Information

This is an official funding.

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Mr. Vladimir Litvak
UNDP

UNDP/GEF Energy-Efficient Heating Systems in Buildings (Armenia)

[ tags: Armenia , Asia , Grant , Other , Mitigation , Bilateral , Multilateral , Energy , Energy Efficiency , Infrastructures , Low-Carbon , Urban , Carbon finance , Agriculture , Carbon finance , Agriculture , Carbon finance , Agriculture , Carbon finance , Agriculture , Carbon finance , Agriculture ]
Snapshot
Financing Types Stakeholders Amount Share Sector
Carbon financeGovernment of Armenia$200,0001%Agriculture
Carbon financeUNDP/GEF$3.2 million16%Agriculture
Carbon financeWorld Bank Group (IDA credit)$15 million17%Agriculture
Carbon financeUSAID$1 million5%Agriculture
Carbon financeGovernment of The Netherlands$600,0003%Agriculture
Total:$20 million
Project Summary

The objective of the project is to reduce GHG emissions from the heating sector in Armenia and to ensure that development of the heat and hot water supply sector in Armenia takes a more energy efficient and sustainable direction. The project addresses the existing institutional and capacity barriers to energy efficiency and complements other ongoing initiatives in Armenia through close cooperation with the World Bank managed Urban Heating Project, the Government of Netherlands, and USAID funded activities in the field of energy and environment.

One of the key approaches to changing the current heat and hot water supply practices and to leveraging increasing financing for this purpose is to strengthen the role of the local condominiums in organizing and procuring the heat and hot water supply services collectively at the building level. In terms of the fuels and technologies, the objective of the project is to reduce the use of electricity and unsustainably produced wood fuel for heating and hot water preparation and to encourage the more efficient use of natural gas in “heat only” applications (via decentralized or centralized approach) and/or waste heat from co-generation, thereby contributing to both reducing GHG emissions and ensuring future energy security.

Financing

Project financing comes from local government, bilateral sources, and the assistance of multilateral organizations. UNDP manages the GEF grant contribution, including project preparation activities, of $3.2 million, with in-kind assistance from the local government and the Dutch bilateral aid sources. The IDA credit supplied by the World Bank Group has a grace period of 10 years with a maturity of 40 years and is intended to facilitate EE related infrastructure development in the private sector. Such leveraging is key to ensure the project’s sustainability and replicability.

This funding will provide loans to heat service providers, homeowner associations, municipalities, and individual residents, and grants to the poorest households living in multi-apartment buildings for improving heating services.

Lessons Learned

Developments since the project started appear to indicate that although condominium management could play an important role in building-level management and, for example, collection of payments for heating (as was successfully implemented in the power sector, and in other countries), once the central heating collapsed condominiums became less relevant as a route to addressing heating and hot water supply. This conclusion is logical since buildinglevel associations are poorly funded, are made up of people with very different income levels, do not have viable access to investment capital and are largely volunteer led.

The relevance of Municipal Heat Supply Master Plans and related capacity building, in the absence of supportive legislation, is currently dependent on the long-term vision of mayors and local authorities. While therefore not immediately relevant to municipalities such planning approaches are highly relevant at a national level and are justified by their demonstration value. It is clear that current problems of heat supply in Armenia can be solved only by a long-term investment strategy at a local authority level. The building of capacity of local authorities to manage districtheating assets is highly relevant.

Through the project’s success in the development of legislation on preferential CHP feed-in tariffs there is now greater private sector interest in investing in commercially viable power and heat supply projects, and this bodes well for future investments in heat supply. A number of other legislative barriers exist, such as VAT levels on natural gas for district heating, which if successfully addressed will further ensure investment finance is available.

An “Urban Heating Strategy” was prepared and was adopted by the government in September 2002. The strategy development process was lead by the Ministry of Finance and Economy with support from the World Bank and others and foresaw three phases:

  • Year 1-2: Keeping the existing centralized heating systems operational with minimum investments and taking the first measures to develop and test more sustainable approaches.
  • Year 3-5: Developing and starting the implementation of those heating options considered as the most feasible.
  • Year 6-25: Attracting investments for the rehabilitation of centralized heat supply systems and/or more decentralized options, depending on their technical and financial feasibility in each city and city district concerned.

The strategy aimed for:

  • Full commercialisation of heat supply activities without public subsidies and cross subsidies;
  • Complete cost recovery from fees;
  • Formation of a competitive heating market and application of contemporary heating technologies; and
  • Gradual reduction of public management in the heating market, including heating tariff liberalization and the elimination of construction and operation licensing procedures.

Although the Strategy was not ultimately successful due to a number of reasons -- including exogenous political and financial ones -- the adopting of a comprehensive heating strategy was essential in laying the groundwork for further interventions in municipal heating. The increased self-reliance of municipalities for their own heating, rather than on government subsidies, opened up the possibility for such a program that essentially relies on private investment and customer fees to implement EE technology.

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