IFC Makes Business Case for Sustainable Energy in Russia and Eastern Europe

For the past decade, IFC has helped local banks finance energy efficiency projects in Eastern Europe, showing companies in the region that energy efficiency is also good business. IFC provides clients' banks and leasing companies with credit lines and credit enhancement packages, coupled with training to assist the investors in structuring and marketing their financial products.

In 2003, IFC, in cooperation with the Global Environmental Facility (GEF), expanded its energy efficiency programs in five more Central European countries by providing their banks with guarantees, which were used to support loans for new, more energy-efficient technologies. IFC is working with 10 banks in the Czech Republic, Hungary, Latvia, Lithuania, and Slovakia to help them finance projects in a wide variety of sectors.

IFC's Impact in Hungary

Even with temperatures plummeting across Central and Eastern Europe, many people in Hungary will be paying less for their home energy bills than they might have anticipated. Over the past year, IFC has helped a Hungarian bank finance over $5 million for home improvements, such as better insulation, more efficient windows, and better heating controls. These upgrades will lead to lower energy bills and a more comfortable living environment.

IFC projects have also helped small towns and villages in the poorest parts of Hungary replace wasteful and inadequate public lighting with efficient technology, providing better levels of illumination in the streets and making them safer at no extra operating cost. Similarly, the program has resolved frequent disruptions in hospital heating services using new technology for supplying both heat and electricity from a central cogeneration unit.

IFC's energy efficiency programs are also addressing district heating schemes in places where boilers may be 30-40 years old and the pipes that distribute heat are typically old, leaky, and poorly insulated.

Energy Savings in the Czech Republic

Another of IFC's energy efficiency programs allowed the Delta Bakery, the Czech Republic's biggest industrial bakery, to install a new boiler. With help from IFC and the Building Technologies Group of the industrial giant Siemens, Delta Bakery swapped its old boiler for a new, more efficient one. The boiler uses steam both for heating the building and for preheating the dough. The investment cost 300,000 euros and provides an annual energy savings of 50,000 euros: in six years, it will have paid for itself.

The Program Expands to Russia
Now IFC is working with Russian banks to finance projects in companies that use outdated heating systems and antiquated production lines–some 45 percent of industrial process equipment was installed 20 years ago, contributing to very high energy consumption. Russia consumes about 10 times more energy per unit of production than developed countries, which means huge potential for energy savings in its industrial sector.

But realizing this potential has been constrained by a lack of funds for investments in energy efficiency. IFC is making a difference by working as an intermediary between companies that are looking to use energy more efficiently and local banks, many of whom are keen to invest in energy efficiency projects but still need to be convinced of the business case and often need additional support to make such projects viable.

Benefits of Energy Efficiency Programs

Makes business sense:
- Energy cost savings
- Operating cost savings

Improves living standards:
- Increased comfort
- Increased security

Is environmentally friendly:
- Reduced green-house gas emissions
- Reduced use of non-renewable energies

In Rostov-on-Don, a city in southern Russia, IFC is helping Centrinvest Bank finance several energy efficiency projects in industry as well as the communal sector. One project involves the installation of individual heat stations and meters in 400 homes. The new heat stations will reduce the cost to heat these homes from $7.7 million to $4.6 million a year, giving residents a 40 percent savings. The investment will be paid back within 18 months, and consumers will benefit from better and cheaper heating services.

As Centrinvest's Vasily Vysokov puts it, "When talking about energy efficiency, people usually mean industrial sites, replacing equipment, and introducing new technologies. But it is important that in Russia energy efficiency reaches every single person. This is why at Centrinvest, along with loans for small and medium investment projects aimed at using energy effective technologies, we developed a brand new product with IFC–loans aimed at increasing the effectiveness of how energy resources are spent in residential utilities."

There are three main components to IFC's program in Russia:

targeted credit lines, which can only be used for financing energy efficiency and renewable energy projects;
partial guarantees for financial institutions; and
intensive training of financial institutions and project developers. The training will help banks build their energy efficiency loan portfolio and will help project developers prepare for their transactions with financial institutions.