| Project Detail |
Project Development Objective
PDO Statement
21. The Project Development Objectives are to: (i) reduce energy consumption in the public sector; and
(ii) support the development and implementation of a sustainable financing mechanism for energy efficiency in the public sector.
PDO Level Indicators
22. Progress towards the PDO would be monitored according to the following indicators: (a) projected
lifetime energy savings from EE investments in the public sector (MJ); and (b) establishment and
operationalization of an EE Fund.
B. Project Components
23. The Project would include three components: (i) energy efficiency investments in the public sector; (ii)
technical assistance (TA) and project implementation support; and (iii) Initial capital for the proposed Energy
Efficiency Fund.
24. Component 1. Energy efficiency investments in the public sector (€18 million IBRD). Under this
Component, EE and some renewable energy (RE) investments (“subprojects”) would be undertaken in public
facilities (covering municipal buildings, central government buildings and public lighting,). It is expected that these
subprojects will generate demonstrable energy cost savings and social co-benefits, which would form the basis
for developing a sustainable mechanism under the proposed EE Fund. This component would support preparation
of the energy audits and technical designs, technical audits, construction supervision, final commissioning/energy
performance certificates (all to be procured by the PIU), as well as renovation works for municipal buildings
(procured by the municipalities) and renovation of central government buildings (health buildings) to be procured
directly by PIU. Centralized preparation work will be important to ensure the preparation documents are
consistently prepared and of high quality, given that many municipalities have limited expertise in reviewing such
documents.
(a) Component 1(a) EE Investments in Municipal Sector (Est. cost €10.5 million). Municipalities would apply
for financing on a rolling basis with proposals for the renovation of building under their management
and public lighting systems. Financing would be provided through sub-loan agreements currently
utilized under the ongoing Municipal Services Improvement Project (MSIP). Sub-loans would generally
be repaid over a 7-12-year period, with a 20% grant portion. The Project would seek to support costeffective renovations of eligible municipal buildings and municipal-managed public lighting6
. Proposed
building eligibility criteria would include: (i) ownership by (or assigned to) the local government
(excluding municipally-owned enterprises, private buildings with municipal tenants)7
; (ii) must be
structurally and seismically safe8
, not had a full EE renovation in the past 10 years, and be at least 5
years old; and (iii) no plans for office moves, closure, building demolition or privatization; and (iv)
sufficient utilization rates (e.g., at least 60%9
of the designed capacity of the building is being used). The
PIU needs to make sure that selected buildings meet the eligibility criteria and structural safety
requirement before energy audits are contracted. Eligible municipalities must have sufficient debt
capacity to borrow for the proposed subproject. Proposed eligible investments would include building
envelope measures (roofs/wall insulation, windows, doors), heating/cooling systems, water heating,
pumps/fans and lighting. Some RE applications (e.g., rooftop solar PV, biomass heating, solar water
heating, geothermal or air sourced heat pumps) could also be considered if they meet the economic
criteria and are primarily used to offset the building’s electricity/fuel use (rather than to generate power
to sell to the grid). A limited amount of funds (e.g., 10%) could be allocated for non-EE measures (e.g.,
rewiring, minor structural repairs, painting, seismic safety, etc.) provided that the overall subproject
could still have a simple payback period under 12-15 years. The Project would seek to ensure minimum
technical performance of the renovated buildings (i.e., country’s Class C energy performance certificates
or higher) and should include a minimum savings of 20%, an investment cost of at least €50,000 but not
more than €750,000, and a maximum simple payback period of 12-15 years. Procedures will be detailed
in the Project Operations Manual (POM) which is approved by the Bank.
(b) Component 1b. EE Investments in Central Government Buildings (€5 million). Some of the public
buildings that provide public services at the local level are managed by the central government, and this
includes health centers and regional hospitals. Under this Component, energy efficiency and renewable
energy investments would be undertaken in public buildings managed by the central government
focusing on the health sector. The Project would support preparation of energy audits, technical design,
renovation works, construction supervision and all services and works would be procured directly by
the PIU. The Ministry of Health (MOH) has developed plans for the buildings to be renovated. It was
agreed the component will focus on primary healthcare clinics (outpatient) with prioritization on those
that are older, more dilapidated and have higher energy use. The MOH team also proposed to renovate
the Institute for Physical Medicine and Rehabilitation in Skopje. A list of 36 primary health care clinics
(health homes) has been identified and will be the focus of the first years of implementation.
(c) Component 1c. Technical studies to support investments (€2.5 million). This subcomponent will support
subproject screening, detailed energy audits, technical designs and technical specifications, and
construction supervision for investments undertaken in Components 1a and 1b. It would also include
technical assessments needed for adequate disposal of any hazardous materials from the renovations
as well as their actual disposal.
25. Component 2. Technical assistance and implementation support (€1.94 million IBRD). The draft Energy
Efficiency Law, which includes a provision for the establishment of the proposed EE Fund, was approved by the
Government and submitted to Parliament on October 8. It is expected to be enacted before the end of 2019. This,
along with various transposed EU directives and other secondary legislation and regulations provide a strong basis
for EE in the public sector. However, additional efforts will be required to develop the supporting bylaws,
additional strategies and plans, and the necessary bylaws or regulation to establish the proposed EE Fund and
amendment of the Law of the Development Bank of North Macedonia. Specific proposed activities would include:
a) Support to develop the EE Fund. Work under this activity would include: (i) the drafting of amendments
to the legal framework required for the establishment of the EE Fund including the governance
structure; (ii) develop the financing modalities (e.g., loans, energy service agreements, budget capture,
debt financing, guarantees, partial grants, etc.), services to be provided, target markets, financial
projections and fee structure of the Fund to ensure its sustainability; (iii) develop the detailed
organizational structure, management and staffing plans; (iv) development of financing agreements and
other legal documents/templates to support the EE Fund’s operation; (v) development of the
administrative and operational procedures; (vi) develop a 3-5-year business plan; and (vi) a staffing
recruitment plan including TORs for key positions.
b) TA for additional secondary EE legislation. Provisions of TA will also be provided to MOE to support
broader EE secondary legislation and support to further EE market development (to be determined once
the EE Law has been adopted but may include updates of EE-related rulebooks for buildings and building
performance certificates, support for homeowner association legislation to allow for commercial
borrowing and signing of contracts, development of the long-term building renovation strategy (under
the revised Energy Performance in Building Directive), regulations for net-metering for rooftop solar PV
installations on public and residential buildings, etc.);
c) Training of market actors. Support will be provided for targeted information campaigns and training of
EE market actors (e.g., energy auditors, design firms, construction companies, commissioning
inspectors) to ensure adequate demand for municipal applications, technical competencies and learning
lessons from early projects as well as sensitizing of DBNM, commercial banks, ESCOs, etc.; and
d) Project implementation support. Support for the implementation of the Project including costs of the
PIU.
26. Component 3. Initial capital for the proposed EE Fund (€5 million). In order to ensure that the EE Fund is
established within the lifetime of the Project, and to ensure that investment capital is available for the Fund once
it is established, it was agreed that €5 million would be set aside to be used by the EE Fund once it is established.
The funds would be used to support EE Fund staff, operating costs, marketing, initial audits/designs and
investments. The funds would not be used until the EE Fund is legally established, a set of operating procedures
(operations manual) have been adopted by the Fund’s Board of Directors and approved by the Bank, an
investment and staffing plan have been approved by the Board and Bank, the Fund has a minimum number of
staff to operate effectively and the Bank has conducted an assessment of the Fund’s technical, fiduciary and
safeguards capacities.
27. It is expected that investments under Components 1 and 2 will help to stimulate the energy efficiency
markets for public buildings and street lighting and demonstrate that the energy cost savings and improvements
in service quality (i.e., improved heating, better lighting, increased safety) will enable the investment costs to be
repaid under Component 1. In parallel, TA under Component 2 would work to establish the proposed EE Fund.
Once the EE Fund is established, Component 3 would allow the Fund to initiate its operations to serve as the main
implementing arm for public sector energy efficiency investments going forward. Transitional arrangement will
be agreed with Government of North Macedonia if there are remaining funds under component 1a to ensure that
municipal projects financed under MoF do not compete with the new financing mechanism provided by the fund.
Typical trajectories of such funds show that the first 3-5 years would focus on ensuring the fund’s staffing, pipeline
and financing modalities are successful; the subsequent period (i.e., 5-10 years) would seek to recapitalize the
fund, scale-up and leveraging more commercial financing. The Fund could eventually serve other sectors not
served by local commercial banks, such as multifamily apartment buildings, single-family homes and other market
segments, on a more sustainable and scaled-up basis. |
