ESCO Act – new opportunities for Ukraine
The law of Ukraine – Energy Saving Act was brought into effect on July 1, 1994 by the Resolution of Supreme Council of Ukraine No. 75/94-BP of 01.07.94.
This regulatory document defined legal, economic, social and environmental bases of energy efficiency for all enterprises, associations, and organizations located in the territory of Ukraine, as well as for the citizens. The purpose of Energy Saving Act is to regulate relationship between economic entities, and between state and legal entities and individuals in the field of energy saving associated with extraction, processing, transportation, storage, production and utilization of fuel and power resources, providing interest for business, organizations and citizens in energy efficiency, implementation of energy saving technologies, developing and producing of less energy-intensive machines and technological equipment, assignment of responsibilities to legal entities and individuals in the field of energy efficiency. This law is the first legal act in Ukraine, aimed at the improvement of efficiency in energy saving.
In Europe, energy efficiency and energy saving issue acutely raised in the 70's of the last century after the great oil crisis. What happen in Europe today, that are only improvements of what was implemented over the last 40 years. At international scale, in the USA, Canada, China, India, and especially in the EU (in Germany, Finland, France, Estonia, and Bulgaria) much attention is paid to energy efficiency at potential hotspot sat the expense of final consumption. Improvement of energy final consumption provides for resource saving, profitability of utilization and development of innovative solutions to stimulate energy suppliers/manufacturers for energy efficiency.
The largest ultimate customer of energy in Ukraine is industrial sector and households. When comparing energy loss at different stages, more than 40% of heat lost in the process of final consumption – in housing. According to expert estimates, state-funded buildings in Ukraine consume from 130 to 250 kWh/m2 heat energy while in the EU this value is much lower, ranging from 50 to 80 kWh/m2. The reason for such a high level of energy consumption in Ukraine is both primary flaws in the design of buildings and the long-term of operation. In 2011 the state budget alone spent 15.8 billion UAH for these needs. However, due to the lack of funding in state and local budgets for the implementation of energy efficiency measures, the raise of energy efficiency remains only declarative element of development programs. Unfortunately, the issue of ESCO mechanisms introduction in public sector of Ukraine still needs legal clarification. Implementation of thermo-modernization in budgetary institutions with the attraction of credit resources under municipal guarantee is still a problem.
Low level of energy efficiency is long and justified considered to be the number one problem of the Ukrainian economy. Therefore, the introduction of ESCO Act in May 2015 – «On the introduction of new investment opportunities, guarantee of rights and legal interests for businesses entities for major modernization of energy sector» is currently important. The essence of this legislation is that energy efficiency measures in public and municipal buildings, as well as in private residential sector, are implemented by energy service companies (ESCOs), both Ukrainian and foreign, on their own or borrowed funds on the terms of energy servicing contract.
What is ESCO? This is an energy servicing company-combined mechanism that allows consumer to reduce significantly energy costs. ESCO gives the possibility to modernize energy equipment without significant investment on its part, because funding of all costs undertakes private energy servicing company that enters into a contract with the consumer.
Thus, by attracting private capital through the introduction of mechanism to provide energy service will allow for decades comprehensively resolve issues of energy saving in public sector. Financing energy saving projects will make it possible to cover more sites and reduce current budget expenditures for buildings maintenance. This will be promoted by the adopted law that should ensure effective implementation of government programs to improve energy efficiency.
Introduction of ESCO in conditions of rising prices for fuel and energy in state institutions alone will enable to reduce gas consumption by half and save as a whole budget up to 3 billion UAH in a year. Technical improvements that are to be carried out should prolong the service life of buildings for 15-20 years.
The provisions of ESCO Act «On the introduction of new investment opportunities, guarantee of rights and legal interests for businesses entities for major modernization of energy sector» interlink with regulatory acts, which require changes. This is the Law of Ukraine «Energy Saving Act», the Law of Ukraine «On ensuring sanitary and epidemiological welfare», the Law of Ukraine «On housing services», the Law of Ukraine «On public procurement» А, and the Budget Code of Ukraine.
The above legislative framework and, in particular ESCO Act, opens up new opportunities for Ukraine. Firstly, it is energy efficiency increase in industry, households and budget institutions. Secondly, it is money saving in budget, enterprises and individuals. Thirdly, it is attracting of investments in energy efficiency projects. In addition, cooperation with energy servicing companies will allow Ukraine to use advanced technologies that are already tried and tested in the EU.
Generally, ESCO market in Ukraine is at initial level now and the direction of energy contracting is more advanced in industry sector so far. Thus, all the conditions are developing now to promote the expansion of field of operation for energy servicing companies.
Cooperation with energy servicing companies at governmental level will help to rationalize the use of energy resources. It is energy modernization in industry that will reduce energy intensity of production and, consequently, reduce production costs, which in turn will positively affect export opportunities of Ukraine.
