The USAID Project supported mechanisms that mobilize investments and engaged local organizations (such as Energy Service Companies (ESCOs) and engineering firms) to share in the investment risks found in energy efficiency projects.

By utilizing best international practices and experience, the USAID Project assisted the municipalities in implementing the mechanisms of public-private partnership (PPP) in the area of energy efficiency. PPPs may take different forms including the “ESCO model” which do not provide for initial costs to the municipality, with repayment over the life of the energy service contract. In this task, the USAID Project assisted municipalities in negotiations between PPP partners and created for them the appropriate interaction mechanisms. PPP and/or ESCO mechanisms are particularly attractive for project financing by IFC and EBRD.

Experienceof Implementation of ESCO Mechanism in Ukraine.

With support from the USAID Project, the Verkhovna Rada of Ukraine developed and approved the Law of Ukraine on Introducing New Investment Opportunities, Guaranteeing Rights and Lawful Interests of Entrepreneurial Entities for Implementing Large-Scale Energy Modernization in 2015. The law has opened up opportunities for Ukrainians to secure private investments for energy efficiency projects. The Law stipulates that, going forward, both domestic and international ESCOs can implement initiatives for energy efficiency in state-owned and municipal buildings, as well as in private residential buildings. And there is plenty of business for ESCOs – about 80,000 government-funded institutions in Ukraine use energy resources wastefully and need thermal modernization. The amount of funds needed to complete this task is estimated at UAH 8 billion. Members of Parliament amended the law in 2017, whereby municipalities are now authorized to post their tender announcements on the Ukraine’s official public procurements portal to engage ESCOs in energy modernization projects in government-funded institutions. The Odesa region has used this opportunity. Potential investors provided their requirements regarding the facilities they would like to have modernized, based on the ESCO mechanism. The USAID Project was approached by the Bilhorod-Dnistrovskyi, Odesa, and Odesa Oblast administrations, which asked for expert evaluations of the facilities that should be modernized. First, experts conducted a preinvestment rating, based on which 135 government-funded institutions were selected. Of those, city councils selected 80 institutions for conducting snapshot energy surveys. Following further review of those results, the Odesa Oblast Council and the Odesa and Bilhorod-Dnistrovskyi City Councils announced 40 tenders for procurement of energy modernization services in general educational institutions on the web portal. According to investors’ estimates, implementation of these initiatives in the chosen government-funded institutions will enable these facilities to realize energy savings of 20 percent to 30 percent. Overall, it is expected that about 260 ESCO contracts for servicing government-funded institutions will be concluded throughout Ukraine in 2018.

USAID Municipal Energy Reform Project