforms as basis for its further decisionmaking process and as grounds for further discussion with all relevant stakeholders. Conducted research and analyses have led to the following selected priorities and necessary next steps which should be taken to overcome the existing barriers to effective reforms in the energy efficiency sector and scaled energy savings. All priority steps are further described and explained throughout the study and in the conclusions (see. Chapter 11). Financial Barriers Creation of the State Fund for Energy Efficiency with support of International Financial Institutions to co-finance energy efficiency measures (specifically long-term financing for residential energy efficiency projects with the duration of 1-20 years); Decrease interest rates for energy efficiency projects offered by commercial banks. This should be the task of the National Bank of Ukraine and the Ministry of Finance with parallel active educational programs for commercial banks; Economic Barriers Implementation of measures to create favorable framework economic conditions to stimulate energy efficiency measures (i.e. to ensure the economic justification of energy prices/tariffs and transparency of their setting, to improve and to develop the mechanisms and instruments of the state support of the initiatives on energy consumption decrease, transparency and accessibility of fiscal instruments of stimulation, etc.); Legislative Barriers To approve Energy Strategy of Ukraine until 203 and National Energy Efficiency Action Plan until 2020; Implement the EU Energy Efficiency Directive 2012/27/EU, which will, among others, assure that energy distributors or retail energy sales companies achieve 1.% energy savings per year; the public sector is obliged to introduce energy efficient equipment and modernize at least 3% of their areas; enforce energy metering and energy labeling, etc.; Develop and adopt the new law on energy saving and energy efficiency which will define clear, transparent, and accessible economic incentives to stimulate reduction of energy consumption in accordance with the current market needs; Adopt the law on energy efficiency of buildings, which, together with secondary legislation, has to create legislative framework conditions for the essential decrease of energy consumption in public and residential buildings; Laws and methodologies on development of the nationwide energy management system, including adoption of standardized guidelines for implementing energy management in local communities under principles of EN and ISO 0001: Additionally, the laws and methodologies for conducting energy audit, and monitoring energy consumption shall be developed; Law on excessive heat to stimulate industrial enterprises to direct excessive thermal energy to heating systems (the law should be motivating and encouraging for companies to optimize their processes in a way that would encourage them to sell excess heat to the grid); 9

10 Regulations to enable using mechanisms of ESCO-contracting in public sector; Complete harmonization of the Ukrainian Construction norms, technical norms and regulations in line with the EU standards; Information and training-educational Barriers Spread experience of successful household energy efficiency projects with coverage of achieved economic benefits and improved living conditions (key figures which would show an impact on an average household energy bill); Provide practical tips on how to save energy and minimize growth of energy bills; Generate information on benefits of energy saving and positive environmental impact of reduction of energy consumption. Creating a more global strategic vision for future generations is crucially important, specifically in the difficult times when only today matters; Regulatory Barriers Ensure transparency and clarity of tariff regulation mechanisms, stop the practice of cross-subsidization, make the information on real production and distribution costs available, all calculations related to the investment component, and initial input data clear and reliable. Especially in the field of heating, tariff setting procedures have to be set on the basis of RABregulation 1. Moreover, it is necessary to apply EU methodology on energy planning and use current data instead of outdated soviet ones for the energy resources consumption evaluation; Organizational and institutional Barriers Determine SAEE as central executive body with special status (with direct subordination to the Cabinet of Ministers of Ukraine and additional authority for more effective impact on all stakeholders); Implement a plan to stimulate energy management in public sector, developed by the Working Group of SAEE, which foresees a set of measures for energy consumption monitoring in public institutions, trainings for buildings energy managers, and their financial motivation; Spread among all local communities the experience of development of Municipal Energy/Sustainable Energy Plans, which define the energy saving potential and narrow/problematic issues as well as all strategical and tactical goals on the rational usage of energy resources and the ways to reach these goals; Technical Barriers Harmonization of the national standards, technical norms and regulations in the field of energy efficiency in accordance with the EU legislation, as currently planned by the Cabinet of Ministers of Ukraine; Update existing obsolete norms and technical conditions for introduction of modern technologies and equipment (sanitary requirements, fire-prevention requirements, etc.). It is surely understood, that any of the reforms require systematic approach and have to be addressed simultaneously. It is also clear that many of these steps will not be possible without more general and continuous work on improving the investment climate and building trust to the government among investors. The study was performed based on the personal interviews with almost 30 respondents, as well as an online questionnaire open to all those willing to participate. The results of responses were systematized in quantitative figures (statistics presented in tables and graphics) and qualitative responses, summarized and further explained by the authors. The study is aimed at being precise and specific related to the possible priority steps to achieve energy saving in short- and mid-term future, but cannot address the entire complex task of energy efficiency reform fully. It should also be noted, that the study is not a representative survey, but 1 RAB (Regulatory Asset Base) a system of long-term tariff formation, with the main purpose to attract investments in the modernization of infrastructure 10

11 comprises sufficient argumentation and background to assume that none of the controversial or important issues have been omitted. For discussions and structure purposes, the barriers were grouped in 7 categories and respondents were requested to prioritize them where possible. While understanding that most of the barriers have to be addressed simultaneously, the following order was selected as the one deemed appropriate to show importance of some barriers: financial, economic, legislative, information and training-educational, regulatory, technical, organizational and institutional barriers. One key approach to overcome some barriers to energy efficiency realization can be the utilization of Energy Agencies as multipliers and service providers for different consumer groups. Thus, the study analyzed governmental capacity to implement the energy efficiency reforms, activities of international IFI and donor community, international practices of energy management implementation on the national, regional and local levels, as well as Municipal Energy Agencies as local drivers for energy efficiency reforms. Further analyses are covered in relevant chapters of the study. 11

12 Background High level of energy intensity of the Ukrainian economy demanded from all Ukrainian governments during the times of independency, to seek for the ways to reduce energy consumption and to use the energy resources more efficiently. During this period, a certain legislative and institutional framework was created to implement energy efficiency measures, in particular more than 20 legislative acts, including relevant government, industry-specific and ministerial programs, were adopted at various levels, and the system of public administration in the field of energy efficiency was developed. Since the mid-nineties, the owners of industrial enterprises, especially of the most energy intensive ones, started to create demand for energy services to implement measures for improving energy management and increasing energy efficiency of production processes, which has affected the competitiveness of their products. With the support of international technical assistance projects a number of projects was implemented to develop municipal energy management and to reduce energy consumption in some municipalities. However, the volume of successfully implemented projects dedicated to energy efficiency is so small that it does not correlate with the scale of inefficient energy consumption in Ukraine and does not affect the quality indicators of the country s economy as a whole. The crisis situation in the field of energy efficiency has been a constant matter of professional discussions and studies, based on the results of which, appropriate recommendations and suggestions for improvement were continuously elaborated. However, in practice, the relevant government decisions were implemented in an unsatisfactory manner. The first signs of some positive changes were observed only recently, mostly , due to the adoption of a number of laws to improve the framework conditions for implementation of energy efficiency measures, including government support and more pragmatic tariff policy. However, the pace of reforms in the field of energy consumption is still slow, which is not in line with the interests of national security and the needs of the country s economy. The question remains: What are the main steps to overcome the barriers to energy efficiency reforms and allow scaled energy savings?. Without trying to provide a remedy to all the existing problems in the system, this study aims to identify the key initial steps, which would lay the ground for further and much broader systematic reforms on the national level. By interviewing some of the key market stakeholders, the initiators and the authors of the paper aimed at structuring and systematizing what has been to different extent discussed over decades, and setting certain crucial first tasks and areas of priorities to focus the efforts on in the immediate and midterm future. 12

13 Methodology Upon request of the Ministry of Regional Development, Construction and Housing of Ukraine, the project Establishment of Energy Agencies in Ukraine, which Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH is implementing on behalf of the German Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety, GIZ contracted ic consulenten Ukraine to carry out analyses of the key barriers to the energy efficiency reforms and ways to address them. It is clearly understood that one paper cannot aim at solving all the systematic and structural issues, as each identified barrier requires an individual action plan to be addressed. Nevertheless, it is considered that each of the barriers has one or more corner stones, without which none of the further reforms can be implemented and the market cannot develop. With this in mind, the interviews of experts and further analytical analysis were conducted. Recognized market experts and officials were personally interviewed (29 respondents, out of 3 invited), from which six focus groups were formed. The Questionnaire used during personal meetings is presented in Annex 3. The interviewees are representing central and local government bodies, research institutions and enterprises, non-governmental organizations, international financial institutions and technical assistance projects. Moreover, online survey was conducted (Ref. Annex 3), in which 0 respondents took part (but only 36 questionnaires were selected for the analysis, because others were filled out with violation of the proposed format). To assure the quality control of the answers, it was decided to separate the online responses and use it as verification statistics towards the personal interviews. Given the format and approach of the study, it is fully understood that the results cannot be fully representative, but do comprise the elements important to the market. The online questionnaire was open to public, which allowed everyone to contribute to the outcomes of conclusions. Questions partly comprised simple questions (yes/no responses) and partly rating scale questions from (the highest rating/most important) to 1 (the lowest rating/least important). Based on these responses, the average indicative sample rates average value (further AV) was calculated as the sum of rating for each question divided by the number of respondents. According to this methodology, AV of responses to each question was calculated, including AV for the focus groups. Other group of questions suggested that the answers of respondents will be provided in the form of detailed comments and opinion statements that were analyzed and presented in generalized form. Such an approach enabled to receive necessary quantitative figures from focus groups in the course of a study, as well as opinions of respondents on the problems in the field of energy efficiency and their vision of the priorities of further reforms in this field. Results of interviews are further presented in this report. Along with this, the Section 10 of the Report sets out an overview of the international experience in energy management implementation in the context of its possible use in Ukraine, prepared by the international expert. 13

14 Energy efficiency on the local level does it exist?. Energy efficiency on the local level does it exist? For a long time the policy of the Ukrainian governments has been focusing on the support of relatively low energy prices (natural gas, electricity) for the needs of the population. The actual costs of main energy resources (tariffs) were covered through the system of cross subsidies at the cost of consumers from other categories paid via state budget (the reader should distinguish here from the general public subsidies, which are covered from the state budget). Figures 1 and 2 show the dynamics of prices for natural gas and electricity for different categories of consumers from January 2010 to July 201, which clearly reflects the disparities in this field. Of course, due to conditions that had been existing for a long time, energy efficiency problems did not bother a population and single projects to improve energy efficiency in the residential sector were not attractive enough for further spread. Things began to change when in March 201 the Ukrainian Government decided to improve the state policy on regulating the natural gas prices and tariffs for heat energy, which led to a sharp increase of prices for basic energy resources during last year. It should be pointed out that the Government s actions in this direction have also been largely motivated by the requirement of the International Monetary Fund. In particular, compared with January 2010, residential prices for natural gas increased by a factor of 1.8 for residential customers in 201, and by 3.3 for industrial and commercial customers. During the same period, the price for electricity has been increased by 2.6 for residential customers and by 2.8 for industrial consumers. According to the Energy Balance of Ukraine (2013) the share of households in the final energy consumption is about 3%. *From April 1, 201 the price for the natural gas for households depends on the consumed volume: up to 200 m 3 per month UAH 3,600, over 200 m 3 UAH 7,188. Till April 1, 201 the price for households was calculated basing on three consumption indicators Figure 1. Natural gas price dynamics for industry, public sector, other businesses and households during (including VAT) *From April 1, 201 the price differentiation for households with regard to the consumed amount was changed: up to 10kW a year; from 100 to 600 kw a year; over 600kW a year Figure 2. Electricity price dynamics for industry, public sector, other businesses and households during (including VAT) 1

15 The survey indicated that 93% of respondents think it is the need of cost savings that motivates consumers in local communities, including households, to implement energy efficiency measures. To the less extend consumers (2% of respondents) are motivated by a factor of creating more comfortable living conditions. Providing this, such factors as energy independence of the country and taking care of the environment have little effect on consumers motivation. The breakdown of respondents responses is shown in Table 1 in the Annex and Figure 3 below. Figure 3. Rating of factors that motivate consumers to implement energy efficiency measures according to the groups of respondents Thus, the sharp rise in prices for basic energy resources (natural gas and electricity), which began in April 201, was the main factor which today starts to motivate all categories of consumers, especially the households, to implement abstract ideas about energy efficiency in practice. Most of respondents said that the degree of awareness of consumers in local municipalities on energy saving potential on the local level, in terms of advantages and benefits of implementing energy efficiency measures, differs a lot. In particular, officials of local authorities and stakeholders show a high level of awareness. At the same time, at the household level, most consumers are not enough aware of these issues. The reason for this situation is fragmentary and sometimes unprofessional spread of information among citizens on the nature and the scope of energy efficiency measures. Hence the majority of citizens have a common primitive idea of energy efficiency measures only in the context of replacement of windows or incandescent lamps, disconnection of multi apartments buildings from district heating network and switch to individual heating substations, replacement of gas boilers by alternative fuel boilers. Thus, there is no systemic vision of possible organizational and technical solutions that will result in significant savings by reducing energy consumption and its efficient use. Today the number of citizens, who live in multi-apartment buildings and are able to consider such economic categories as a payback of energy efficiency measures is still too small..1. Implementation of energy efficiency measures by consumers: where is the iceberg hidden? According to the respondents, at the moment energy consumers in Ukrainian communities face no obstacles accessing necessary information on energy efficiency measures, equipment and materials. There is also sufficient amount of companies on the market, which provide services of energy audit, development of technical economic documentation, installation of equipment and performance of construction works. At the same time, for correct analysis and targeting potential of energy efficiency, most respondents consider it necessary to make segmentation of the consumers on the community level based on their capabilities: public institutions and communal enterprises; industrial and service companies; residents of private houses; residents of apartment blocks. Each of the abovementioned categories has different potential of utilization of energy efficiency measures, which is connected to different level of professional knowledge, peculiarities of decisionmaking processes and financial resources. 1

16 Energy efficiency on the local level does it exist? Local authorities, for instance, have at the moment almost all necessary capacities to organize and implement energy efficiency measures in public institutions and communal companies. This is determined by power granted to them by law, including the right to create necessary executive units, as well as undertaking responsibility for implementation of measures in accordance with national, sectoral, departmental and local energy saving programs. Unfortunately, full execution of these powers to a large extent, functions only in theory. In Ukraine there are plenty positive examples when local authorities initiate successful projects of development and implementation of municipal energy management systems (here experience of such cities as Lviv, Chernihiv, Zaporizhzhya, Vinnytsya, Dolyna, Novograd-Volynskyy, Zhovkva and others should be mentioned). Some of these cities were assisted by international technical support institutions (GIZ, USAID), including help in design of municipal energy plans. In recent years, these processes have speeded up due to the fact that more than 100 Ukrainian cities joined the Covenant of Mayors initiative, according to which they committed to develop and implement actions aimed at sustainable energy development. Encouraged and supported by local authorities, a number of communal water and heat supply companies took part in the projects of technical modernization of their capital assets with attraction of credit resources of International Financial Institutions. However, the process of increasing energy efficiency of communal enterprises has not acquired necessary positive dynamics, yet, because the tariffs for the services they provide for the most part are set below market price and without consideration of investment component. With changes in legislation, since 201 local authorities acquired the right to attract credit resources for implementation of energy efficient projects under ESCO contracts and development of energy service market will foster the implementation of energy efficiency projects. municipal guarantees, and, at the moment, several municipalities have already exercised this right (Ivano-Frankivsk, Chernivtsi, etc.). In certain way, implementation of energy efficient measures on the municipal level is facilitated by the recently passed law, which allows using mechanisms of ESCO-contacting in public sector. Considering this, experts foresee future increased activity of local authorities in infrastructure projects. At the same time, based on respondents evaluations, the following conclusions can be made: the scale of implementation of energy efficiency measures in communities is still very low and does not have system nature; most initiatives of local authorities have not been implemented yet due to limited local budgets and lack of experience in attracting credit resources of international financial institutions; in some cases Heads of local authorities lack initiative and desire to work on energy efficiency issues, as well necessary professional knowledge; having neither proper motivation nor economic incentives, local authorities tend to slow down processes of reformation of the energy efficiency area. Industrial consumers and service sector, which are mostly privately owned, are those consumers that are most interested in saving costs for using energy recourses, and are free to make decisions. With necessary motivation and financial resources, Today industrial companies are not able to implement energy efficiency projects because of lack of operational assets, currency risks and no desire to use loans with high interest rates. these companies are able to determine and implement the most attractive solutions for their businesses, and increase energy efficiency of the company with modern equipment and materials. This explains why the largest energy consumers back in 90s began to implement energy efficiency projects in order to decrease production costs connected with energy consumption. In the previous period, most energy efficiency projects were paid for by enterprises own money or credit resources, including loans by international business support organizations (EBRD). However, global recession of led to ceasing many projects. In current economic circumstances, the majority of enterprises abstain from implementation of energy efficiency projects due to lack of operating assets and high risks associated with attraction of credit resources (including those in foreign currency). Most respondents highlight the key role of households in increasing energy efficiency on the community level, as they are the largest consumers of energy resources, with an exception for cities where big energy consuming industrial enterprises are located. Besides, citizens who live in private houses are highly motivated and understand economic benefits of energy efficiency measures. In particular, this category of people actively reacted to the increase of natural gas and electricity prices. This trend is reflected in the indicators of the State Loan Program for Households aimed at the purchase of no-gas boilers and energy-efficient materials: as of (after 10 months of beginning of implementation) they received 2 3 loans in the amount worth nearly UAH 28.8 million. Nevertheless, consumers need: creation of favorable conditions to receive financial support for projects aimed at increasing energy efficiency of buildings; access to professional consulting services to evaluate energy saving potential, choice of the most cost-effective and technically efficient solutions, as well as determination of contractors to perform the works. At the same time, people living in apartment blocks remain, according to the respondents, the most resistant in terms of 16

17 implementing energy efficiency measures. For example, as of only Unions of co-owners of apartment blocks (OSBB/ZHBK) participated in the State Loan Program (start from April of this year) and received loans worth UAH.8 million for implementation of energy efficiency measures with a short payback period. This is largely caused by the lack of understanding of the following factors by the apartment owners: ownership right is inseparably connected with responsibility for the proper maintenance of common property in an apartment block; common decisions and joint actions with other apartment owners are essential to reduce heat energy consumption and increase comfort of living conditions. Thus, most residents of apartment blocks are motivated not to increase energy efficiency, but to improve comfort in their homes by replacing conventional windows with plastic ones, insulating doors, replacing old heating devices with modern ones of higher level of heat irradiation, replacing incandescent light bulbs with energy-efficient ones. When purchasing household appliances citizens began to consider their class of energy efficiency. Such measures have a positive effect on individual apartments, but do not significantly influence reduction of heating energy consumption and heating bills, as this can only be achieved through implementation of holistic energy efficiency measures, which cover an apartment block as a whole. At the same time, in Ukraine there are many examples when citizens interested in improving microclimate of their apartments in winter, insulate exterior walls (facades) only of their individual apartments. Important Individualism and low level of awareness of the citizens has to be improved to thinking in categories such as common interests of co-owners of apartment blocks. Only then, due to the holistic solutions, the highest level of energy savings can be reached. However, such attempts to solve this problem individually not only have no effect on reduction of heating bills, but also may worsen technical conditions of an apartment block and microclimate in an apartment in the future. According to evaluation of respondents, increasing energy efficiency in apartment blocks is possible only in case of implementation of a balanced state policy, enforced by relevant legislative, organizational, financial, economic, and public awareness activities by central and local authorities. In this context, respondents mainly positively assess adoption of the law of Ukraine On peculiarities of executing propriety in apartment blocks, which along with the law of Ukraine On unions of co-owners of apartment blocks creates organizational and legal basis for more active engagement of public in energy efficiency projects. However, overcoming individualism and low awareness of citizens, has to be improved to a thinking in categories such as common interests of co-owners of apartment blocks. Only then, due to the holistic solutions, the highest level of energy savings can be reached. It should be noted that in Ukraine there are positive examples when, with organizational and financial support from local authorities, residents of apartment blocks create Unions (OSBB) and participate in energy efficiency projects (i.e. Lutsk, Lviv, Rivne and others). The most important focus of the public work is to clarify existing energy efficiency potential in apartment blocks built in 60 s-80 s, as well as economic, sanitary, environmental, technical and operational benefits from energy efficiency measures. With this in mind, some cities conduct public awareness activities, and create public energy efficiency resource and consulting centers. However, the impact of such measures on citizens mindset is minimal, that is why it is critical to have illustrative examples of energy efficiency projects implemented in apartment blocks, which will allow citizens to assess their benefits in real life. At the same time, implementation of such projects in modern conditions is constrained by extremely high interest rates on loans (2% per annum) as well as overall negative attitude towards the banking sector. According to respondents, creating more favorable financing conditions and implementation of mechanisms to reduce financial burden through partial compensation of interest rates or loans body is also an important current task for the government. In addition, it is necessary to address the long overdue issue of monetization of exemptions and subsidies for citizens who are entitled to receive them. Conclusions To facilitate implementation of energy efficiency projects it is important to take series of steps in different sectors: 1. Disseminate best practices and lessons learnt of all projects as soon as they are implemented. It is obvious that local executives often lack experience of implementing international financed projects and require support. The practical and technical competences have to be brought from outside of the city; 2. Establish a motivation mechanism for local executives to show excellent result in energy saving on the municipal level. Such motivation could, for example, be financial and directly tied to energy and money saved; 3. When it comes to industries, market stakeholders often consider it less of a national priority and more of a private business decision. This, as such, is a debatable issue, specifically in the country like Ukraine where industry and export play a huge role in economy. Hence, authorities have to create conditions under which the industry will have access to affordable financing and minimum currency risks;. The work with the population (individual housing and apartment blocks) has to be systematic and bring solutions tailored to various types of consumers. The first projects, which are now being implemented, have to be broadly communicated, specifically their economic effect on the family budget. 17

18 Energy efficiency reform bottlenecks: focus on solutions.2. Influence of energy efficiency measures on the economy of local communities Most respondents believe that increase in scale of implementation of energy efficiency measures will positively affect economic situation in local communities due to activation of business activities of enterprises working in this field. Firstly, energy service providers and companies performing construction and refurbishment works, as well as installation and maintenance of energy efficient equipment, will intensify their business activities. All this will have a positive multiplier effect in the form of: creation of new jobs and increasing employment; increasing tax proceeds to local budgets; reducing energy costs for operation of public institutions and enterprises paid from local budgets; increasing budgets for development of local communities; improving environment. However, according to the respondents, such economic growth is possible only if financial capacity of local communities to support energy efficiency measures is strengthened. For this purpose, under administrative reform, relations in public sector should also be reformed, namely: enable local communities not only to impose local taxes, but to utilize substantial part of national taxes (e.g. profit tax, personal income tax, excise, etc.) that will allow local authorities to form real budgets; promote the principle of German cities when money of the city remain in the city by establishing taxation by enterprise s city of actual operation, not by its registration; redirect proceeds obtained from energy savings to the development budgets of local communities. For Ukrainian local communities it is very important to use experience of European municipalities under the Covenant of Mayors (established in 2008). Currently, European local communities that joined the Covenant are key players in global activities to reduce greenhouse gas emissions through increased energy efficiency. In the framework of this initiative, the local authorities have all the possibilities to change the behavior of citizens and include objectives in the area of sustainable energy to the context of local development. Participants of the Covenant of Mayors receive significant support in mobilization of financial resources for implementation of their sustainable energy development action plans from the European Commission and other state institutions.. Energy efficiency reform bottlenecks: focus on solutions To answer the question why Ukraine has not been able to achieve qualitative changes in energy efficiency for a long time, during expert-analytical research, the attention of focus group participants was drawn to evaluation and analysis of existing legislative, organizational, institutional, economic, financial, regulatory, technical, informational and educational barriers that constrain the process of reducing energy consumption and its optimization. For this purpose, respondents were asked to rate these barriers according to the applied methodology, and to express their views on possible solutions and ways to overcome them. The ultimate goal of the personal and online interviews was to answer the fundamental question: What are the main steps to overcome the barriers to energy efficiency reforms and allow scaled energy savings?..1 Legislative barriers Generally, within the period of more than 20 years the regulatory basis for activities in the field of energy efficiency has been set in Ukraine. The structure of the current legislation (shown in Figure ) consists of over 20 regulatory acts of various levels, on which regional and municipal legislation is based. However, 7% of respondents believe that the current legislation does not fully meet the requirements of today for energy efficiency measures implementation. The breakdown of responses according to focus groups is presented in Table 2 of Annex and in Figure. Decrees of the President of Ukraine Laws of Ukraine Decrees of the Cabinet of Minesters of Ukraine Decrees of the executive authorities Define the strategy of the state policy in the field of energy efficiency Define legal, economic, social and ecological framework of the State Policy in the EE field Ensure the implimintation of the State Policy in the EE field Regulates practical aspects of of the State Policy in the EE field (oders, technical norms, standarts) Figure. The structure of the Ukrainian legislation system in the field of energy efficiency 18

19 energy efficiency in buildings; commercial measurement of communal resources; the process of implementation of EU directives regarding energy efficiency is extremely slow, including commitments under the Energy Community Treaty. Figure. Distribution of answers provided by focus groups to the question about legislative conditions for implementation of energy efficiency measures Commenting on the issue, respondents noted that over the past year some positive developments have been started in Ukraine intended to bring legislation closer to the current needs. First of all, this concerns adoption of laws to stimulate energy efficiency measures in public sector and regulate relations in the apartment blocks. The respondents positively evaluate the work done to improve national construction standards aligning them with the relevant EU norms, and implement ISO 0001:2011 energy management system standard in Ukraine. With this in mind, the respondents identified the most significant problems, deficiencies and gaps of existing legislation in the area of energy efficiency: Strategy documents, namely, Energy Strategy and National Energy Efficiency Action Plan, which define the state policy in EE field are still not approved; current legislation is mainly declarative and does not have direct effect. Approved mechanisms for practical implementation of legislative norms do not always work because of imperfections in the relevant regulations. For example, the Law On Public-Private Partnership practically does not work because its implementation is governed by regulations that involve complex and lengthy processes. The practice of implementing fiscal legislation to stimulate energy efficiency was selective and worked in the interests of business groups close to senior state officials. In reality it was unavailable for other business entities. With this in mind, attention is drawn to possible uselessness of ESCO laws if no adequate regulations that create transparent, understandable and accessible mechanisms for their implementation are introduced; basic Law On energy saving is obsolete, and attempts to improve it made since 2003 have not been successful; for many years the following implementation issues have not been regulated: еenergy management; energy audit; energy consumption monitoring; In addition, existing legislation is not always implemented because of lack of proper organizational, institutional Interesting Experts who unanimously pointed out the inconsistency of state law with requirements of today were the most critical about its assessment; and financial support or lacking control of compliance with them. For example, over time the norms on establishment of the State Energy Efficiency Fund and sources for its formation were excluded from the Law On Energy Saving. Governmental, industrial and departmental energy saving programs are executed only at 7-10% because of lack of Representatives of business are less critical expressing the opinion that the legislation does not fully meet the requirements. necessary funding. Even the updated National Targeted Economic Energy Efficiency Program has unstable financing. In particular, the delay of almost 7 months to pay compensations to citizens for loans to purchase no-gas boilers was observed, while similar compensatory payments for loans taken by Unions of co-owners of apartment blocks (OSBB) are made with the delay of up to 3 months. Under these conditions consumers mistrust such programs because they are not sure if the government will meet its obligations. However, some respondents believe that the processes in the area of energy efficiency are slowed down not because of imperfect legislation, but more because of reluctance of officials, especially in the utility sector, to implement energy efficiency measures, due to mandatory energy accounting (this enforces more transparent accounting for energy resources and limits the possibilities of misuse of funds). Considering this, the respondents find it appropriate to focus on the following areas of improvement of energy efficiency legislation: Implementation of key EU directives, especially 2012/27/EU and aligning current legislation with it; legal definition and mandatory planning of sustainable energy development with fixed key role of local communities in this process; maintaining a systematic approach to the development and modernization of central heating systems; considering high levels of corruption, legal improvement of mechanisms for real protection of business interests in court is needed. 19

20 Energy efficiency reform bottlenecks: focus on solutions Conclusions The solutions to legal barriers have to be systematic and target not only framework legislation, but particularly secondary legislation. The quality not quantity of the laws and regulations has to be prioritized, and outdated legislation has to be excluded and re-written not to complicate project implementation. Declarative character of most of the current laws has to be shifted to enforced and obligatory. Specifically, the following priorities can be selected to become the most critical steps in the short and mid-term future: 1. Approval of Energy Strategy of Ukraine until 203 and National Energy Efficiency Action Plan until 2020; 2. Implement the EU Energy Efficiency Directive 2012/27/EU;.2. Organisational and institutional barriers In Ukraine the management system in the field of energy efficiency is formed under Article 9 of the Law of Ukraine On Energy Saving, and other laws and regulations that define the objectives, functions and powers of central and local authorities. Public administration in the field of energy saving is executed by the Cabinet of Ministers of Ukraine and the body authorized by the President of Ukraine the State Agency for Energy Efficiency and Energy Saving of Ukraine (hereinafter SAEE) Evaluation of functions and powers of the authorities at national and local levels During the survey, over 6% of respondents said that the tasks and functions of central authorities in the field of energy efficiency and energy saving do not meet the current needs. The breakdown of responses by the focus groups is presented in Table 3 of Annex and in Figure A new basic law in the area of energy saving and energy efficiency which will define clear, transparent, and accessible economic incentives to stimulate reduction of energy consumption has to be developed;. Law on Energy Efficiency of Buildings;. Laws on development of energy management system, conducting energy audit, and monitoring energy consumption; 6. Law on energy efficiency of buildings has to settle all currently open issues and assure the preparation of secondary legislation; 7. Law on excessive heat emissions to stimulate industrial enterprises to direct excessive thermal energy to heating; 8. Regulations to establish and operate the National Energy Efficiency Fund; 9. Regulations, which enable using mechanisms of ESCO-contracting in public sector; 10. Complete harmonization of the Ukrainian Construction norms in line with the EU standards. Additional legislative incentives should also not be omitted, specifically those required to motivate people to participate in energy efficiency measures, including monetization of exemptions and subsidies and creation of more favorable conditions for households to access financial resources (decreased interest rate or partially compensated). Figure 6. Distribution of focus group answers to the question about alignment of the tasks and functions of central authorities in the field of energy efficiency and energy saving with the current needs Commenting these answers, the respondents noted that today SAEE does not have necessary status and power to ensure the proper level of implementation of the state policy in the field of energy efficiency. Subordination of SAEE to the Vice Prime Minister Minister of Regional Policy, Construction and Housing of Ukraine in reality lowered its status to the level of the Department of this Ministry. In addition, the elimination of local SAEE bodies led to the loss of operational management capabilities at regional level. On the other hand, some respondents assume that the combination of SAEE tasks of implementation of the state policy in the field of efficient use of energy resources and energy saving with the tasks of introducing renewable energy sources and alternative fuels leads to the fact that, to some extent, energy efficiency priorities fade into the background. Considering this, the most respondents express the view that SAEE should be an independent body with a special status directly subordinated to the Cabinet of Ministers of Ukraine, which would ensure development and implementation of the state policy in the field of energy efficiency. At the same time, considering the 20

21 experience of the German Energy Agency (DENA), it is advisable to consider a separate organizational body based on the principles of public-private partnership with attraction of financial resources of private business and commercial banks, which will deal with development and implementation of specific energy efficiency projects at national, regional and municipal levels. Besides, it is also needed to clearly define the tasks, powers and responsibilities of other central executive authorities in the field of energy efficiency. Moreover, almost 3% of respondents think that the competence and powers of the local authorities also do not fully give the possibilities to implement energy efficiency measures. The breakdown of responses by the focus groups is presented in Table of Annex and in Figure 7. insufficient professionalism of responsible officials; staff turnover in governmental units. According to some respondents, to intensify activities in the area of energy efficiency at the level of local communities, it is advisable to legally impose power and responsibility for energy planning on the local authorities, as well as give them functions to form strategy, and set objectives and plans for sustainable energy development. At the same time, as suggested by the foreign and domestic experience, it is better to execute energy management functions with involvement of local professional enterprises, both public and private Evaluation of energy management status on the level of local community Energy management system is not implemented at the level of the majority of territorial community. The respondents indicated reasons that obstruct the implementation of such systems: lack of proper financing (AV 3,79); lack of qualified professionals (AV 3,71); low level of public awareness (AV 3,); imperfect legislation (AV 3,39); lack of proper organizational structures (AV 3,36). Figure 7. Breakdown of focus group responses to the question about sufficiency of competence of the local authorities to implement energy efficiency measures In comments to this question, the respondents indicated that under the current legislation the local authorities have almost all necessary (legal) powers for implementation of energy efficiency measures at their level. As proved by many positive examples where local authorities are interested in reducing energy consumption, relevant energy efficiency measures are organized and implemented. Of course, these local authorities seek support from international technical assistance projects, and look for funding opportunities, including co-financing schemes with attraction of the state budget money, grants or loans of international financial institutions. Important Local authorities have enough powers only the will is needed; There should be implementation of mechanism to motivate local authorities to energy saving measures. Among the factors, which complicate usage of local authority powers in the area of energy efficiency in practice, the following issues are raised: practice, the following issues are raised; lack of adequate economic incentives, resulting in lack of initiative and systematic work for the future; limited capabilities to gather necessary financial resources for implementation of the projects, including savings from reduced energy consumption; The breakdown of responses according to focus groups is presented in Table of Annex and in Figure 8. According to the respondents, de-jure functional energy efficiency departments were created in the structures of local authorities, but in reality the working energy management structures can be found mostly in the cities where international technical assistance projects were implemented. In most of other cities there are no such organizational structures. This is why creation and implementation of municipal energy management system is one of the most important tasks of the local authorities. Municipalities like Vinnitsa, Dnipropetrovsk, Dolyna, Ivano-Frankivsk, Kamenetz-Podilsk, Kyiv, Lviv, Rivne, Cherkassy and others have already implemented the functional energy management system and their experience can be spread throughout Ukraine. Analysing the energy management system of Ukraine as the integrated energy efficiency management system, the respondents noted that it should be designed on national, regional and municipal levels. However, it is necessary to ensure a clear separation of functions and powers: national level development of the national policy in the field of energy efficiency, and Curiosities The most energy efficiency projects are constrained by the lack of adequate funding, skills and understanding of the subject by citizens; Low level of public awareness about EE is highest rated by local authorities; Business points out the lack of qualified personnel as a strong challenge. 21

22 Energy efficiency reform bottlenecks: focus on solutions creation of the basis for its implementation (above all, legislative); regional level monitoring and analysing energy consumption in the region, designing the energy development strategy in the region; municipal level practical implementation of energy efficiency measures aligned with the local energy policy. Today, the respondents see no barriers for development and Figure 8. Evaluation of factors which hinder energy management implementation on the local level implementation of such energy management system; necessary level of communication is ensured between all levels. However, representatives of local authorities and business structures draw attention to the fact that implementation of national plans should be supported by appropriate organizational, financial and public awareness mechanisms, as well as by incentives for achieving certain positive results. The current system of energy management needs to be reformed with consideration of the best European practice. Most respondents have positive expectations from implementation of the administrative reform (decentralization), which should allow to: expand power to concentrate necessary financial resources for energy efficiency measures; influence energy tariffs setting to meet the interests of the local community and ensure investment attractiveness of energy efficiency projects in public sector; more actively use mechanisms of public-private partnership to manage utility assets of communities with attraction of banks and private equity funds, which means technical modernization of their fixed assets with energy efficient equipment. Thus, most respondents thoughts concerning the expected effects of the major administrative reform are associated with strengthening of financial capacity of local communities for implementation of energy efficiency measures. Conclusion Overcoming the organizational and institutional barriers must be focused on improving energy saving management systems on the national, regional and local levels. At the same time, the creation of an effective municipal energy management system should be a key objective of the reform in the field of energy efficiency. Given the existing barriers, it is important to implement in the short- and long-term, the following measures: 1. Determine SAEE as central executive body with special status (with direct subordination to the Cabinet of Ministers of Ukraine and additional authority for more effective impact on all stakeholders); 2. Implement a plan to stimulate energy management in public sector, developed by the Working Group of SAEE, which foresees a set of measures for energy consumption monitoring in public institutions, trainings for buildings energy managers, and their financial motivation; 3. Develop standardized guidelines for implementing energy management in local communities under principles of EN and ISO 0001: 2011;. Spread among all local communities the experience of development of Municipal Energy / Sustainable Energy Plans, which define the energy saving 22

23 potential and narrow/problematic issues as well as all strategical and tactical goals on the rational usage of energy resources and the ways to reach these goals. Strategically, it is important to ensure professional training and implement a motivation system for municipal energy management officials..3. Economic barriers Another barrier hindering the implementation of energy efficiency measures has been determined as the existence of economic barriers that limit or reduce the economic attractiveness of investment projects. Their existence is stipulated by the absence of a favourable economic environment and conditions that would motivate consumers to invest in energy efficiency. In this regard, the respondents assessed the impact of tax, customs and tariff mechanism, as well as the tools of financial support from the state and local budgets to stimulate energy efficiency measures. The breakdown of responses according to focus groups is presented in Table 6 of Annex and in Figure 9. The results of interview showed that over 71% of respondents think that in the modern realities of Ukrainian economy the most important priority factor for stimulating energy efficiency is the implementation of the economically justified energy tariffs (AV.69). The next important factor defined by over 7% of respondents was the support by the state and local budgets of energy efficiency policy (AV.0). There is a significant gap in assessing these factors in different focus groups. In particular, the representatives of NGOs (.7) and local authorities (.67) rated it as the most significant. According to the opinion of the respondents of the last category, support from the state and local budgets can only be justified under the current conditions and the short-term perspective, when there is a high cost of credit, but in the long term, preference should be given to market mechanism. The respondents mentioned fiscal stimulus as much less significant factor. In particular, AV of evaluation of tax incentives was In this case, this factor got the lowest value among the business representatives (2.86) and IFIs/ DP (2.6). Customs incentives AV of which was 2.3 are Interesting According to some experts, no preferences should be created at all, because it establishes grounds for abuse and corruption. All enterprises should work in equal conditions. considered by the respondents as the least effective factor. The representatives of State Government (2.0) and IFIs/DP (2.) had the most negative attitude to the use of such incentive. However, some business representatives believe that customs incentives are effective, because they help to reduce the cost of imported energy saving equipment. Commenting on fiscal incentives, the majority of respondents mentioned negative experience of their use in Ukraine in previous times. This was due to the procedural complexity and nontransparency of mechanisms, which allowed only very limited number of business structures close to the top management of the state to benefit from such incentives. Figure 9. Assessment of economic barriers for implementation of energy efficiency measures by groups of respondents 23

24 Energy efficiency reform bottlenecks: focus on solutions According to respondents opinion, the most effective use of economic tools to promote energy efficiency shall be possible under the following conditions: Market tariffs if the tariffs, on the one hand, will cover the real costs of producing energy, including an investment component and will be differentiated depending on consumption, but on the other hand - will be clear and transparent in the formation of a guaranteed reliability of all components, which are included into the calculation. According to respondents opinion, in case of monetization of privileges and subsidy the tariff mechanism will have a significantly better effect; Fiscal tools in case of introducing simple and transparent procedures of their implementation, accessible for all entities. In this case, the respondents consider it possible to introduce such mechanisms as a premium tax and tax holidays according to the results of energy efficiency measures, tax credits to enterprises engaged in investment activity in energy efficiency and depreciation benefits for the use of energy efficient equipment, etc.; Support of state and local budgets by partial reimbursement of costs for payment of loan interest rate or a part of the loan that under the conditions of extremely high interest rates will allow legal entities and individuals who implement energy efficient measures to reduce the financial burden. Conclusions Overcoming the economic barriers and increasing economic attractiveness of investment projects in energy efficiency requires the following priority actions: 1. insuring market prices/tariffs for energy resources (specifically it should cover the production costs, could be diversified depending on the consumption, and fully transparent of what is included in the tariffs and how it is calculated); 2. Improve the mechanisms and instruments of the state support of consumers initiatives on energy efficiency measures; 3. Introduction of other fiscal instruments to stimulate energy efficiency measures (i.e. tax incentives for companies to support their investment, custom incentives for equipment, etc.)... Financial barriers Financial barriers were defined as one of the main factors hindering the implementation of energy efficiency measures. These barriers are stipulated especially by the fact that most consumers do not have free funds to invest in energy efficiency projects. At the same time, raising monetary funds from outside are not always possible due to: Expensive loans; Unstable financial and economic situation, exchange rate fluctuations; Low awareness of sources and terms of financing; Framework conditions/ restrictions on obtaining loans; Complexity of some procedures on concluding credit agreements for some consumers; Insufficient expertise and/or lack of some consumers experience of cooperation with financial institutions; Low income of the large part of domestic consumers; Lack of simple and clear programs to support households from central and local budgets and public distrust on the ability of authorities to fulfil obligations; Fear, especially among residential customers, to take loans at banks. Among other reasons that indirectly restrict the access of communities to finance, respondents also noted the following: Lack of proper initiatives by the responsible officials; Failure of local professionals to develop high-quality investment projects; Complexity of procedures and excessive bureaucracy of budget financing; Significant administrative burden through numerous checks of regulatory authorities. Taking into consideration those reasons, respondents were asked to assess possible ways to overcome financial barriers and to facilitate consumer access to financial resources. The breakdown of responses according to focus groups is presented in Table 7 of Annex and in Figure 10. 2

25 Figure 10. Assessment of ways of facilitation access to financial recourses for the consumer To overcome the financial barriers and increase access of stakeholders to financial resources, according to the 7% of respondents opinion, the most important is to ensure the reduction of credit costs. Among the focus groups the aforementioned factor received the highest rating among NGOs (.0) and business (.86), and the lowest one among experts (3.2), who believe that reduction of credit costs shall not occur at the expense of the state budget and consequently as a result of transformation and economic recovery of the country. Partial reimbursement of loan costs by the state about % of respondents defined as the second most important measure to overcome the financial barriers (AV.2). More than half of the respondents consider it very important to attract local investors, namely creating conditions for focusing the free funds of population on the energy efficiency projects (AV.11). The respondents defined creating conditions for attracting foreign investors as less important (AV 3.7). The respondents identified grant assistance as the least important measure to overcome the financial barriers (AV 2.86). The focus group of experts (2.2), business (2.7) and municipal authorities (2.67) had the most restrained attitude to this measure. According to some respondents, grant assistance is justified to apply only at the initial stage of implementation of energy efficiency projects to reduce the debt burden, but in the future it is advisable to reduce its volume to avoid the opposite effect. Real overcoming of financial barriers, according to respondents opinion, is possible provided that there are positive changes in the country as a whole, especially the creation of a favorable investment climate to facilitate capital inflows. Thus, respondents indicated that investment in energy efficiency prevent major risks for potential investors due to the following: On the national level: Unstable political situation; Lack of economic incentives through the setting of not always reasonable tariffs which do not take into account the investment component; Lack of proper legal regulation of the practical aspects of the use of energy service contract agreements; Possible negative impact of the criminal factors and corruption on economic activity; Lack of guarantees for the protection of investments, including the legal proceedings, which does not ensure the rights and interests of investors. On the local level: Not always consistent, transparent and understandable activities of local authorities; Insufficient qualification of responsible officials; Failure to enforce credit obligations; Opposition of local business groups against the backdrop of conflict of interest. Thus, overcoming financial barriers requires from government a set of integrated holistic measures aimed at solving political, economic and legal issues. It is advisable to pay particular attention to the following: Creation of favorable investment climate based on the framework Important The successful activity of the State Energy Efficiency Fund can become an efficient tool to stimulate development of the real economic sector of Ukrainian economy. 2

26 Energy efficiency reform bottlenecks: focus on solutions conditions, which are transparent and understandable for investors, the economic attractiveness of energy efficiency and legal security of investments; Reforming the financial and banking sector to bring it in line with the interests of ensuring economic development, and financial servicing of the real economy sectors; Creation and organization of the State Fund for Energy Efficiency as a guaranteed source of funding of the energy efficiency projects. It is necessary to involve International Financial institutions to co-finance energy efficiency measures in the residential sector for 1-20 years; Monetization of benefits and subsidies to citizens. Conclusions Providing consumers with access to financial resources is crucial to assure activity on implementation of energy efficiency projects and hence energy saving on the national level. Of course, overcoming financial barriers is only possible with systematic reform on improving the investment climate. Nevertheless, if outlining key initial priorities it is recommended to focus on: 1. Creation of the State Fund for Energy Efficiency with involvement of International Financial Institutions to co-finance energy efficiency measures (specifically to support long-term financing for residential energy efficiency projects with the duration of 1-20 years); 2. Another key priority should be decreasing interest rates for energy efficiency projects as much as possible. This should be the task of National Bank, Ministry of Finance and in parallel active educational programs for commercial banks, so they better understand the energy efficiency loan as their internal bank product and do not consider such projects risky... Regulatory barriers In the process of assessing the impact of regulatory barriers on energy efficiency measures implementation, almost 3% of respondents expressed the view that the current tariff policy does not fully perform a stimulating function. The breakdown of responses according to focus groups is presented in Table 8 of Annex and in Figure 11. Commenting on this issue, the respondents indicated that the decisions taken by the authorized state bodies during the last year as to bringing the energy tariffs to economic levels affected to some extent the behavior change primarily of the domestic consumers, who started to look for ways to reduce energy costs through more efficient energy consumption. However, according to the opinion of the most respondents, the current tariff policy is imperfect because: There is a lack of sequence in the NEURC activities; Logic of setting tariffs is not always clear to producers/suppliers and consumers of energy resources; The procedure of setting tariffs is bureaucratized, not always covers production costs; procedure of formation of the investment component provides opportunities for abuse and corruption; Lack of stimulating tariff (RAB-regulation) for the generation and supply of thermal energy, heat tariffs continue to be formed based on a "cost plus profit" methodology; There is still cross-subsidization; Growth of tariffs is not accompanied by improved quality of services (including heating). Figure 11. Breakdown of answers to the question whether the current tariff policy performs a stimulating function for implementing energy efficiency measures A significant part of the respondents believe that current system of tariff formation is not transparent, because: There is no open (available) information about the real production and consumption of energy, the cost of production and supply of energy; Term economic justification has no clear criteria, allowing interested parties if necessary to use it very freely and manipulate public consciousness; Reliability of input data, which are laid in the calculation of tariffs, causes doubts, because the methodology on which it is made is not clear, this results in risk of subjective factors in this process which is very high. According to the respondents opinion, the existing regulatory mechanisms have little effect on stimulating energy efficiency for the following reasons: Energy producers/providers do not always have the opportunity to increase the efficiency of production 26

27 processes and reduce the loss of energy produced because a low level or lack of the investment component in the established tariffs does not allow to perform the technical modernization. Also regulation of losses by the related legislative acts also does not solve the problem, because forces enterprises to seek for the opportunities of shifting cost of losses on other components of tariffs; Consumers mainly do not have the necessary financial resources for the development and implementation of energy efficiency measures either, therefore they need affordable loans and appropriate support from the state and local authorities. To overcome regulatory barriers and to impact positively on the energy regulatory mechanisms, the respondents consider it necessary to focus on the following: To take the EU methodology for energy planning and modern indicators for assessing the energy efficiency, replace outdated Soviet statistical database for the Eurostat database, which will get more qualitative information about the production and supply of energy; To implement, especially in the field of heating, the procedure of tariff setting according to the RABregulation principle; Important The State should introduce the mechanisms that ensure balance between the economic interests of energy consumers and producers. To eliminate cross-subsidization by the alignment of prices for all categories of consumers; Within the implementation of other measures of economic reformation of the State to ensure the increase in the financial ability of consumers to introduce energy efficiency measures; To work out the mechanism to stimulate consumers through the implementation of the benchmarking system for reducing tariffs (by 1-2% of the current tariff) in case of a reduction in the energy consumption as a result of energy efficiency measures; To monetize benefits and subsidies to citizens; To ensure public participation in the elaboration of transparent and clear tariff regulation mechanisms, as well as with the purpose of balancing the interests of natural monopolies of public resources producers/suppliers; To develop and implement criteria for determining the economic feasibility of tariffs, to create more opportunities for the public to get the information related to the formation of tariffs from the enterprises producers of public services. In addition, some respondents consider it appropriate to reduce the regulatory function of the state and to transfer all powers to set tariffs to local authorities. At the same time, other respondents express the view on the need to enhance the role of the NEURC by providing the regulator with a status of self-sufficient and independent body from the state and all market participants. Also, some respondents expressed opposing views regarding the mechanism for controlling the formation of tariffs. In particular, the respondents consider it necessary to strengthen the state and public control over tariffs, both at the NEURC level and at the level of local authorities. At the same time the rest of the respondents insisted on the need to maximize removal of direct functions of control over this process from the state. Conclusions Regulatory barriers are very similar in nature economic barriers, including the initial priorities which are most important. The tariff mechanism has to become effective tool of influencing consumer behavior and impacting energy consumption. For this purpose the following key steps are required: 1. Eliminate cross-subsidies by establishing economically justified prices/energy tariffs for consumers of all categories. The tariff should be related to the quality of service provided, which would justify the tariffs increase in the eyes of consumers; 2. Ensure transparency and clarity of tariff regulation mechanisms, specifically making the information on real production costs available, all calculations related to the investment component, and initial input data clear and reliable; 3. Apply the EU methodology for energy planning and use modern indicators for assessing the energy efficiency instead of outdated Soviet ones..6. Technical barriers During the interview, almost 61% of respondents confirmed the partial influence of technical barriers on the implementation of energy efficiency measures. The breakdown of responses by the focus groups is presented in Table 9 of Annex and in Figure 12. While commenting on this issue, the respondents indicated that the existence of technical barriers is primarily associated with the following: Existence of certain requirements, technical standards and regulations for the proper performance of which there is lack of the necessary resources, primarily financial; Demands of the double certification of imported materials and equipment, which leads to their increase in price; 27

28 Energy efficiency reform bottlenecks: focus on solutions Procedural complexity of some requirements of regulatory and technical documents; and in this case some procedures contain corruption factors, for example, as to getting technical conditions for accession to the utilities, approval conditions or deviations from standards or design documentation, commissioning etc.; Inability of stakeholders free access to a significant part of regulatory and technical documents as they are distributed for a fee (the validity of this procedure is questionable by some market layers, since such documents were developed either for the public funds or were funded by the EU); Lack of proper control over the practical implementation of legal and technical requirements in construction. Establishment of the indicative parameters (perspective and minimal) of the energy consumption; Further improvement of state building codes; Requirements for validity of minimum economic costs of energy efficiency measures; Standardization of equipment and materials, equipment energy labelling; Introduction of commercial accounting of energy resources; Elaboration of effective mechanisms for monitoring compliance with the regulatory and technical documents. Conclusions The technical barriers impact the energy efficiency project implementation in practice; hence it is important to consider them in line with more strategic tasks, like economic and legal reforms. The most crucial task to address the in the immediate future is: 1. Harmonization of the national standards, technical norms and regulations in the field of energy efficiency in accordance with the EU legislation as is currently planned by the Cabinet of Ministers of Ukraine; 2. Improvement of the technical norms and regulations procedures to eliminate unreasonable restrictions in energy efficiency projects implementation; Figure 12. Breakdown of answers to the question whether there are technical barriers that prevent the implementation of energy efficiency measures On the other hand, according to some respondents, national regulatory and technical documents contain many loopholes that under the conditions of the proper control lead to evasion of their implementation. While comparing Ukrainian and EU technical requirements in the field of energy efficiency, the respondents indicated that in recent years Ukraine has done a lot for adaptation of national standards, technical regulations and regulations on EU legislation. However, even most of the Ukrainian regulatory and technical documents require the implementation of the EU standards in accordance with the commitments undertaken by Ukraine under the Energy Community Treaty and Association Agreement with the European Union. According to respondents, this applies to the following: Implementation of energy management; valuation rules of procedure and organization of activities in the field of energy efficiency; Need to review the existing obsolete rules and technical conditions for introduction of modern technologies and equipment (sanitary requirements, fire safety requirements, etc.); simplification of technical specifications, including the entry into the market; 3. Enhancing the state control over compliance with established technical norms and regulations. Further work to address this barrier will be required in enforcing the practical implementation of legal and technical requirements in the construction. It is clear that proper long-term solutions require larger investments and can bring higher energy savings. The achievement of technical requirements ensuring higher energy efficiency standards should be rewarded (i.e. to implement and promote the energy performance buildings certificates)..7. Informational and educational barriers The necessity to form conscious public attitude to energy efficiency measures was identified as one of the priorities of the Ukrainian government. Assessing the ways to influence the formation of conscious attitude to energy saving, over 71% of respondents said that the most reasonable way is setting stimulating tariffs (AV.). Over 7% of respondents defined thematic TV and radio programs second most important (AV.18). The impact of equipping demonstration stands with energy efficient technologies and solutions in local communities received rather moderate scores by the respondents (AV 3.6), as well as conducting thematic lectures and seminars (AV 3.36). According to the respondents, distribution of printed materials will have the smallest result (AV 3.11). The distribution of responses according to focus groups is presented in Table 10 of Annex and in Figure

29 Figure 13. Assessment of the ways of influence on formation of consumers conscious attitude to energy saving Most respondents believe that today consumers, if interested, can receive any information on energy efficiency issues from the Internet resources. However, only motivated consumers who have sufficient computer skills use this opportunity. At the same time, a large part of household consumers are more oriented at television, however, the volume and content of information broadcasted by TV channels is mostly of poor quality, and is shown in a non-systematic way and at low-budget time. TV space is largely dominated by information from manufacturers of equipment and materials, which is advertising by nature. Considering this, respondents think that today consumers need information, which would allow them to recognize comprehensive nature of energy efficiency measures and help to make the right decisions about the most efficient ways to reduce energy consumption. Thematic lectures have proper effect, but only if they are held for target audiences. In some cities, where the projects with international assistance are implemented, there is a practice of conducting public lectures and seminars on energy efficiency at resource and consulting centres. Nevertheless, in most towns such work is unsystematic, due to the lack of qualified professionals and adequate funding from local authorities. Distribution of printed materials, according to the respondents, has a very limited impact because many citizens perceive them as promotional materials that statistically attract attention of no more than 3% of recipients. Among other methods to influence consumers mind-set, the respondents emphasized the necessity: to introduce basic training on energy saving at educational institutions; to wider utilize social networks to disseminate information on energy efficiency measures and their benefits with targeting at certain focus groups; to demonstrate benefits of implementation of energy efficiency measures by sharing specific examples of completed projects. Thus, according to the respondents, the main barriers to formation of a conscious attitude to energy consumption are connected with: passive thinking and expectations that someone from the government solves the energy efficiency problem; Important Financing or subsidy programs should be combined with mechanisms to stimulate the population to energy saving. limited possibilities of citizens who do not have professional knowledge to access comprehensive information, above all, on how they can significantly reduce energy consumption; increase in subsidies for disadvantaged people, which mitigates the negative effect from growing energy prices; unprofessional media coverage of topical issues in the area of energy efficiency; low performance of state and public informational campaigns, lack of qualified specialists at the level of local communities, especially in small towns, who can conduct informational activities. 29

30 International finance institutions and donors political recommendations Conclusion Information availability is one of the key decision making factors of an average consumer to proceed (or not) with the energy efficiency measure. A lot of information is available, but is far from being enough to form the needed understanding of the broader audience of the need of their active participation in energy efficiency initiatives. Informational and educational barriers have to be addressed by taking into account individual consumer groups, use media (much more broadly than currently is done), internet resources, local consulting and resource centers. The key issues that have to be covered by public information are: 1. Experience of successful household energy efficiency projects with coverage of achieved economic benefits and improved living conditions (key figures which would show an impact on an average household energy bill); 2. Practical tips on how to save energy and minimize growth of energy bills; 3. Information on existing national and local programs to support household energy efficiency projects, focusing on availability of these programs and funding mechanisms;. General information on benefits of energy saving and positive environmental impact of reduction of energy consumption. Creating a more global strategic vision for future generations is crucially important, specifically in the difficult times when only today matters. 6. International finance institutions and donors political recommendations on energy efficiency: brief summary of the status quo Since 20 years of Ukraine s independence international donor and IFI community have put a lot of resources into the technical assistance for Ukraine, whereas energy sector was historically one of the key priorities. Since 2006 when Ukraine s gas prices dramatically increased, donors started focusing more and more on the energy saving initiatives and financial institutions expanded investment into the modernization of energy infrastructure and industry with the energy efficient equipment. In 2009 policy dialogue related to energy efficiency became specifically strong due to the next Ukrainian-Russian gas dispute. Donors were supporting the frameworks legislation including Energy Strategy development, energy efficiency in buildings, harmonization of technical standards and norms with those of the EU, development of National Energy Efficiency Action Plan and other laws in frames of the Energy Community Treaty (i.e. gas and electricity liberalization, combustion Directive, etc.). Unfortunately, the progress of Ukraine on the way to reforms remains very limited and unsatisfactory in comparison with the effort put in. This is explained by the strong resilience of previous governments to implement the sustainable energy policy, to support energy saving and to increase transparency in the energy sector. Alternatively, certain Ukrainian stakeholder groups tend to comment that donor s effort is sometimes not coordinated or often too much focus put on the same issues by different Technical Assistance projects. Figure 1. Assessment according to focus groups of international donors and international financial institutions activities in specific directions in the field of energy efficiency During the interviews, the respondents were asked to evaluate the activity of international donors and financial institutions in specific sectors of energy efficiency. The results are presented in Table 11 of Annex and in Figure 1. 30

31 on energy efficiency: brief summary of the status quo According to the survey, in general respondents have a positive view about the support from international donors and financial institutions. The highest rating was given to Education programs (AV.2), grant support to develop and implement energy efficiency projects (AV.11), and also to create legislative framework in the field of energy efficiency (AV.07). Moreover, respondents expressed their views what kind of international experience in the field of energy efficiency should be implemented in Ukraine. The results are presented in Table 12 of Annex and in Figure 1. The most noteworthy should be learning about and using the experience of mechanisms to encourage the consumers to energy saving (AV.61), state support of energy efficient measures (AV.29) and creating favorable investment climate (AV.0). Figure 1. Evaluation of international experience in energy efficiency sector which should be implemented in Ukraine During the discussion, the respondent also mentioned that for effective implementation of relevant international experience in Ukraine s energy efficiency sector it is important to fully coordinate the activities of international technical assistance projects and donor organizations. To achieve this objective it could be useful to increase the responsibilities for this in the Ministry of Economy and SAEE. At the same time, respondents defined the priority directions for further cooperation with international donors and financial institutions in the EE sector reforms. The results are presented in Table 13 of Annex and in Figure 16. Figure 16. Priority directions of international community activities for reforming Ukraine s energy efficiency sector 31

32 According to respondents, the international institutions should make an effort to implement financing programs for EE projects (AV.6) and education programs (AV.6). The next priority was given to regulatory framework support in the field of energy efficiency (AV.3) and implementation mechanisms of financing EE projects (AV.29). Less important directions are grants to develop and implement EE projects (AV 3.96), as well as transfer of EE technologies and equipment (AV 3.6). During the interview, the respondents selected main political recommendations, which were coming from the international community to improve energy efficiency on the national and local levels: Harmonizing the legislation in accordance with the Energy Community Treaty; Establishing a state authorized body with sufficient powers to implement EE policies; Support with Sustainable Energy Action Plans development and implementation; Implementation of energy management system; Ensuring the market based tariffs with the cost recovery; Solutions on financing large infrastructure projects; Implementation of modern technologies; Development of mechanisms and tools for EE projects implementation; Setting energy efficiency requirements in the design documentation. Among the important legal initiatives proposed by the international community, the following laws, which are in the different stages of implementation, were mentioned: Curiosities Improving the law on the Most of the independence of national focus groups mentioned Regulator in the energy recommendations on sector; tariffs setting among Law on ESCO and energy most important ones; service contracts; The need Gas market law; to systematize all Law on the aspects of ownership in the multi apartment buildings. Several focus groups mentioned recommendations to facilitate monitoring of their implementation came across various focus groups. that there is no systematized list of such recommendations in one place and could be very helpful if such information is gathered on the institutional level i.e. SAEE or Ministry of Economy. This could also support monitoring of various projects and measuring their successes by the developed Key Performance Indicators. While, of course, it is clear that not all of the recommendations have been fully implemented, the progress and number of important achievements have been made. The amendments to the Budget Code have significantly improved the possibilities of local authorities to implemented EE projects and first projects with tangible results have already happened and brought practical experience to the country. Among the non-implemented recommendations the respondent mentioned the following: Demonopolization of energy supply market; Transparency of tariffs setting; Commercial accounting for communal services; Settlement of open issues in the segment of energy efficiency in buildings; Approval of draft contract for the ESCO services; Implementation of EU Directives 2010/31/EU and 2012/27/EU (repealing Directive 2006/32/EU, which was not in time applied in Ukraine). Among the reasons for lack of progress in these areas the respondent mentioned: Lack of political will; Corruption, lobbying of interested business groups and poor justice system; Poor institutional capacities in Ukraine (specifically, financial and administrative capacity), which often cannot be applied in practice, despite existing on paper. Finally, the respondents were asked to suggest ideas for future programmes or projects, which donors could develop in Ukraine. The answer included: Further improvement of policy and laws; Programme on implementing EU Directive 2012/27/EU; Setting up revolving fund for EE projects financing; Reforming of banking-finance system of Ukraine to improve the financing conditions for EE projects; Improvement of tariffs policy with financial incentives; Establishing ESCO companies based on foreign investments; Implementation of energy management systems; Establishing Energy Agencies; Projects on energy efficiency buildings in accordance with the EU norms, as well as modernization of district heating infrastructure; Educational modules/programs for educational institutions; Producing fixed information/demonstration stands about energy efficient technologies; Awareness programme on TV on the Housing Unions and EE in residential sector. 32

33 Evaluation of potential for reforms in the field of energy efficiency Conclusions To strengthen donor and IFI efforts in supporting energy efficiency reforms it is specifically suggested to: 1. Fully coordinate the activities of international technical assistance projects and donor organizations (i.e. by increasing the responsibilities for this in the Ministry of Economy and/or SAEE); 2. Systematize all recommendations and monitoring of their implementation by Ukrainian government; 3. Support where possible institutional capacities in the Ukrainian authorities (incl. financial and administrative capacity);. Focus further effort on supporting financing programs for energy efficiency projects, education programs and improvement of legislative framework. 7. Evaluation of potential for reforms in the field of energy efficiency Implementation of reforms in the field of energy efficiency, according to the respondents, requires: coordinated and efficient work of all authorities on implementation of measures for overcoming existing barriers discussed above; capacity of other key players to ensure implementation of the reform measures; public support for reforms; necessary financial resources. Considering this, during the survey the respondents evaluated the degree of influence of state government on energy efficiency, as well as other factors that ensure implementation of reform measures. Figure 17. Evaluation of activities of central authorities in the area of energy efficiency 7.1. Evaluation of state government influence in the area of energy efficiency Despite the certain positive improvements during , in general, respondents still give very low appraisal of the state governmental bodies activities and their influence on energy efficiency. The average value for each focus group is shown in Table 1 of Annex and in Figure 17. According to respondents, SAEE (AV 3.6) works the most effectively today among all central authorities, because employees of this agency ensured positive dynamics to the processes in the field of energy efficiency, as well as preparation and implementation of several important basic framework laws. In particular, almost 61% of respondents evaluated work of this body as excellent and good. The highest rating SAEE received from representatives of central authorities (3.8) and business (3.71), and the lowest from representatives of NGOs (3.2). Generally, respondents also positively evaluated the work of Verkhovna Rada of Ukraine (AV 3.07) due to the activity of a group of deputies who work on draft laws in the field of energy efficiency. In particular, 6% of respondents rated its work as satisfactory. The highest rating Verkhovna Rada received from representatives of central authorities (3.6), and the lowest from experts (2.). Cabinet of Ministers of Ukraine (AV 2.61) and Ministry of Regional Development of Ukraine (AV 2.) received a satisfactory evaluation in general. At the same time, 6% of respondents rated work of CM as good and satisfactory, and Ministry of Regional Development by almost % of respondents. The highest rating Cabinet of Ministers received from representatives of NGOs (3.0), and the Ministry of Regional Development from local authorities (3.33); while the lowest scores were given by experts (CMU 2.2, Ministry of Regional Development 1.67). However, according to respondents, the activities of these bodies in developing and implementing national energy efficiency policy need significant improvement, especially in terms of active engagement of other central authorities in this process, and designing modern energy management system in the 33

34 Evaluation of potential for reforms in the field of energy efficiency country that covers all aspects of management on national, regional, and municipal levels. NEURC (AV 2.1) was rated unsatisfactory by over 7% of respondents, with the most negative feedback from business representatives (1.3), and more positive feedback from representatives of NGOs (3.). According to a large part of respondents, NCRECS does not function properly as a national regulator because it does not ensure clear and transparent setting of economically justified Curiosities Earlier ( ) the expert community (including business, IFIs, and experts) complained that it was impossible to push any energy efficiency initiatives precisely because of 9 (!) existing at that time Ministries and central authorities somehow dealt with energy saving. The problem remains unsolved still today how to ensure coordination of their activities to successfully reform the energy sector? tariffs, and thus, the Commission has a very weak impact on the area of energy efficiency. Ministry of Energy (AV 1.71) was negatively evaluated by almost 79% of respondents, with the most negative feedback from representatives of central authorities (1.). According to the respondents, the Ministry of Energy focuses exclusively on the problems of production, generation and supply of energy resources, while energy efficiency issues have secondary importance. Such a position is not justified because energy losses during its production, generation and supply have direct impact on the tariffs for consumers. Ministry of Economy (AV 1.7) was negatively evaluated by 79% of respondents, with the most negative feedback from representatives of central authorities (1.), due to the lack of real results of initiatives aimed to create favorable background conditions for development of national economy, including stimulation of energy efficiency measures. Ministry of Finance (AV 1.7) was also poorly evaluated by over 82% of the respondents, with the most negative scores (1.2) from experts and representatives of NGOs. According to the most respondents, the Ministry of Finance creates obstacles for many initiatives related to support and stimulation of energy efficiency measures. At the same time, representatives of IFI/DP gave satisfactory scores to the activities of the Ministry of Finance (2.) because in the present difficult conditions it manages to solve problems with attraction of credit resources, including energy efficiency field. Ministry of Ecology (AV 1.) was negatively evaluated by over 82% of respondents, with the most negative feedback received from business representatives (1.0). According to respondents, the Ministry of Ecology kept itself aloof from solving problems in the energy field and does not deliver expected input into reducing energy consumption through implementation of environmental tools Evaluation of readiness and capacity to reform the area of energy efficiency As the results of the survey showed, the respondents are very moderate in their evaluation of Ukrainian potential to implement reforms in the field of energy efficiency. The distribution of responses according to focus groups is presented in Table 1 of Annex and in Figure 18. According to respondents, implementation of reforms needs, above all, highly motivated senior members of the government. However, the respondents note that, unfortunately, the level of political wiliness of the Ukrainian authorities regarding the energy efficiency reform is still very low (AV 2.71). In particular, over 6% of respondents rated this factor with score 3. At the same time, almost 36% of the respondents rated it with unsatisfactory scores 2 and 1. Thus, a large part of the respondents (over 82%) has doubts about the ability of the current Ukrainian government to ensure qualitative changes in the field of energy efficiency. According to respondents, readiness of legislative and executive authorities for effective cooperation in the field of energy efficiency is even lower. AV of the mentioned factor was 2.3, in particular, over 6% of respondents gave it score 3, almost 36% rated it as 2 and 1. The respondents explain such position as political and business disputes, which are currently taking place among the top echelon of governmental officials. Evaluating potential of financial support of reforms, over 82% of respondents pointed out extremely low capacity of the state to support reforms with necessary financial resources Interesting on the national level (AV Key issues of reforms in the 1.68), including over 32% who field of energy efficiency in gave this factor score 2", and present times: 0% 1. At the same time, low credibility of the financial capacity of local Government in the society; communities was evaluated by the respondents a little lack of proper financial higher (AV 2.2), including recourse; 61% of respondents who unsatisfactory level of rated it with lower scores as qualification of employees of 2 and 1. Also it should be central and local authorities; mentioned that almost 18% lack of effective of respondents highly rated management system and the local potential and gave it motivation. a score, and over 21% of respondents gave it 3. The highest score financial potential of local communities received from representatives of central authorities (3.6) who believe that under the administrative reform local communities were already given more powers for budgeting. Most respondents (over 6%) satisfactory evaluated potential 3

35 of the industry to provide the necessary technology, equipment and materials (AV 2.96). Moreover, according to some respondents, if investments in modernization of production processes are available, potential of industrial enterprises can be multiplied quickly. According to the majority of respondents (7%), today, reforms in the area of energy efficiency already have a very high level of public support (AV 3.36). In particular, almost 29% of respondents rated the level of public awareness about acceptance and support of reformation measures with score and, over 6% with score 3. This factor was negatively rated by 2% of respondents Evaluation of human resources for energy efficiency reform One of the most important factors that affect effectiveness of the reforms is the level of professional competence of specialists in the field of energy efficiency, and their ability to ensure the performance of assigned tasks. In this regard, the respondents were Figure 18. Evaluation of potential of the reforms in the area of energy efficiency asked to evaluate, based on personal experience, the competence level of some categories of professionals in the field of energy efficiency. Average indicative value rates according to each focus group are shown in Table 16 of Annex and in Figure 19. Survey results showed that respondents gave the lowest scores to the competence level of local (AV 2.32) and central (AV 2.6) authorities. In particular, 0% of respondents evaluated competence level of employees of local authorities as unsatisfactory with scores 2 and 1, and almost 36% gave the same scores to employees of central authorities. According to respondents, the main reason for that is staff turnover caused by low salaries, which pushes experts who have gained specific professional skills in governmental bodies to seek for better-paid jobs. In addition, the turnover is to some extent affected by political factors associated with frequent changes of state authorities heads. Given this, some respondents believe that introduction of measures to improve competence of state authorities employees should be a priority of state service reform in Ukraine. Most of the respondents gave satisfactory evaluation to competence level of such categories of professionals as scientists (AV 3.18), design engineers (AV 3.39), and providers of construction and installation servicers (AV 2.96). In particular, competence level of scientists was rated as by over 39% of respondents and 3 by almost 3%; competence level of design engineers was rated as by almost 3%, and 3 by almost %; competence level of construction and installation services providers was rated as by 2% Interesting According to some experts, increase of the competence of authorities employees is possible under the following condition: ensuring the stability of the staff structure; practical participation of employees in EE measures implementation. of respondents, and 3 by almost %. According to some respondents, mentioned categories have quite a high capacity to increase their competence under the condition that demand for implementation of real energy efficiency projects increase. Analysis of survey responses indicates that Ukraine has satisfactory resources to implement reforms in the area of energy efficiency. At the same time, according to the respondents, expected positive results of the reforms can be achieved only under the following conditions: 3

36 Evaluation of potential for reforms in the field of energy efficiency Figure 19. Evaluation of competence level of specialists in the area of energy efficiency effective work of central government, coordinated work of its legislative and executive branches, increased organizational role of the Ministry of Regional Development and SAEE in dealing with priority tasks of the reform; establishment of effective management in the area of energy efficiency; strengthening of the state financial resource to ensure reform measures at the national, regional and municipal levels; implementation of measures to improve the competence level of employees of central and local authorities; increasing public support of the reform by giving consumers broader access to information on energy efficiency measures and their long-term benefits, creating customer demand for these measures. Conclusions Knowing which reforms have to be implemented is not enough without availability of human, administrative and financial resources. Specifically, the political willingness is a must for any reforms to proceed. Unfortunately, the political willingness and the governmental capacity to support legislative nor financial reforms (co-financing of EE projects) is very low. To improve the situation in the short- and mid-term it is important to: 1. Increase awareness about energy efficiency among the general population (to assure public support to reforms) and within the state institutions (can include participation of the public employees to EE projects or going through a tailored educational course). In this sense, understanding the economic effect of energy saving could play a huge role both on the household level and for the entire country economy; 2. Strengthen the stability among the employees attempting to create a long term interest in their (properly) paid and educating jobs. The reform in the HR sector should allow employees to make long-term plans and take responsibilities, which so far is not the case. Effective coordination of all the state authorities and relevant executive institutions will always remain crucial for any further energy efficiency reforms. 36

37 Role of regional and municipal energy agencies: objectives, duties and powers 8. Role of regional and municipal energy agencies: objectives, duties and powers The leading role in managing energy efficiency should be given to organizational structures with energy management functions at local community level. As proved by positive European experience, municipal energy agencies (hereinafter MEA) could be such structures. Today, such municipal agencies have already been created in some cities (Kyiv, Dnipropetrovsk, Rivne, Odessa, etc.). These agencies are involved in developing proposals to form local energy policy, and implement programs to improve energy efficiency of public sector facilities and municipal infrastructure. Considering that practice of creating municipal energy agencies is not yet widely spread in other Ukrainian cities, solving this problem is also one of the priorities of the reform in the area of energy efficiency. According to some respondents, MEA should, on one hand, be an energy management tool, and on the other hand, be a professional communication platform for exercising interests of suppliers and consumers of energy resources, as well as local communities represented by local authorities. Interesting Municipal Energy Agencies should become key providers of EE measures on the level of territorial communities. The possible scope of tasks for MEA can vary depending on the scale of responsibility and envisaged role, but the main ones come down to the following possibilities: implement monitoring of energy consumption, and based on this data develop proposals on energy policy priorities in the local community, as well as recommendations for reduction and efficient use of energy; participate in development of municipal energy plans and action plans for sustainable energy development of local communities, as well as create local legislation on energy efficiency; facilitate creation of attractive conditions for investment in energy efficiency projects in local communities by providing potential investors with access to necessary information, and giving them other services upon request; conduct energy audits at utility infrastructure facilities, and on request from other clients/customers; develop and implement energy efficiency projects on request of local authorities and other clients/customers; on behalf of the local authorities, carry out additional expert assessment of effectiveness of the projects that need support from the local government; provide informational and consulting services regarding the nature of energy efficiency measures, prepare rationale of usage of certain technical solutions and materials/ equipment, and determine optimal financing conditions for projects; organize informational and educational activities, including sharing positive experience of implementation of energy efficiency projects. However, some of the respondents incline to the idea that MEA should: take over the functions of eradicated regional units of SAEE; certify specialists in the area of energy efficiency; monitor adherence to the norms of energy consumption; perform the functions of architectural and construction inspection. Moreover, according to the respondents, the activities of MEA focus primarily on implementation of measures to improve energy efficiency of municipal infrastructure and housing. During the survey, the respondents were also asked to rate a list of possible state actions, which should be taken to establish MEAs. Average value according to each focus group is shown in Table 17 of Annex and in Figure 20. According to respondents, the most important action to stimulate establishment of MEA is introduction of informational and educational programs (AV.): over 6% of respondents rated this measure with, 2% with. Focus group of experts gave this measure the highest score. This is primarily determined by the need to overcome mental barriers of both consumers, and officials of local authorities. The second important measure, according to respondents, is creation of a favorable investment climate (AV.29): almost 61% of respondents rated this measure with, and over 21% with. The highest score (.6) was given by IFI/DP focus group. However, the respondents understand that, first, implementation of this measure should happen at the national level by creating appropriate framework conditions, which would be a basis for development of corresponding practical measures to attract investment at the local community level. Access to cheap credit resources took the third place by importance (AV.2): over 6% of respondents rated this measure with, and almost 11% with. This measure received the highest score (.8) among the focus group of central authorities and the lowest (3) among experts. The prevailing 37

38 Role of regional and municipal energy agencies: objectives, duties and powers Figure 20. Evaluation of possible measures to establish and to work effectively of Municipal Energy Agency thought among experts is that establishment of MEA should be based solely on economic incentives. At the same time, in general focus groups considered this measure as fourth in importance (AV.21): over 7% of respondents rated this measure with, and 2% with. In particular, the focus group of experts gave this measure the highest score of, while the focus group of business gave it the lowest score (3.7). Experts explain their position on this issue by the fact that in the current economic situation cheap loans are possible only if consumers are supported from national and local budgets, but budgetary resources are limited. Given this, cheaper loans will appear exclusively within national and local budgets. Respondents gave the most skeptical evaluation to such measures as adoption of regulation on obligatory MEA establishment (AV 2.82) and adoption of the state program to support MEA (2.). These measures were positively evaluated by over 32% and 29% of respondents, with scores and respectively. The measure of legal obligation received the highest support from the focus groups of NGOs (3.) and lowest in the focus group of central authorities (2.). At the same time, the need for the appropriate state program was supported by the focus group of local authorities (3.67), and it was almost rejected by the focus group of experts (2). According to the most of respondents, adoption of the new regulation would require simultaneous creation of conditions for its implementation, and funding of programs to support MEA is practically impossible because of the limited capacity of state and local budgets. Conclusions The establishment and functioning of Municipal Energy Agencies on the local level is undoubtedly crucial priority to ensure the effective implementation of energy saving projects (and measures i.e. by population). The competences of MEA are debatable and can be outlined from the promotion\project initiation functions (i.e. providing information), to controlling and enforcing functions (certifying experts or becoming local representations of State Energy Efficiency Agency). To facilitate the process of establishment of MEA it is important to: 1. Focus on the formation of local authorities conscious attitude to the objectives, content and potential possibilities of the MEA to improve the results of socio-economic development of the regions and local communities; 2. Organize the development and publication of methodological recommendations on MEA establishment, as well as spreading the positive experience, which is already gained in some regions of Ukraine; 3. To develop and implement mechanisms of economic motivation for local authorities to improve the indicators of rational and efficient usage of energy resources. Strategically, one should not forget that effective operation of MEAs will depend on stable local and national investment climate. The longer the planning horizon can be, the better effects will be achieved from MEA. 38

39 Results of the online questionnaire 9. Results of the online questionnaire Evaluation data of online interview correlated with the data obtained during the personal interview of respondents (hereinafter interview respondents) and opinions of respondents generally reflect the main issues and trends in energy efficiency field. At the same time, some issues of evaluation data in these groups of respondents have some differences. This can be explained by the different level of qualification of online interview participants because any special requirements were put towards them, unlike personal interview participants, and possibly by different level of perception of the questions (during the personal interview respondents could clarify questions and discuss their understanding). Some of the most interesting results of the comparison of evaluation data of specified groups of respondents are presented below. In particular, during the assessment of factors that motivate consumers to energy saving, online respondents identified savings as the most important factor (AV 3.8). However, they are more optimistic about evaluation of such factors as the concern for the environment (AV 3.1) and energy independence of the state (AV 3.3). Comparison of evaluation is presented in Figure 21. Figure 21. Comparison of assessment of factors that motivate consumers to energy saving Online respondents were more categorical in assessing legislative conditions for the introduction of energy efficiency measures, namely over 3% of them said that the legislation does not meet the requirements of the present time, while among interview respondents this assessment reached 21%. Comparison of assessment results is presented in Figure 22. Figure 22. Comparison of respondents assessment about adequacy of legislative conditions for implementation of energy efficiency measures 39

40 Results of the online questionnaire Along with this, the majority of online respondents (over 3%) mentioned that the functions and powers of the central authorities in the field of energy efficiency do not meet the requirements of the present time, when interview respondents (over 6%) are more likely to believe that their functions do not fully meet the requirements. Comparison of the assessment results is presented in Figure 23. Figure 23. Comparison of assessments results on the correspondents of functions and powers of central authorities in the field of energy efficiency to the requirements of present time It is also interesting that online respondents to a greater extent (about 28%) than interview respondents (almost 18%) believe that local authorities have sufficient powers for the implementation of energy efficiency measures. Comparison of estimates presented in Figure 2. Figure 2. Comparison of assessments of sufficient powers of local authorities in the field of energy efficiency It should be noted, that the online respondents more negatively evaluate the activities of the Verkhovna Rada, the Cabinet of Ministers of Ukraine, Ministry of Regional Development and the State Agency on Energy Efficiency and Energy Saving of Ukraine. At the same time, they evaluated more positively the activities of the Ministry of Finance and Ministry of Environment. Comparison of the assessment results is presented in Figure 2. 0

41 Figure 2. Comparison of assessment results of authorities activities in the field of energy efficiencі Despite insignificant differences in the assessments, interesting is that both groups of respondents identically determined priority directions of reforms in the field of energy efficiency. Comparison of interview results is presented in Figure 26. Figure 26. Comparison of assessment results of priority directions of reforms in the field of energy efficiency 1

42 International experience in energy management 10. International experience in energy management The issue of energy management, which in summary is linked to controlling and reducing energy consumption to affordable optimum, becomes worldwide more and more important. The introduction of market reforms at national level as a result of political and policy reforms brought the necessity to consider adequate steps by the state in this direction, which, however, affect all social groups as well as the state itself. The steps include not only development of relevant legislative and institutional framework, but also intensive promotion activities till the market forces become again the natural economic stimulus for the energy management process, while the state supports it within its competences. The effect of such measures is always result oriented in brief, using less energy means cheaper goods, less expenditure for all consumers and more competitive industry. Thus, the responsibility of the state for the establishment of proper energy management set up is substantial, but the effective utilization of this set up depends on everyone s initiative EU vs. National requirements In general, the EU acquis is flexible when it comes to the legal format concerning the establishment of national institutions and their functioning, related to energy efficiency management. The key requirements on EU level are not linked to the form of the relevant authorities, which need to be established, and to the way their competences are structured, but rather to the concrete results of their functioning and this concerns e.g. from the way of removing all regulatory and non-regulatory barriers to energy efficiency 2 to setting minimum energy performance requirements 3. From today s perspective, the approach is clearly visible in the rather general definition of energy management system, described as a set of interrelated or interacting elements of a plan which sets an energy efficiency objective and a strategy to achieve that objective. However, as substantial number of energy efficiency related institutions have long history prior to the cited Directive, it is fair to say that the EU law formalized existing practices. It should be also explicitly underlined that although the definition of energy management system, which is in the focus of the current analysis, is linked mostly to energy efficiency the national set of institutions, which are within the scope of this system, deal also with renewables, which is well justified. Thus, the approach towards achieving the goals as set up in the EU acquis is left within the national legislative system rather than following EU established patterns. This explains the variety of formats and approaches in the EU member states on national level. On this ground, all indicated formats on national level, referred to further, should be assumed for illustration purposes only. It is up to the relevant national authorities to consider and choose the most appropriate set both from structural and competence perspective as to meet the objective need to promote energy efficiency at national level and within the state internal regional divisions, while following the general EU acquis requirements On the status of the national authorities some illustrative examples Here are some examples, which illustrate national organizational differences, which, however, are united by achieving common goals as set up within the EU. Thus, e.g. in Austria, the Austrian Energy Agency has been founded as a non-profit association. The founding members include not only the Republic of Austria (represented by several ministries), but also the federal provinces as well as large energy supply and technology companies, scientific organizations and interest groups. This specific set of founders and the legal status provide the possibility for substantial variety of activities, some of which are not characteristic for other national energy efficiency institutions particularly those, which are part of the state administrative structure. In the Austrian case the competences of the Energy Agency vary from advices to decision makers in politics, science and industry to social analyses; from expertise and strategic consulting to specific PR activities etc. Compared to Austria, Bulgaria has completely different approach towards establishing the energy management system on national level. This is due not only to the different role of the regional and local authorities, which are much more dependent on the Bulgarian government, while having insignificant autonomy. The most substantial difference is that the Bulgarian Sustainable Energy Development Agency 6 has been established as a part of the national system of strictly state institutions in concrete, as an executive agency under the Minister of Energy. Historically, however, this institution has had in earlier times stronger independence, reporting directly to the Ministerial Council. In addition, the legislation clearly distinguishes separation of competences in the area of energy efficiency on strategic, tactical and operational levels. Thus, on strategic level, the Parliament upon proposal of the Ministerial Council adopts national strategy for energy efficiency, determining the stages, the means and the measures for achieving the national energy efficiency goals. The Ministerial Council in addition adopts concrete national plans e.g. related to 2 Article 19 (1) of Directive 2012/27/EU on energy efficiency 3 Article of Directive 2010/31/EU on energy performance of buildings Article 2 (11) of Directive 2012/27/EU For more details: pdf_.pdf 6 ; for other concrete details, related to this particular part of the report, see articles,, 7 (1) 7 and 11(2) of the Energy Efficiency Act of Bulgaria. 2

43 buildings, to encouragement of investments in the field etc. Further, although the Agency is under the Minister of Energy, aside the latter there are several more ministers, who have selfstanding competences from the perspective of energy efficiency these are the ministers of economy, of transport and of regional development. On executive level it is the Director of the Energy Efficiency Agency, who manages the activities for the realization of the state policy on energy efficiency. Further to the fact that unlike in Austria, where the Energy Efficiency Agency unites via its management formula several state institutions, business representatives, NGOs etc. in the case of Bulgaria the participation of structures other than state institutions is decided by the Minister of Energy under the law, he is the one to decide on eventual cooperation with others, when it comes to the realization of the state policy in the field of energy efficiency. In the case of Greece, the Center for renewable energy sources and savings (CRES) 7 is a good example of a public body, which, however, enjoys financial, administrative and what is different compared to others - entrepreneurial independence. Institutionally, CRES is supervised by the Ministry of Reconstruction of Production, Environment and Energy. However, this seems to be the most explicit expression of the state role when it comes to operational work. Otherwise, aside to being the official consultant of the Greek government on matters of energy saving and renewables in national policy, strategy and planning, CRES benefits from substantial operational independence. The latter, combined with the administrative and financial independence as referred to above, provides the institution with its own self-stand. Thus, e.g. CRES carries out applied research and develops technologies which are both technically/economically viable and environment-friendly and undertakes demonstration and pilot projects, to promote the above technologies. In addition, to the theoretical work, CRES owns demonstration capacities, such as the Wind Park at Agia Marina in Lavrio, Attica 8 and others. On this ground, it is easily understandable why the Centre is managed by a seven-member Administrative Council, which includes representatives from the General Secretariat of Research and Technology (Ministry of Education and Religious Affairs, Culture and Sports), the Public Power Corporation and the Hellenic Federation of Enterprises. Currently, Ukraine correctly targets the issue at a maximum centralized level i.e. closest to the Bulgaria or Greece from this perspective, but with even stronger position, being under the Council of Ministers. The objective justification for using such an approach in the case of Ukraine is linked to the strong necessity for establishing the proper operational mechanisms as to promote energy efficiency, which are not in place yet and which are state responsibility. Besides, this allows much easier coordination between the involved national and regional level institutions (ministries, oblast) with competences, related to energy efficiency. In addition, Ukraine still has enormous room to make the best use of the substantial international support in promoting energy efficiency measures and the coordination of these activities is best done via the state, represented by its relevant institution Established and existing organizational structures to ensure the functionality of energy management on the national, regional and municipal levels Some necessary pre-clarifications on the topic In general, with the understanding that in the current context regional refers to a part of national, the comparison between the different states approach when organizing the internal level structures depends on substantial amount of factors e.g. objective needs; financial and organizational possibilities; outlined strategic priorities; legislative and legal status reasoning etc. Thus it is fair to summarize that there is no fit all formula. Such a conclusion is also backed up by the EU acquis. Although it had been clearly stated that the EU legal framework on energy efficiency needed to be updated and that an integrated approach has to be taken to tap all the existing energy saving potential, encompassing savings in the energy supply and the end-use sectors 9, the EU acquis provides enormous frame for national manoeuvers on state level. Further, it explicitly invites the EU member states to use to maximum level different existing formats of cooperation, which affect administrative divisions within the member states particularly both regional and municipality structures. Thus, e.g., it has been clearly stated that a number of municipalities and other public bodies in the Member States have already put into place integrated approaches to energy saving and energy supply, for example via sustainable energy action plans. The Covenant of Mayors initiative is one of the leading formats in this relation, which is considered to be exceptional model for multilevel governance, involving local and regional authorities, voluntarily committing to increasing energy efficiency and usage of renewable energy sources on their territories 10. On this ground, the acquis encourages the Member States to support the municipalities and other public bodies to adopt integrated and sustainable energy efficiency plans with clear objectives, to involve citizens in their development and implementation and to adequately inform them about their content and progress in achieving objectives. In fact, the EU approach goes even beyond, promoting exchange of experience between cities, towns and other public bodies, which should be encouraged with respect to the more innovative experiences Recitals 10 and 12 of Directive 2012/27/EU 10 As of today, e.g. there are more than 90 signatories from Ukraine. 11 Recital 18 Directive 2012/27/EU 3

44 International experience in energy management In addition, the EU acquis gives the freedom to the Member States to approach individually their regional and municipal structures as to achieve best results within the overall EU and national frame targets. Summary of this approach might be referred to in different text, but in general the message is one Member States shall encourage public bodies, including at regional and local level, and social housing bodies governed by public law, with due regard for their respective competences and administrative set-up, to adopt energy efficiency plans and put in place adequate energy management rules, which will allow the effective implementation of these plans 12. Thus, in a wrap up, although in the concrete context the regional structures are considered as part of the administrative divisions of the relevant countries 13, the undertaken activities concern also cooperation between these regional authorities (regardless their format oblast, municipality etc.) also outside the state-level cooperation On the institutional set up at the national level some common aspects ЗThe general set up approach is linked to the establishment of individual structures, dealing with energy efficiency matters. In this relation, as illustrated above, although some major differences exist, when it comes to the legal status of the relevant state level institution, the energy management set up has individual stand clearly specified from or within the executive power. In the latter case, when the institution in question is part of the executive bodies, it has explicitly designated competences and significant level of financial, organizational and policy independence. Further to the examples so far, some other illustrations could be provided in this regard. In Sweden the issue is within the competences of the Swedish Energy Agency 1, which has been created as public agency under the Ministry of Environment and Energy. The Agency is regulated by governmental ordinance, but it is the Parliament and the Government, which decide on the assignments and budget of the Agency. In the Netherlands, the Netherlands Enterprise Agency has also been established as a public agency under the Ministry of Economic Affairs 1 and is in fact a part of it. The organization as such exists since 201 and is result of a merger between several other institutions the Netherlands Agency for Sustainability and Innovation (SenterNovem), the Agency for International Business and Cooperation (EVD), and the Netherlands Patent Office (OctrooiCentrum Nederland). In a way, its current structure follows the activity distribution between these institutions. It focuses on providing services to entrepreneurs on the ground of more effective usage of smart organization and digital communication. The Agency works very actively in the Netherlands; however, it has a mandate to work also abroad with governments, knowledge centers, international organizations etc On the national institutional set up specific approaches Without any doubt, although united by common goals, the EU member states and the other countries, which follow the EU law, use substantial amount of means for achieving the goals within the established free-for-details boundaries. This concerns not only the institutional formats, but also the usage of specific mechanisms, the established coordination line between different level authorities within the state etc. There are different justifications for these differences. Here are some examples of differences, related to geographical reasons. In France, the French Environment and Energy Management Agency (ADEME) 16 is a public agency under the joint authority of the Ministry for Ecology, Sustainable Development and Energy and the Ministry for Higher Education and Research. In summary, its competences are linked to encouraging, supervising, coordinating, facilitating and undertaking operations with the aim of protecting the environment and managing energy. Particular flavour in the context of the status and activities of ADEME is provided by the so called overseas territories of France (French Polynesia, New Caledonia and Saint-Pierre and Miquelon), where there are representative bodies of ADEME. In the Netherlands, due to geographical specificities of the country, there is a special tool to use the offshore wind energy. It should be recalled that the conditions for offshore wind energy in this country are considered to be excellent this is linked to relatively shallow waters, good wind resource, good harbour facilities, experienced industry. Thus, on this ground, and a new, robust support system has been duly established there is a concrete road map as to increase offshore wind capacity from todays 1,000 MW to,00 MW in The steps illustrate the pragmatic coordination and mutual support between government and business. A National Energy Agreement was developed in consultation with stakeholders. In practical terms, wind farm zones are designated for new wind farms; respectively, new system was designed for the deployment of these new wind farms. The government is in charge for substantial part of the relevant preparations his concerns consents, electrical infrastructure etc. On their side, companies that want to develop a wind farm can base their studies on these preparatory works and register for 12 Article.7 Directive 2012/27/EU 13 Via the Energy Community initiative, some non-eu member states have committed to implement the EU law on a mandatory basis, incl. key elements of the EU acquis therefore, the stated positions in this paper refer also to them. For more details on these commitments:

45 one or more of the selected sites. The system envisages that the company with the best and cheapest plan obtains the permit and grant to develop the wind farm 17. Further to this, there is a set of differences, related to economic policy reasons. Thus, e.g. in the case of Bulgaria, regardless the existence of an Executive Agency in charge of energy efficiency, when it comes to utilization and effective management of EU funds, related to energy efficiency, the role of the national government is very strong. Concrete example is the National Program for energy efficiency, concerning multifamily condominiums (funded under Regional Development Operational Program eu ) in that case, despite the active role of municipalities, the Government centralized all details on the program performance via a special ordinance 18. Similar arguments for stronger involvement at national level might be found also for non-eu member states. Thus, e.g., some of the preconditions for concrete financial support to Ukraine is linked to the availability of adequate legislative frame and administrative structures and their management as to ensure effective absorption of the provided support, which e.g. only from the EU side reaches the amount of 11 bln Euros within the next seven years 19 etc On the regional and municipal set up The involvement of regional and municipal authorities in energy efficiency matters in the different countries varies not only as compared to competences, but also as compared to the explicitly of the legislative rulings, which are used for the relevant authorization. In practical terms, this is again function to several factors e.g. the type of state (unitary or federal), the statute of the energy efficiency authority (company, state institution etc.), the individual need for stronger state level involvement or the dominance of market forces etc. On this ground, in some cases, the reference to the regional and municipal authorities is much more expressive than in others. Thus, e.g. in the case of Bulgaria, the law explicitly specifies that the state policy in the field of energy efficiency is obligation to all central and local institutions. The latter are obliged by law to develop local (regional and municipal) programs for energy efficiency. Further to the competences of the local authorities, the legislation obliges the Sustainable Energy Development Agency to establish its regional units 20. In France, ADEME includes three central departments in Angers, Paris and Valbonne; 26 regional branches; three representative offices in France s overseas territories and one representative office in Brussels. However, it should be clearly underlined that the existence of legal obligations is hardly the motivating stimulus for having regional and municipal set up. The most effective driving force in this relation is the market. In addition, for the countries, which have the possibility to utilize different types of funds, incl. grants, this option turns to be a very strong motivating factor. The outstanding example of the city of Guessing, Austria, powered entirely by renewable energy and saving millions of euros annually for the municipal budget 21 showed that the municipalities have much more opportunities than ever thought. When it comes to effective utilization of grants, substantial set of examples can be traced throughout Europe via different mechanisms Tasks and functions performed The general approach is that these institutions focus on both energy efficiency and renewables related activities. On this ground, the institutional establishments at national level in the different countries have common and specific functions. In general, the commonality is due to the principle and shared goals of the energy efficiency measures as well as to meeting formal requirements (e.g. EU acquis). The specific functions are due mainly on the necessity to reflect upon individual specificities in the relevant country (e.g. offshore activities) as well as to the status of the national authority (company, state institution etc.). When it comes to the institutional establishments at regional and municipal level, the approach also differs substantially this is linked e.g. to the constitutional competences of the relevant regions, which is function of the type of state (unitary, federal); to the established state level mechanisms for financing and finance control; to the level of operational self-stand of the relevant regional structures; to explicit legal requirements etc. Nonetheless, it will be justified to note that the institutional establishments at national level have two major types of functions strategic directions and concrete policy developments 23. The strategic directions are linked e.g. to: Realization of the national state policy in the relevant fields; Adhering to a list of appropriate criteria to guarantee consistency in the policy implementation and actions 18 (in Bulgarian); see for details Governmental Decree 18/ More details: EU cooperation with Ukraine: see also Article 338 (i) and (j) of the EU Ukraine Association Agreement - ; IFC Ukraine Residential Energy Efficiency Project ext_content/regions/europe+middle+east+and+north+africa/ifc+in+europe+and+central+asia/countries/promoting+ene rgy+efficiency+in+ukraine+residential+housing 20 See Article 12 and 11 () of the Energy Efficiency Act of Bulgaria Summary of options and results from the EU perspective: 23 Details and concrete examples are available at the cited websites.

46 International experience in energy management within the scope of the relevant sustainable development program; Helping the partners by offering methods and tools adapted to their needs; Implementing medium and long term programs etc. When it comes to policy developments, this is usually linked to activities at different levels: multilateral level e.g. analytical work and advice to governments and international organizations in relation to multilateral cooperation formats (typical example is the Climate Change Convention); EU level e.g. work on legal texts, engagement in EU funded projects and programs, etc.; National level monitoring of the implementation of the relevant EU acquis; supports the development of national, regional and local policies concerning improvement of energy efficiency, urban environment management, use of renewable energy or access to energy in rural areas etc. The institutional establishments within the relevant state on regional and municipal level have different types of functions, which is also linked to the type of the national level institution, to legally established requirements or to the initiative of the relevant regional and municipal structure. Thus, on the one side the regional structures implement the policy of the national institution (e.g. France and its overseas representations); on the other side they might be obliged by law to develop regional programs and to provide relevant financing in their budgets in this aspect (e.g. Bulgaria) etc Typical organizational HR structure of an energy management institution There is hardly a strictly followed pattern when it comes to the organizational structure of the relevant national level structures. The leading approach is that the structure depends on the evaluated needs, on the type of the institution (company, state institution etc.) and certainly to the available financial means. Thus, variety of approaches might be easily noted; this concerns also the number of staff for visualization purposed one can also see the overall population of the country. Here are few examples. In Bulgaria, where the Sustainable Energy Development Agency is a state institution, the organigram includes General Administration and Specialized Administration, which follows the requirements of the Law on Administration. The General Administration includes one directorate and the Specialized Administration includes two directorates: Directorate Control and Information and General Directorate Coordination and Management of Energy Efficiency and RES (this directorate includes 6 staff members in charge of regional units). The overall staff is 63 people (the population of Bulgaria is app. 7.2 million people 2 ). In France, ADEME, which is a public agency, has three central departments, 26 regional branches and three representative offices in France s overseas territories plus one representative office in Brussels 2. The overall number of employees is app people; out of them app. 00 are in the regional divisions (the population of the country app. 6. million people). In Germany, DENA (a performance-and profit-oriented company, established by the state and business representatives, including banks, and thus to operate at the interface between politics and business), has Organigram, including Specialized Divisions and Service Divisions. The specialized Divisions 26 are: Energy Efficient Buildings; Energy Systems and Energy Services; Energy Efficient Transport Systems; Renewable Energies. The Service Divisions are: Communication; Administration. The overall number of employees is 18 (Population of the country app million people). In Sweden, where the Swedish Energy Agency is a public agency under the Ministry of Enterprise, Energy and Communications, the organigram includes five key divisions, two boards, Advisory Council, Internal Audit and Secretariat 27. The divisions are: energy analysis, research and innovation, energy efficiency, market development, development & support. Here there is a specific element of the structure it also includes the Swedish District Heating Board, which is an independent organizational unit within the Energy Agency. The task of the District Heating Board is to act as a mediator during negotiations between district heating companies and their customers regarding the terms and conditions for district heating. The Board will also be responsible for mediation with district heating companies and those companies who want to gain access to the district heating networks. The overall staff is 30 (the population of the country is app. 9.6 million people) Performance and effectiveness evaluation criteria There are several different criteria on the effectiveness of these institutions; however, the key ones are linked to following legal obligations and performing along the national plans, concerning energy efficiency and renewable, as well as to effective utilization of funds. Under the EU legislation, the national energy efficiency action plans and the national renewable action plans turn to be major instrument for implementation of concrete relevant measures. This has been clearly stated; further, these action plans are not only criteria for evaluation of undertaken steps, but they could For more details, see the Organigramme as of February 201: 26 See details in Article 2.3 of the Energy Efficiency Directive 2012/27/EU as well as Article.3 of the RES Directive 2009/28/EU 6

47 also serve as basis for specific recommendations made by the European Commission 28. In this relation, it should be explicitly recalled that the preparation of these plans is also obligation for the Contracting Parties under the Energy Community Treaty i.e. for countries which are not EU member states, but which have committed to follow the EU legislation (incl. Ukraine) 29. Thus, this approach is one of the concrete proofs that the EU energy policy is already energy policy of Europe, which in the case of the Energy Community is backed up also by enforcement mechanism, which already contains cases linked to energy efficiency as well 30. Aside these, however, there are also operational criteria in place. It is well known, that further to the planning on national level municipalities and other public bodies in the Member States have already structured set of integrated schemes, related to energy saving and energy supply, for example via sustainable energy action plans. In some cases, these are developed e.g. under the Covenant of Mayors initiative. The performance along these individual plans on regional and municipal level represents also eligible evaluation specific criteria. In fact, the European Commission draws focused attention exactly on the role of this type of planning, recalling that further to the practical effect of it for the relevant regional or municipal structure, exchange of experience between cities, towns and other public bodies should be encouraged with respect to the more innovative experiences 31. Certainly, one of the most effective evaluation criteria, which is in a way complementary to the previous two, is linked to effective utilization of allocated funds. In this relation, however, one should clearly distinct couple of cases, particularly on the source of funding. Donors have their own rules, when it comes to effective development of projects, which they fund; and although these rules might differ from donor to donor, bringing tangible results in line with the relevant project requirements is always present as criteria. The assessment of effective utilization of funding from a state budget follows in general different rules and might have also different consequences. Concrete example in this relation might be the obligation for regional and municipal authorities to develop corresponding energy efficiency plans in some cases this is also linked with legal obligations to provide funding in the relevant institutional budgets 32, which is subject to state control Financing of energy management institution The financing of the activities, related to energy efficiency, incl. the institutions and structures, which deal with it, differs as the institutions themselves. It was already specified that in some cases (as in Bulgaria), the development of local (regional and municipal) programs for energy efficiency is obligation, which goes together with the obligation to envisage funding for their implementations within the relevant budget. In parallel, the national level institution (the Sustainable Energy Development Agency) is funded by the state budget. However, unlike many other countries, Bulgaria has an Energy Efficiency Fund, which will be further referred to in more details. In the case of Germany, DENA, which is a profit oriented company, finances its projects with the help of a large number of partners from the public and private sectors. In Austria, the Energy Agency is a non-profit organization and finances itself by the services it provides as a modern expert organization it is able to largely fund itself thanks to various energy-related scientific research projects. Further to the differences, depending on the type of the institutions, there is one specific form of financing energy efficiency activities, which is worth being explicitly mentioned this is the energy efficiency fund. In addition to principle and detailed analysis of this option, although it is not massively used yet, this specific form of financing seems to work quite effectively where applied 33. Such a fund might be particularly effective in countries, where long term energy efficiency measures are seriously needed; the availability of the fund is especially useful where commercial financing of relevant projects is problematic and energy efficiency services are underdeveloped. Establishment of energy efficiency fund might provide a structured way to utilize specific set of funding for explicit needs, related to energy efficiency and renewable and this being based on strict and transparent rules. In concrete terms, the fund is associated with management of financial means, provided for investment projects related to increasing energy efficiency and for projects related to RES, which are developed in line with the adopted national energy efficiency and renewables plans and corresponding to major strategic goals in these directions. The centralization of the process provides substantial advantages in the context of the relations with both donors and those, who will benefit from the fund. Bulgaria is a concrete example, where such fund was established and exists for more than 10 years 3. When structuring the Fund, the concrete details should be considered as to reflect the specificities of the relevant country. In this aspect, it should be recalled that the EU acquis contains some texts, related to such funds, but there are no strict obligations outlined (see e.g. Article 11 of Directive 2006/32/EU etc.) i.e. 29 See in concrete e.g. and many more. 30 See e.g Recital 18 of the Energy Efficiency Directive 2012/27/EU 32 E.g. in Bulgaria See Article 12 () of the Energy Efficiency Act of Bolgaria 33 WB analysis: 3 See details in explicit details are to be found also in Article 78 and next in the Energy Efficiency Act (201) 7

48 International experience in energy management the emphasis is on the right of the each country to consider steps in this direction, which mostly match its specificities. In general, via such a fund expenditures can be made as to finance projects, for guaranteeing activities for credits, related to projects within the scope of the Fund s activities, for some administrative expenditure in this context etc. The funding sources are also varying e.g. state budget contributions; donations by international financial institutions and international funds, national and foreign physical and legal persons; interest rates; loans (under concretely specified conditions); income from emission quotas; etc. However, establishment of such a fund should be considered well prior concrete steps. Certainly, it should be done on a primary level basis. This is justified by the needed stability and predictability of the Fund s existence and operation. In addition, it is linked to issues, which are explicitly regulated on primary law level (e.g. taxation, incl. the approach towards taxation of the Fund, taxation on donations etc.; state budget related aspects possibility for contributions by the state budget and respective procedures etc.). Besides, in advance clarity of the initial financial means on a longer term horizon should be available Problems and challenges to be talked how to pursue the success in energy management There is a set of operational problems, which the focus on energy efficiency and renewable face and this is transferred to the attitude towards the relevant institutions, regardless whether these are at state, regional or municipal level. The principle background is linked to the fact that energy efficiency and RES help saving money, but both cost money. Thus, popularizing the steps and the measures in these directions requires showing effectively the balance between these two aspects and this is particularly valid for poorer countries, regardless whether they are EU member states or not. In parallel, the positive effects might require some time therefore, the adequate and timely explanation becomes crucial. There is also very strong differentiation between the approach of the business and of the households the business is not only much more flexible, but it has also stronger motivation to implement more quickly energy efficiency measures. Further, this lack of effectiveness is often due to inadequate administrative capacity. While on central level this might not be an issue, when it comes to regional and municipal structures there are substantial administrative capacity problems. Further to the proper understanding and effective implementation of relevant measures, the lack of administrative capacity might be a strong obstacle to performance of concrete projects. The issue is always sensitive, but it might have substantial negative implications at state level (even when it comes to regional or municipal projects) if it concerns ineffective utilization of donors funding. The often problematic implementation is also due to this, that the households in many countries still face substantial problems to adequately realize the need of energy efficiency measures due to economic, cultural, administrative and even political realities (e.g. strong expectations for support by the state via the energy prices, specific residential standards and respectively difficulties to coordinate activities among neighbours etc.). Solving these types of problems is within the state competences even if they have mostly regional and municipal dimension. Dealing with the problems should be part of a national strategy, on the ground of which a set of incentives should be established. Such incentives are linked to particular support via taxation mechanisms, via providing easy access to funding (less bureaucracy), via developing of set of training schemes, etc. Once adequate approach is available at state level, its implementation at regional and municipal level will be much easier. In this process the state, however, should rely also very much on the support by the media, the non-governmental sector etc. The best experience illustration should become a leading format for visualizing results and this should be clearly national policy at state level, regardless whether it concerns the biggest region or the smallest municipality. Another key issue is certainly the effective utilization of the donors support where available. The state should make sure that not only the coordination in this aspect is in place, but that there are also adequate control mechanisms in this relation Functioning aspects of energy management: applying international experience in Ukraine The most appropriate transposition of experience should be decided basically on the ground of analysis of achieved results. In this relation, here are several aspects, which might be considered On the effectiveness of the institutional status The earlier status of the Ukrainian State Agency on Energy Efficiency and Energy Saving of Ukraine i.e. being under the Ministry of Economic Development, which was in charge of enduse efficiency implied direct influence over the effectiveness of work when it comes to legislative developments, project management (including under EU funding) and the operational functioning of the relevant administration. The situation was further complicated by the involvement of two more ministries Ministry of Energy, which was in charge of energy efficiency policies on the supply side, and the Ministry of Regional Development, Construction, Housing and Communal Services of Ukraine being in charge of the Energy Efficiency in Buildings. Additionally, competences to the issues of energy efficiency and renewable were also allocated to the Ministry of Environment, Ministry of Industry, Ministry of Agriculture and Ministry of Transport. However, this was changed for the better the role of SAEE has 8

49 been substantially improved and promoted since mid-201. On the one side, on , the Cabinet of Ministers of Ukraine adopted Decision 2, placing SAEE under the Vice- Prime Minister (in charge of regional development). Further, on 26 November 201 the Council of Ministers approved the Statute of the Agency 3, recalling in more details that it is placed under the Council of Ministers this secured substantial level of independence and horizontal functioning when it comes to relations with ministries, which have in their portfolio competences, linked to energy efficiency and RES. This statutory move was in right direction. However, it will be appropriate if in a short time (e.g. by the end of 2016) there is professional administrative analysis done as to reflect to what extent SAEE really functions independently on other structures, which are part of the central executive power (explicitly ministries). Such analysis of the administrative performance is a typical form to find eventual niches to improve the operational functioning. Improvement of this type is of primary importance as SAEE has competences, which might influence the overall economic development and which are also linked to effective utilization of substantial funds. All this will allow the desired effective control and coordination, which SAEE has to perform as well as its active support to the Council of Ministers concerning the preparation of the still missing primary legislation More visibility Due to the specificities of Ukraine, which concern both the current political situation and the situation of the energy sector of the country, it might be appropriate to use any forms as to make the activities of SAEE and their results much more visible. There are different forms, which might be used in this relation e.g. creating a periodical newsletter 37, updating regularly the website 38 (particularly in English) etc. In addition, the effectiveness of the work of SAEE and the Government in the area of energy efficiency and RES should be kept permanently visible on EU level and this should be upon Ukrainian initiative. Thus, for making the work of SAEE more result oriented, it is necessary that this institution becomes better known at EU level. This could be done e.g. via regular presentations to EC (particularly in DG ENER) of achievements and problems. To the extent the EC is to a very big extent coordinator to the donors activities, this will provide more visibility of the results and problems also to the full set of donors, which work in the country. Particular form of public visibility is related to publicizing on pilot and demonstration projects at community level (utilities, municipal infrastructure, residents' associations), which could be considered; concrete available promotion schemes for investments (direct or on-lending operations) into the industrial and utilities sectors could be much more specifically publicized etc 39. Ukraine needs to develop and manage an up-to-date National Information System on Energy Efficiency and Renewable Energy 0, and to ensure that this data hub facilitates the sharing of information among key actors in the sector. Such a database will be useful for many purposes, including in the process of implementation and monitoring of national action plans for energy efficiency and renewable. The operational advantage in relation to improving the visibility of SAEE is that this could be easily financed in a structured and medium term manner within EU funded projects More active move towards establishing energy efficiency fund Developing Energy Efficiency Fund in Ukraine has been discussed periodically and evidently is still on the Ukrainian agenda. This, however, needs to be further promoted. It is clear that creating such a fund requires substantial considerations thus, the earlier these start in details, the better. In practical terms, these considerations should cover particularly: the legislative approach towards establishment, internal rulings scheme and institutional structuring and the funding process; certainly, planning of concrete activities should go in parallel. Substance wise, each of these aspects could be elaborated in details where necessary. Procedure wise, the following steps might need to be considered at the earliest convenience: Reaching political and policy agreement on the necessity of establishing a Fund on the ground of a detailed concept, including: key goals and scope of activities; list of needed legislative amendments and concrete proposals in this aspect, concerning the establishment; concrete structure; list of needed rules, which should be adopted etc.; Certainly there are possibilities to outsource such preparation; therefore, concrete request for assistance should be notified and specified as scope and time line; in addition, the SAEE management might consider individual and common meetings with the Donors as to present its views and expectations. Meetings with similar structures for detailed exchange of experience will be very beneficial The Energy Community Implementation Report 201, p. 186: pdf_.pdf 37 See e.g. in Austria: 38 E.g. Currently the English version of the website contains the old Statute of the institution as approved by the administration of President Yanukovich; the latest news in English is from end of May 201; there are no indicated plans for activities beyond 201 etc. 39 See e.g. similar approach by the French Agency ADEME 0 See e.g. similar in the Netherlands National Energy Outlook 201:

50 Conclusions The fast boost to the development of energy efficiency sector is a complex task that has to target simultaneously numerous issues in the process of current governmental reforms. This study becomes very timely, because it brings together the opinions, ideas and suggestions of some of the key market stakeholder groups. As explained in the Methodology to the study, this is not a representative survey, but it should be noted that the results of personal interviews are correlating with the open online questionnaire, which allows assuming that no significant or controversial issues have been omitted. Some debatable issues are indicated as those that require further discussions and decision making. The Conclusions derived both from the statistical answers and personal conversations allow presenting some key immediate solutions to overcome the existing barriers, which will not solve all of the systematic problems, but will allow a significant shift in the scope of implemented energy efficiency projects. The key question addressed by this study is: What are the main steps to overcome the barriers to energy efficiency reforms and allow scaled energy savings?. To start with, it is important to try to prioritize the barriers by importance to be addressed. During the study the following order has been selected by the respondents, with stressing that many barriers have to be dealt with simultaneously: 1. Financial; 2. Economic; 3. Legislative;. Information and training-educational (got the same evaluation level as legislative barriers);. Regulatory; 6. Organizational and institutional barriers; 7. Technical. Providing consumers with access to financial resources is crucial to assure activity on implementation of energy efficiency projects and hence energy saving on the national level. Of course, overcoming financial barriers is only possible with systematic reform on improving the investment climate. Nevertheless, if outlining key initial priorities it is recommended to focus on: Creation of the State Fund for Energy Efficiency with support of International Financial Institutions to co-finance energy efficiency measures (specifically long-term financing for residential energy efficiency projects with the duration of 1-20 years); Decrease interest rates for energy efficiency projects offered by commercial banks. This should be the task of the National Bank of Ukraine and the Ministry of Finance with parallel active educational programs for commercial banks, so they better understand the energy efficiency loan as their internal bank product and do not consider such projects risky. Overcoming the economic barriers and increasing economic attractiveness of investment projects in energy efficiency requires the following priority actions: Ensuring market/prices tariffs for energy resources (i.e. they should cover the production costs, could be diversified depending on the consumption, and fully transparent about what is included in the tariffs and how it is calculated); Introducing other fiscal instruments to stimulate energy efficiency measures (i.e. tax incentives for companies to support their investment; custom incentives for equipment). The solutions to legal barriers have to be systematic and target not only framework legislation, but particularly secondary legislation. The quality not quantity of the laws and regulations has to be prioritized, and outdated legislation has to be excluded and re-written not to complicate project implementation. Declarative character of most of the current laws has to be shifted to enforced and obligatory. Specifically, the following priorities can be selected to become the most critical steps in the short and mid-term future: To approve and Energy Strategy of Ukraine until 203 and National Energy Efficiency Action Plan until 2020; Implement the EU Energy Efficiency Directive 2012/27/EU; Develop and adopt the law on energy saving and energy efficiency which will define clear, transparent, and accessible economic; 0

51 priority list incentives to stimulate reduction of energy consumption; Laws on development of energy management system, conducting energy audit, and monitoring energy consumption; Law on energy efficiency of buildings has to settle all currently open issues and assure the preparation of secondary legislation; Law on excessive heat emissions to stimulate industrial enterprises to direct excessive thermal energy to heating systems; Regulations to establish and operate the State Fund for Energy Efficiency; Regulations, to enable using mechanisms of ESCO-contracting in public sector; Complete harmonization of the Ukrainian Construction norms in line with the EU standards. Additional legislative incentives should also not be omitted, specifically those required to motivate people to participate in energy efficiency measures, including monetization of exemptions and subsidies and creation of more favorable conditions for households to access financial resources (decreased interest rate or partially compensated loan). Needless to say, any legislative reforms have to generate trust of investors and be binding for the Ukrainian government. Information availability is one of the key decision making factors of an average consumer to proceed (or not) with the energy efficiency measure. This puts information and training-educational reforms on top of the reforms list. A lot of information is available, but is far from being enough to form the full understanding of the broader audience of the need of their active participation in energy efficiency initiatives and knowledge on how to do it. Informational and educational barriers have to be addressed by taking into account individual consumer groups, use media (much more broadly than currently is done), internet resources, local consulting and resource centers. The key steps to be made are: Spread experience of successful household energy efficiency projects with coverage of achieved economic benefits and improved living conditions (key figures which would show an impact on an average household energy bill); Provide practical tips on how to save energy and minimize growth of energy bills; Generate information on benefits of energy saving and positive environmental impact of reduction of energy consumption. Creating a more global strategic vision for future generations is crucially important, specifically in the difficult times when only today matters; Information on existing national and local programs to support household energy efficiency projects, focusing on availability of these programs and funding mechanisms has to be easily accessible and continuously communicated. Regulatory barriers are very similar in nature to economic barriers, and have a lot to do with tariff regulations. The tariff mechanism has to become effective tool of influencing consumer behaviour and impacting energy consumption. For this purpose it is needed to eliminate cross-subsidies by establishing economically justified prices/energy tariffs for consumers of all categories. The tariff should be related to the quality of service provided, which would justify the tariffs increase in the eyes of consumers. The two key steps should be: Ensure transparency and clarity of tariff regulation mechanisms, specifically making the information on real production costs available, all calculations related to the investment component, and initial input data clear and reliable. Especially in the field of heating, tariff setting procedures have to be set on the basis of RAB-regulation; Apply the EU methodology for energy planning and modern indicators for assessing the energy efficiency instead of outdated Soviet ones. Overcoming the organizational and institutional barriers must be focused on improving energy management systems on the national, regional and local levels. The short- and long-term objectives for this barrier are: Determine SAEE as central executive body with special status (with direct subordination to the Cabinet of Ministers of Ukraine and additional authority for more effective impact on all stakeholders); Implement a plan to stimulate energy management in public sector, developed by the Working Group of SAEE, which foresees a set of measures for energy consumption monitoring in public institutions, trainings for buildings energy managers, 1

52 Conclusions and their financial motivation; Develop and adopt standardized guidelines for implementing energy management in local communities under principles of EN and ISO 0001: 2011; Spread among all local communities the experience of development of Municipal Energy/Sustainable Energy Plans, which define the energy saving potential and narrow/problematic issues as well as all strategical and tactical goals on the rational usage of energy resources and the ways to reach these goals. Strategically, it is important to ensure professional training and implement a motivation system for municipal energy management officials. The technical barriers impact the energy efficiency project implementation in practice; hence it is important to consider them in line with more strategic tasks, like economic and legal reforms. The most crucial task to address them in the immediate future is: Harmonization of the national standards, technical norms and regulations in the field of energy efficiency in accordance with the EU legislation, as currently planned by the Cabinet of Ministers of Ukraine; Review existing obsolete norms and technical conditions for introduction of modern technologies and equipment (sanitary requirements, fire-prevention requirements, etc.). Further work to address this barrier will be required in enforcing the practical implementation of legal and technical requirements in construction. It is clear that proper long-term solutions require larger investments and can bring higher energy savings. The achievement of technical requirements ensuring higher energy efficiency standards should be rewarded (i.e. implementation and promotion of building certificates). *** Apart from addressing the barriers to energy efficiency reforms as already indicated, it is no less important to strengthen governmental capacity to implement this reforms, and on the local level to facilitate their implementation with the support on Municipal Energy Agencies. The key steps in both of these areas are further indicated. Knowing which reforms have to be implemented is not enough without availability of human, administrative and financial resources. Specifically, the political willingness is a must for any reforms to proceed. Unfortunately, the political willingness and the governmental capacity to support legislative or financial reforms (co-financing of EE projects) is very low. To improve the situation in the short- and mid-term future it is important to: ** Increase awareness about energy efficiency among the general population (to assure public support to reforms) and within the state institutions (can include participation of the public employees to EE projects or going through a tailored educational course). In this sense the economic effect of energy saving could play a huge role both on the household level and for the entire country economy; ** Strengthen the stability among the employees attempting to create a long-term interest in their (properly) paid and educating jobs. The reform in the HR sector should allow employees to make long-term plans and take responsibilities, which so far is not the casel; ** Coordinate effectively all state authorities and relevant executive institutions, which always will remain crucial for any further energy efficiency reforms. Additionally, the establishment and functioning of Municipal Energy Agencies on the local level is undoubtedly crucially important to ensure the effective implementation of energy saving projects (and measures i.e. by population). The competences of MEA are discussable and can vary between the promotion\project initiation functions (i.e. providing information), to controlling and enforcing functions (certifying experts or becoming local representations of State Energy Efficiency Agency). 2

53 priority list To facilitate the process of establishment of MEA it is important to launch an information campaign on the benefits of MEA and their function on the local level. The formats of the organization can vary within cities and regions. Strategically, one should not forget that effective operation of MEAs will depend on stable local and national investment climate. The longer the planning horizon can be, the better effects will be achieved from MEA. *** It would be wrong to say that some of the priorities are more important than others or that some barriers have to be prioritized. To truly address the energy efficiency reforms, tackle the barriers and achieve energy saving, all of these, and many more steps have to be considered and undertaken in parallel. Any reform on the state level, and particularly, as complex as energy efficiency reform, requires integrated holistic approach to multiple task, which overall will be able to ensure the ultimate goal energy saving. The list of steps presented above, and described throughout the paper is the solid basis to approach the task and confidently pursue the task of fostering further development of energy efficiency market. 3

54 Annex Assessment of factors, that motivate consumers to energy saving Factors Breakdown of average values for the focus groups of factors that motivate stakeholders to introduce energy efficiency measures Experts Business 7 NGO IFI/DP State Gov. Municipal Gov. 3 Table 1 Average value Costs saving,0,0,0,8,8,0,93 Comfort level increase,7 3,7 3,2 3,8 3,,0 3,7 Care for environment 2,0 1,7 2,2 1,8 1,8 2,33 1,89 Energy independence of the country 1, 1,71 3,2 2,6 2,0 3,0 2,2 The need of cost savings particularly motivates consumers in local communities, including households, to implement energy efficiency measures (AV.93): over 92% of respondents gave this factor rating of, over 7%. To the less extend consumers are motivated by a factor of creating more comfortable conditions for living or staying in rooms which AV is 3.7: 2% of respondents gave this factor the rating of ; over 39% ; over 21% 3 and over 1% 2. Such factors as energy independence of the state (AV 2.2) and concern of the environment (AV 1.89) have a little effect on consumer motivation Assessment of sufficiency in legislation Answers Breakdown of answers provided by focus groups to the question about legislative conditions for implementation of energy efficiency measures Experts Business 7 NGO IFI/DP State Gov. Table 2 Municipal Gov. 3 Yes No Not fully Assessment of organisational and institutional barriers Table 3 Breakdown of focus group answers to the question about alignment of the tasks and functions of central authorities in the field of energy efficiency and energy saving with current needs Answers Experts Business 7 NGO IFI/DP State Gov. Municipal Gov. 3 Yes No Not fully

55 interviews data Answers Breakdown of focus group answers to the question about sufficiency of competence of the local authorities to implement energy efficiency measures Experts Business 7 NGO IFI/DP State Gov. Municipal Gov. 3 Table Yes No Not fully Factors Breakdown of average scores by each focus group on factors that stimulate or constrain implementation of energy management on the local level Experts Business 7 NGO IFI/DP State Gov. Municipal Gov. 3 Average value Table Imperfect legislation,0 3,0,0 2,0,2 3,67 3,39 No independent funding No required organization structures No qualified organization structures Low level of public awareness 3,,1 3,2,0 3,6,0 3,79 3, 3,3 3,7 2,6 3,6 3,33 3,36 3,,7,0 3,0 3,2 3,67 3,71 3,7 3,71 2,7,0 3,2,33 3, 12.. Assessment of economic barriers Breakdown of average values according to the focus groups of mechanism that are of priority importance and need to be implemented to stimulate EE measures implementation Factors Experts Business 7 NGO IFI/DP State Gov. Municipal Gov. 3 Table 6 Average value Taxes 3, 2,86 3, 2,6 3,2 3,33 3,11 Custom 2,7 2,71 3,0 2, 2,0 2,67 2,3 Tariffs,0,7,7,6,6,67,68 Support from the state and local budget 2,2,7,7 3.2,6,67,0

56 Annex Assessment of financial barriers Factors Breakdown of average values according to the focus groups of the ways of increasing the availability of financial resources Experts Business 7 NGO IFI/DP State Gov. Municipal Gov. 3 Table 7 Average value To create conditions for attracting local investors To create conditions for attracting foreign investors,2,29 3,2,2,2,33,11,7 3,7 3,,6 2,8 3,33 3,7 Cost reduction of loans 3,2,86,0,8,,67, Partial reimbursement of costs for state loans,2,3,0,0,,33,2 Grant assistance 2,2 2,7 3,00 3,6 3,0 2,67 2, Assessment of regulatory barriers Breakdown of responses according to the focus groups to the question whether the current tariff policy performs a stimulating function for implementing EE measures Answers Experts Business 7 NGO IFI/DP State Gov. Table 8 Municipal Gov. 3 Yes No Not fully Assessment of technical barriers Breakdown of responses according to the focus groups on the question whether there are technical barriers that prevent the implementation of energy efficiency measures Answers Experts Business 7 NGO IFI/DP State Gov. Table 9 Municipal Gov. 3 Yes No Not fully

57 interviews data Assessment of informational, scientific and educational barriers Factors Breakdown of average values according to focus groups concerning possible ways to influence on formation of public awareness to energy saving Experts Business 7 NGO IFI/DP State Gov. Municipal Gov. 3 Table 10 Average value Thematic TV and radio programs Distribution of printed materials among the population,0 3,86,2,2,8,0,18 3, 2,86 2,0 3,2 3,6 3,67 3,11 Lectures and seminars 3,7 3,0 3,2 3,8 3,6 2,67 3,36 Installation of demonstration stands with thematic of EE technologies and equipment Stimulating energy tariffs 2,7 3,86 3,7 3,6 3,0 3,67 3,6,0,1,7,2,8,33, Assessment of international donors projects and financial institutions activities Directions in the field of EE Evaluation of international donors and IFI activities in specific sectors of energy efficiency Experts Business 7 NGO IFI/DP State Gov. Municipal Gov. 3 Table 11 Average value Creating regulations in EE field,7 3,7,8,0,33 3,2,07 Transfer of EE technologies Introduction of EE projects funding mechanisms Grant support for EE projects,0 2,7,0 2,0,33 3,0 3,18,0 3,3,8 3,6,67 3,0 3,86, 3,71,8 3,8,33 3,7,11 Loans for EE projects 3, 2,86,0 3,0,33, 3,7 Educational programs,,0,0,2,67 3,2,2 7

58 Annex 1 Directions in the field of EE Technical norms and rules Technologies and equipment Experience of the state support or EE measures Experience in creating favorable investment climate Stimulation of consumers to energy saving Directions in the field of EE Creating regulations in the EE field Transfer of EE technologies and equipment Introduction of EE projects funding mechanisms Grant support for EE projects Loans for EE projects Educational programs Evaluation of international experience in EE sector, which should be implemented in Ukraine Experts Business 7 NGO IFI/DP State Gov. Municipal Gov. 3 Average value,0 3,7 3,7,6 3, 3,67 3,96,0 3,29 2,2,2 3,6,33 3,7,7,3, 3,6,2,33,29,0 3,86,0,6 3,2 3,33,0,3 3,7,8,67,61 Priority directions of international community activities for reforming Ukraine s EE sector Experts Business 7 NGO IFI/DP State Gov. Municipal Gov. 3 Average value,0,29,0,0, 3,67,3 3,7 3,29 2,7,2 3,0,0 3,6,0,0,2,8 3,8,0,29 3, 3,86,0,2, 3,67 3,96,,29,2,0,,33,6,,0,,0,,67,6 Table 12 Table 13 8

59 interviews data Assessment of influence of executive authorities in the field of energy efficiency Table 1 Розподіл середніх оцінок по фокус-групам діяльності центральних органів влади в сфері енергоефективності Authorities Experts Business 7 NGO IFI/DP State Gov. Municipal Gov. 3 Average value Verkhovna Rada of Ukraine 2, 2,86 3, 3,2 3,6 2,67 3,07 Cabinet of Ministers of Ukraine Ministry of Regional Development 2,2 2,3 3,00 2,6 2,8 2,67 2,61 1,67 2,7 2,7 2,0 2,6 3,33 2, SAEE 3, 3,71 3,2 3,0 3,8 3,33 3,6 Ministry of Energy 1, 1,7 2,0 1,8 1, 2,33 1,71 Ministry of Economy 1,7 1,7 1,7 2,0 1, 2,33 1,7 Ministry of Finance 1,2 1,3 1,2 2, 1, 1,67 1,7 Ministry of Ecology 2,0 1,0 1, 2,0 1,2 1,67 1, NEURC 2,0 1,3 3, 2,6 1,8 2,0 2,1 Respondents evaluated the impact of the central authorities in the area of energy efficiency as follows: SAEE (AV 3.6) was evaluated as positive by 61% of respondents, including over 7% who rated its work as excellent, almost % as good, 2% as satisfactory 3 ; and over 1% of respondents evaluated its work as unsatisfactory, including over 7% who gave it 2, and over 7% who gave 1. SAEE received the highest rating from representatives of state government (3.8) and business (3.71), and the lowest from representatives of NGOs (3.2); Verkhovna Rada of Ukraine (AV 3.07) was evaluated by 6% of respondents as satisfactory, approximately 18% as good, almost % of respondents as excellent ; 1% of respondents evaluated its work as unsatisfactory", including approximately 11% who gave it 2, and almost % who gave it 1. The highest rating Verkhovna Rada received from representatives of state government (3.6), and the lowest from experts (2.); Cabinet of Ministers of Ukraine (AV 2.61) was evaluated by 7% of respondents as good, over 7% as satisfactory 3, almost 36% as unsatisfactory, including 2% who gave it 2 and almost 11% who gave it 1. The highest rating the Cabinet of Ministers received from representatives of NGOs (3.0), while the lowest scores were given by experts (2.2); Ministry of Regional Development (AV 2.) was evaluated by 1% of respondents as good ; over 6% as satisfactory 3 ; over 39% as unsatisfactory, including almost 18% who gave it 2 and over 21% who gave it 1. The highest rating the Ministry of Regional Development received from local authorities (3.33), while the lowest scores were given by experts (1.67); Ministry of Energy (AV 1.71) was negatively evaluated by almost 79% of respondents, including the score 2 by 2% of respondents, 1 approximately by %. Given this, the most negative feedback was from representatives of central authorities (1.); Ministry of Economy (AV 1.7) was poorly evaluated by almost 79% of respondents, including the score 2 who gave by almost 29%, and 1 0%. The most negative feedback was from representatives of central authorities (1.); Ministry of Finance (AV 1.7) was also poorly evaluated by over 82% of respondents, including the score 2 who gave over 1%, 1 by almost 68%. The most negative scores were given by experts (1.2) and representatives of NGOs (1.2); 9

60 Annex 1 Ministry of Ecology (AV 1.) was negatively evaluated by over 82% of respondents, including the score 2 by over 1%. 1 almost 68%. The most negative feedback was received from business representatives (1.0); NEURC (AV 2.1) was rated unsatisfactory by over 7% of respondents, including the score 2 by over 18% of respondents, and 1 over 39%. Factors Breakdown of AV by focus groups on reforms potential in the area of energy efficiency Experts Business 7 NGO IFI/DP State Gov. Municipal Gov. 3 Table 1 Average value Political will in Ukrainian government 3,0 2,1 2,7 2, 3,0 3,67 2,71 Readiness of legislative and executive branches of 2, 2,29 2, 1,6 3,0 3,0 2,3 government to cooperate Potential of financial support of reforms on the 1,7 1,3 2,2 1,6 1,60 1,67 1,68 national level Potential of financial support of reforms on the 1, 2,0 1,7 2,2 3,6 2,33 2,2 local level Potential of industry to supply necessary technologies, equipment 3,0 2,3 3,2 3,6 3,0 2,67 2,96 and materials Level of public awareness on acceptation and support of initiatives aimed at reforms in the area of energy efficiency 3,7 3,1 3,7 3, 3, 2,67 3,36 Table 16 Breakdown of average scores by focus groups on competence level of specialists in the area of energy efficiency Categories of specialists Employees of central authorities Experts Business 7 NGO IFI/DP State Gov. Municipal Gov. 3 Average value 2,0 2,7 2,7 2,8 2,6 3,33 2,6 Employees of local authorities 1, 2,0 2,2 2,8 2, 3,33 2,32 Scientists 3, 2,71 3,0 3, 3,2 3,67 3,18 Design engineers 3,2 3,3 3,2 3,2 3,8 3,33 3,39 Providers of construction and installation services 2,2 3,0 2,7 3,0 3, 3,33 2,96 60

61 interviews data Assessment of measures to create municipal energy Measures Legal obligation to establish МЕА Breakdown of scores by focus groups on possible state actions for stimulation of establishment and effective work of MEA Experts Business 7 NGO IFI/DP State Gov. Municipal Gov. 3 Table 17 Average value 3,2 2,3 3, 2,6 2, 3,33 2,82 Adoption of National MEA establishment program Introduce economic incentives Create favorable investment climate Give access to cheap credit recourses 2,0 2,1 3,2 2,2 2, 3,67 2,,0 3,7,2,0 3,6,33,21,0,29,0,6,,33,29 3,0,3,,0,8,67,2 Launch informational and educational programs,0,3,,6,2,33, Assessment of priority measures to reform the energy efficiency Table 18 Breakdown of assessments according to focus groups concerning priority measures to reform the energy efficiency Measures Experts Business 7 NGO IFI/DP State Gov. Municipal Gov. 3 Average value Executive,7 3,7,7, 3,8,33,18 Organizational and institutional, 3,86,0 3,8,0 3,33 3,93 Economic 3,,7,,,2,0,2 Financial,,71,7,6,,33,7 Regulatory, 3,7,0,,2,0,07 Technical,2 3,0 3,2,0 2,8 3,67 3,3 Informational, scientific and educational,7 3,7,2,8,2 3,67,18 61

62 Annex 1 Table 19 Breakdown of assessment by focus groups on the state priority in increasing energy efficiency by the sectors of national economy Economic sectors Experts Business 7 NGO IFI/DP State Gov. Municipal Gov. 3 Average value Production, generation and supply of energy 3, 3,29 3,7,0,0,67 3,79 Industry 3,2 2,71 3, 3,2 3,0 3,0 3,07 Transport and transport infrastructure Housing and communal services 3,0 2,71 3,2,0 3,2 3,67 3,2,0,0,,0,0,0,93 Housing sector,0,7,,0,0,67,79 Communal heat and power engineering,,7 3,,0,8,33, Water supply and drainage system,,0 3,2,0,0 3,67 3,93 Budget sphere,0,71,7,0,8,67,82 62

63 Annex 2 National priorities to improve energy efficiency by sectors of the national economy Respondents also identified national priorities to improve energy efficiency by sectors of the national economy. The breakdown of results according to focus groups is presented in Table 19 of Annex 1 and in Figure 28. In particular, according to respondents, the state should primarily concentrate efforts and resources to improve energy efficiency in housing sector (AV.93), whose share in final energy consumption is about 3%. In addition, it is also connected with extremely high social sensitivity of this sector, which in comparison with other sectors and to a large extent requires state support. For more active state influence on this sector it is considered to be necessary the following: ** implement mechanism of unbundling in the heat supply sector; ** move from the normalization of unit cost to the system of benchmarking in the field of natural monopolies; ** remove legislative restrictions on the privatization of the generation of heat energy; ** to ensure by law a mechanisms of 100% commercial accounting in the sphere of heat and water supply; ** to oblige local authorities by law to take measures in improving energy efficiency in public buildings; ** provide comprehensive organizational and financial support to the creation of condominiums (HU), as well as forming a transparent competitive environment at the market of apartment building management; ** prohibit by law expenditures from local budget for capital repairing of apartment buildings, which do not have condominiums. The accent should be done on reducing losses and costs at the stages of production, generation and supply of energy resources, which directly affects the fuel and energy component of tariffs. Sector of production, generation and supply of energy resources defined as the second priority (AV 3.79). As already noted, the importance of attention to this sector is due to the fact that costs and losses at all stages directly affect the fuel and energy component of tariffs for public utilities. Transport and transport infrastructure defined as the third priority in state activities in the field of energy efficiency (AV 3.2). Industrial sector requires the least activities of the state in the field of energy efficiency (AV 3.07). According to respondents, the state s influence on the implementation of energy efficiency measures in the industrial and transport sectors of economy, the activities of which grounds on principal of economic feasibility has to be done through implementation of appropriate framework conditions and requirements (tariff, fiscal, environmental etc.). Figure 27. Assessment of state priority in increasing energy efficiency by sectors of national economy 63