Pursuant to the decision of the European Council in Corfu on 24/25 June, 1994, and to those of the G7 summit in Naples on 8/9 July, 1994, concerning an Action Plan for Ukraine aiming at the early and definitive shutdown of the Chernobyl NPP (ChNPP), the European Commission assumed a leading role in the implementation of the Action Plan (see e.g. Contract 22739). In December 1995 a Memorandum of Understanding (MoU) was signed between the Government of Ukraine, the G7 countries and the European Union, stipulating the decommissioning of Chernobyl Nuclear Power Plant (ChNPP) by the end of 2000.
In order to compensate for a loss of electricity power generation due to Chernobyl NPP shutdown, Ukraine had only two alternatives to natural gas and oil import from Russia and the Middle East: extensive use of national coal and/or increased use of nuclear power. Ukrainian coal is of low quality and includes a lot of ash, and thus, is not suitable for massive electricity production as it is very polluting. In this frame, the European Commission was supporting the completion of new VVER-1000 NPPs at Zaporozhe, Rovno and Khmelnitsky (see Contract 22739).
However, taking into account the energy problems in the economy of Ukraine and the expected increases in future demand for energy in the country after the breakdown of the Soviet Union, there was also a strong need to transfer western experience in the area of energy management and conservation. Demand side energy management was not sufficiently developed and it was considered necessary to encourage an energy saving policy in the country.
The European Commission decided to assist with the present project, programmed under the TACIS 1994 Nuclear Safety programme, to strengthen the capacity in Ukraine for implementing energy efficiency investment projects. At the same time, under a parallel TACIS project (see Contract 25230), the Ukrainian Energy Service Company (UkrESCO) was supposed by be established in Ukraine by the Ukrainian authorities with assistance from the European Bank for Reconstruction and Development (EBRD), and was expected both to assist in and benefit from the project.
The specific objective of the project was to prepare energy conservation investment projects for financing by available mechanisms and to develop local capacity for doing so after completion of the project.
The expected activities of the project were as follows:
- Establishment of an operational base for the contractor in Kiev, including purchase of equipment;
- Review of existing financial mechanisms available for funding energy efficiency projects in Ukraine;
- Screening of ongoing and completed projects of TACIS, EBRD and local organisations and selection of 10 candidate energy efficiency projects
- Programme of brief site visits. Preliminary analysis of the energy efficiency projects (technical and financial) and preliminary assessment of the host companies’ credit worthiness;
- Design and tender of 3 selected energy efficiency projects and in-depth assessment of the host companies’ credit worthiness to facilitate implementation through the selected financing mechanisms;
- Programme of formal classroom and on-the-job-training for a counterpart team for further implementation purposes.
The contract was signed in May 1996 and was implemented until December 1998.
The Contractor investigated 13 enterprises and energy efficiency projects in total. These results are documented in three technical reports: ‘Financing for Energy Efficiency Projects (Part B - Initial Review of Potential Energy Efficiency Projects)’ of November 1996, ‘Project Screening Report’ of January 1997, and ‘Project Screening Report II’ of April 1997.
The Contractor proceeded with the selection of three projects, their detailed technical and financial assessment and preparation of the projects to a bankable status.
Evaluation of the creditworthiness of the selected companies was performed as envisaged. It appeared that two out of three selected projects (Vishnevoyeteploenergo and Energia Obukhiv) were suitable to be implemented through UkrESCO. The third project, although being very interesting and attractive from the technical point of view, could not be recommended due to a poor current creditworthiness of the company. Three technical reports were delivered which documented the ‘Investment Project’ for each company.
In addition to the on-the-job training of the local experts who took part in selection and analysis of the enterprises and energy efficiency projects, two formal seminars on ‘Appraisal of Energy Efficiency Projects' and 'Business Plan Preparation’ were organised. A one-day seminar was held at the Kiev Training Centre for Energy Management. About 20 trainers in energy management participated. A five-day seminar was organised at the Institute of Economy for 22 delegates from the industrial enterprises, the Ministry of Economy, the Ministry of Finance, and the State Committee for Energy Saving. The results of the training activities are presented in two technical reports ‘Training Needs Analysis’ dated April 1997 and ‘Training Evaluation Report’ of July 1997.
The Contractor also performed a review of existing financial mechanisms for funding energy efficiency projects, which was well documented in the technical report 'Financing for Energy Efficiency Projects (Part A - Review of Financing Mechanisms for funding Energy Conservation Projects in Ukraine).