The crisis in Ukraine has put the country’s energy security at risk. Among other threats to the country’s economic stability, natural gas supply is a lingering concern. In December, Naftogaz, Ukraine’s state-owned gas company, managed to settle the $3.1 billion debt it owed to Russia’s Gazprom, averting the risk of gas supply being shut down. Longer term, there’s a little-noticed solution: Investing in energy efficiency could help Ukraine avoid importing any gas from Russia.
According to the International Energy Agency, Ukraine’s energy intensity is nearly 3 times greater than the average for Organisation for Economic Co-operation and Development (OECD) countries and 25% greater than the average for non-OECD European and Eurasian countries. Energy efficiency has not been a priority in the former Soviet republics. Subsidies provided by the gas monopoly that were designed to keep the populace complacent also created a disincentive to upgrade Soviet-era equipment and controls.
After the Fall
After the fall of the Berlin Wall, many of the same problems plaguing Ukraine were faced by East Germans. But, since reunification, hundreds of buildings with poor thermal characteristics in East Germany have been demolished and replaced with more efficient ones. Additionally, in the buildings that remain, major upgrades were made to the thermal envelope and heating systems were replaced. As a result, total energy use in Germany fell between 1996 and 2008.
To be sure, some modernization projects are happening in Ukraine. In Odessa, upgrades to a district heating network provided total energy savings of 50%. But antiquated heating systems in Ukraine suffer from years of neglected maintenance. In addition to the equipment, heating controls are an issue. Many systems only have basic on-off control, they are either heating at full blast or are off – a terribly wasteful limitation. Easy efficiency investment opportunities with short paybacks are abundant in Ukraine. But, as with many energy efficiency investments, financing is the hurdle. The problem is especially acute in Ukraine, as loans from the International Monetary Fund are keeping the country afloat.
Future of Financing
Worldwide, major changes in financing options seem to be in store for 2015, aimed at lowering the cash needed for energy efficient investments. By converting upfront capital investments into operating savings through innovative finance, more projects will get the green light. To date, energy service companies (ESCOs) have served as the primary means of outside funding for energy efficiency improvement projects. But new approaches, such as independent energy savings insurance products, are beginning to emerge. Currently, private real estate fund managers have $110 billion of equity available for investment, an all-time high. As the situation in Ukraine demonstrated, there are abundant opportunities for investment being overlooked. The changing world of energy efficiency financing appears to be the clearest way to bridge that gap.
Tags: Building Innovations, Energy Efficiency, Energy Efficient Buildings, Natural Gas, Policy & Regulation
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