10 | 01 | 2017

ZAGREB - ENERGY EFFICIENT CITY

BUILD2LC Interregional Seminar - COGITA City of

Quick factsheet: ‹ Capital of the Republic of ‹ Both a local and regional authority (unique status) ‹ 19 city administrative bodies including City Office for Energy, Environmental Protection and Sustainable Development ‹ Total Area - 641,35 km2 ‹ Population (2011 Census) - 828.621 (18,6% HR) ‹ Contributes to one-third of the country’s GDP COGITA City of Zagreb – where do we stand?

Putting figures into context.. (according to European Green City index ) COGITA City of Zagreb

Past initiatives: 2000 - Member of ICLEI 2002 - Member of and Metropolis 2008 - Joined the Covenant of initiative 2008 - Member of the Energie-Cities 2008 - Founded REGEA with three other counties from NW Croatia 2009 - Established City Office for Energy, Environmental Protection and Sustainable Development 2010 - Development of the Sustainable Energy Action Plan 2012 - ZagEE project application for IEE MLEI call 2013 - Launch of the ZagEE project COGITA SEAP for the City of Zagreb

• Key strategic document for sustainable development of the city by 2020 • Four key sectors were analysed: ‹ Buildings ‹ Transportation ‹ Public lighting ‹ Industry (since 2012)

• SEAP conclusion – public buildings have to undergo deep renovation to reach 2020 targets COGITA Project ZagEE

• Why ZagEE name? • Back in 1987..

• Key question: how do we initiate and finance energy renovation of these public buildings? COGITA EU PDA programmes

Project 7-30 mil. € 30-50 mil. € +50 mil. € size

ELENA ELENA IEE MLEI EEEF JASPERS KfW EIB

ELENA CEB

ELENA EBRD

77 COGITA IEE MLEI PDA • What and how exactly does MLEI PDA support projects • „Pays for brains for not bricks” • PDA assisted public authorities to prepare, mobilise and launch investments in EE and RES and to bridge the gap between planning and implementation of bankable actions (link with Susatinable Energy Action Plan - SEAP) • Eligible costs: preparatory activities (studies, main designs, tendering documentation), external legal, financial and technical expertise • Minimum project size: 3-30 mil. EUR • Co-financing rate: 75% • Minimum leverage factor: 15 • Maximum project duration: 3 years and within this period the project has to deliver the investment COGITA Financing the preparation of ZagEE • MLEI proved to be the most adequate option for ZagEE: ‹ Minimum project size (7 vs 50 mil € in ELENA) ‹ Eligible internal staff costs (ELENA – only external expertise) ‹ Project not eligible for JASPERS (not part of the ESIF Operational Programme) ‹ EEEF – required PDA beneficiaries to take a loan from the EEEF Project application process for IEE MLEI PDA COGITAWhat is Project Zagreb – Energy Efficient City (ZagEE)?

Primary objectives: ‹ Renovation of 87 public buildings – deep retrofitting measures ‹ Modernization of park lighting (3000 lamps)

Secondary objectives: ‹ Capacity building (technical, financial, managerial) of city office employees and building managers ‹ Awareness raising among citizens and other stakeholders COGITA Selected buildings

• Only buildings owned by the city and with clear legal paperwork • Different types of buildings were chosen in order to test energy renovation of buildings with different regime of use: ‹ 3 city office buildings ‹ 15 primary schools ‹ 7 high schools ‹ 36 kindergartens ‹ 6 retirement homes ‹ 3 health centres ‹ 17 buildings • In total: 87 buildings with 226.654 m2 COGITA Project ZagEE

Key financial figures: • Total investment size: 29,3 million € ‹ Refurbishment of public buildings: 26,5 mil. € ‹ Modernization of public lighting: 2,8 mil. € • PDAgrant- 1,81mil.€ • Co-financing rate – 75% • Leverage factor (investment/grant ratio): 16,2

Key technical figures: • Primary energy savings: 33.526 MWh • Avoided GHG emissions: 8.390 tCO2 per year • Average energy savings: 49% (buildings), 72% (public lighting) • RES generation - 290 MWh/year COGITA Project ZagEE

• Largest retrofitting project in Croatia in recent years • 90% of buildings below F energy class • Ambitious energy saving targets – getting all buildings within the B energy class • Short time for implementation – 3 years to launch energy renovation of buildings • Implemented energy efficiency measures: heat insulation, replacement of old joinery and boilers, remote energy monitoring • Renewable energy sources: primarily solar energy (PVs and thermal collectors) COGITA Project management

• Decisive project management was needed – clear division of responsibilities and strict deadlines • Two partners formed a core team with members appointed by the of Zagreb: ‹ City of Zagreb - coordinator (with several offices in the team) ‹ North-West Croatia Regional Energy Agency • Many different stakeholders = necessary to engage them for successful implementation of project COGITA Project stakeholders COGITA Project workflow

• Project implementation follows standard procedures for reconstruction of city infrastructure

• City Office directly responsible for certain building was included in preparation of tender documentation and its renovation

Buildings and lighting register – analysis of current state and identification of suitable Public tender for technological options works

Development of project Refurbishment of documentation and obtaining public buildings and building permits lighting systems COGITA Financing the investment • Only three viable financial instruments were available at the time: ‹ Grants - from the Environmental Protection and Energy Efficiency Fund (EPEEF) ‹ Soft loans - from the Croatian Bank for Reconstruction and Development (HBOR) ‹ ESCO model - HEP ESCO

• Project started on 1st of April 2013 – Croatia entered the EU on July 2013 = no Operational Programmes for using ESIF! • Instrument for Pre-accession Assistance (IPA) 2007-2013 – no financial support for energy efficiency investments COGITA Financing the investment Final version of project’s financial structure

Size of the Sources and share of funding Type of investment investment (€) Own budget Loans EU funding Refurbishment of 26.579.114 30% 35% 35% buildings Public lighting 2.800.000 30% 35% 35%

Since funding structure was not „written in stone” (and EASME was ok with this) the basic idea was to prepare the project (documentation), make it bankable and assume that more (favourable) financing options will become available in the next three years COGITA Financial instruments used in ZagEE • Grants ‹ An agreement was made with the Environmental Protection and Energy Efficiency Fund (national fund) to co-finance the total investment with 40% • Soft loans with a grant component ‹ Eight buildings were financed through a special programme managed by the Croatian Bank for Reconstruction and Development - Energy Efficiency Finance Facility (EEEF 2007) ‹ This facility was developed by the European Commission and implemented in co-operation with the European Investment Bank (EIB) – HBOR was only disbursing the funds ‹ EEEF grant allocation - 3,9 mil. € ‹ EIB loan - up to 50% of total project size COGITA Financial instruments used in ZagEE ‹ Basic concept: EC provided the grant, EIB loaned the funds and investor (City of Zagreb) had to achieve at least 30% of energy savings in its buildings in order to receive grant contribution which was used for reduction of loan’s principal amount by 15% COGITA Financial instruments used in ZagEE • Programme for Energy Renewal of Buildings in Public Sector 2014-2015 ‹ One building is currently in consideration to be implemented through this programme ‹ This government programme was designed to initiate energy services market (ESCo) ‹ Energy Service Client (city) orders and Energy Service Provider (ESP) provides energy services in order to improve building’s energy performance – a type of ESCO contract ‹ Main difference between EPC and this programme: energy savings are proved based on calculations from project documentation (main design) – not through energy bills and verifications after renovation ‹ Main advantage: energy efficiency contract is not considered an increase of budgetary debt for public authorities COGITA Financial instruments used in ZagEE • City budget ‹ The city had to rely on its own funding sources (around 50%) due to unavailability of other financial instruments for investments in energy renovation of buildings ‹ City government proposed and officially adopted the ZagEE programme in order to ensure adequate multi-year funding from its own budget and to avoid possible lack of support due to political instabilities COGITA Financial instruments not used in ZagEE • ESIF grants ‹ Became available in 2015 for certain types of buildings (schools and kindergartens) ‹ Allocation in OP: 211,8 mil. €, co-financing: 50-85% ‹ Contract with the EPEEF prevented us from applying for these funds

• ESCO/EPC ‹ Croatia is still lagging behind established EU ESCO markets with only a few ESCOs capable of conducting large renovation projects (no references means high cost of capital from banks!) ‹ Main designs were already prepared within the ZagEE project and ESCOs like to have control over this aspect COGITA Financial instruments not used in ZagEE • Public-private partnership model (PPP) ‹ Time consuming and expensive to prepare ‹ No internal expertise for conducting a PPP ‹ Only a couple of PPP projects were completed so far in Croatia ‹ Under bad reputation in Croatia COGITA Project results • Primary objectives – Renovation of public buildings: ‹ 26 completed renovations ‹ 4 renovations in progress ‹ 5 buildings with selected contractors ‹ 37 buildings in the process of public procurement for works on renovation ‹ Remaining buildings will be contracted in 2017 ‹ Buildings financed under the HBOR-EIB EEEF 2007 facility were completed in 2016 and have achieved minimum energy savings to receive a grant support (in spite of warm winter) • Modernization of public lighting – all 3000 park lamps were replaced with modern SSL (LED) lamps

COGITA Project’s secondary objectives

• Energy Information System (EIS) – developed for establishing greater control over energy consumption in city-owned buildings • Monitoring and verification tool that addresses the need for precise knowledge regarding energy consumption peaks and for training staff on the effective management of energy • All buildings within ZagEE project have continuous and remotely monitored electricity and natural gas consumption COGITA Project’s secondary objectives • Capacity building and consultations • With all relevant stakeholders – financial institutions and ministries • Specialized workshops for building managers • Promotion at international conferences (WSED, CROENERGY) COGITA Project ZagEE Challenges and difficuties with project implementation: • EASME pushing for more ambitious energy savings during negotiation period („more bang for the buck!”) • Public procurement issues – process was very time consuming due to the size of the investment and having a centralized procurement system (a specialized city office) • Contractors chosen purely on criterion of lowest price – quality of work was occasionally an issue • Financial issues – securing money for the investments within the city budget was not easy and external sources were mostly unavailable • Project deadline had to be extended for one year (2017) COGITA Project ZagEE

Lesons learned: • Political consensus and commitment from all sides is a pre- condition that has to be met before the initiation of project in order to ensure execution of such long-term capital investment • Financial structuring of the project should ideally be set before signing of the PDA contract • Communication with contractors and supervision of works is highly important for delivering results within the three-year timeframe and achieving the desired quality of work COGITA

Thank you for your attention!

Hrvoje Maras – [email protected]