In a UN first, GEF and UNIDO guarantee investments for industrial energy efficiency in Ukraine
In August the United Nations Industrial Development Organization (UNIDO) and Ukraine’s Public Joint Stock Bank “UkrGasBank” officially launched a US$1.5 million Loan Guarantee Fund for investments into industrial energy efficiency. The fund, which is supported by the Global Environment Facility (GEF) and cross-guaranteed by Citibank Europe PLC, will provide much needed capital for boosting the energy efficiency market in Ukraine’s industrial sector. This is the first time in Ukraine that a UN agency has facilitated a guarantee-based financial mechanism.
Over the coming six months at least 10 enterprises will have access to fully guaranteed loans via Ukraine’s UkrGasBank in an effort to accelerate the uptake of energy management systems in line with the international energy management standard ISO 50001 and other industrial energy efficiency best-available technologies.
“We are proud to be part of this initiative which will greatly help to stimulate an energy efficiency services market in Ukraine, and potentially provide new opportunities for investment in our industries. Given the rapid pace of change in our world, it’s critical for Ukraine to be open to innovation and we are glad to facilitate this.” – Rodion Morozov, UkrGasBank, Deputy Chairman of the Management Board
Very few Ukrainian companies are certified by the globally regarded ISO 50001 energy management standard. Most Ukrainian companies are unaware of the cost saving opportunities and environmental benefits that can be achieved through data driven energy management systems and relevant efficiency solutions. Industrial energy efficiency solutions can range from simple no-cost measures such as turning off idle equipment and closely monitoring energy use to investments in variable speed drives and waste heat recovery devices which all have the potential to reduce vast amounts of energy consumption without affecting output or productivity. Considering Ukrainian industries are typically 3-4 times more energy intensive than their European peers, the untapped potential for energy savings and efficiency optimization within Ukraine’s industrial sector is substantial.
Why a loan guarantee?
Given the major barriers regarding high interest rates, creditworthiness and risk coverage requirements, it was agreed by a large cohort of national stakeholders facilitated by UNIDO since 2015, that a loan guarantee fund with a reduced interest rates and a collateral obligations covered by guarantee would be a significantly more effective way to demonstrate the opportunities that lie in industrial energy efficiency. It is anticipated that the successful application and outcome of the loan guarantee will, in time, encourage substantial commercial investments into Ukraine’s industrial energy opportunities and emerging services market.
“The issue is not a lack of finance. There is plenty of capital available in Ukraine. However, among the key challenges is a lack of awareness related to energy efficiency projects, especially among banks, as well as scepticism around the rapid return on investment these projects can provide. By demonstrating what’s possible we aim to drastically change this perception and unfold the potential of industrial energy efficiency market in Ukraine.” – Serhiy Porovskyy, UNIDO Energy Efficiency Financing and Policy Expert
In this initial phase the loan guarantee fund investments will prioritise the following activities:
- Implementation of energy management systems which may include third party auditing and certification to ISO 50001
- Optimization and technology upgrade of energy systems and utilities such as motor-driven systems (fans, pumps, compressed-air)
The first of the 10 available loans in this funding round is slated to be awarded in October 2020. The programme team expects to start seeing returns in the form of energy cost savings within six months of issuing each loan. The loans will primarily be targeted to industrial enterprises, particularly those which demonstrate enthusiasm for energy efficiency. This includes organizations which have recently gone through UNIDO’s specialised training on Energy Management Systems and Energy System Optimisation. Women-led enterprises and departments seeking funds to invest in energy efficiency are strongly encouraged to apply. Priority industries for the loans are the metallurgy sector, the chemical industry, mining, machine building, pulp and paper as well as the construction materials sector. For many of these industries energy can account for up to 40 per cent of total production costs.
Interested Ukrainian industrial organizations are encouraged to visit UkrGasBank’s website to learn more about the industrial energy efficiency loan application criteria: https://www.ukrgasbank.com/about/cooperation/unido/
A critical time for energy efficiency
In UNIDO’s experience, investments into the energy efficiency activities outlined above typically deliver rapid returns which often exceed expectations. On average, committed companies saved between 4-15 per cent of their energy and associated costs during the first year of energy management system implementation with little to no capital investment.
Over the past decade UNIDO has enabled more than USD 400 million in energy cost savings in companies which have partnered with its industrial energy efficiency capacity building and implementation programme. The project team are optimistic that this new financing instrument will deliver compelling results and ultimately pave the way for significantly more capital flows to industrial energy efficiency projects worldwide.
“We are proud of what UNIDO’s energy management system and energy system optimization programmes have achieved with all its partners over the past decade. But more is needed to support our member states in meeting the challenge of accelerating energy efficient and sustainable development of their industries. The Loan Guarantee Fund in Ukraine is an example of how UNIDO is working with donors and countries to scale-up industrial energy efficiency and boost market transformation.” – Marco Matteini, UNIDO Programme Manager
Given the current economic crisis instigated by the COVID pandemic, guaranteed capital is critical for businesses and the country’s economic recovery now more than ever. In June 2020, the IMF warned that it would take at least three years for the Ukrainian economy to recover amid a very weak external environment, supply-side disruptions and a slump in domestic demand.
Energy security and the reduction of fossil fuel consumption are among Ukraine’s national priorities. Reducing the country’s dependence on imported fuel through industrial energy efficiency will help to cut down the country’s CO2 emissions and increase the competitiveness of the national economy.
For more information contact project administrator Alyona Nevidoma: A.NEVIDOMA@unido.org