Analysis of the effectiveness of ESCO pilot projects in partner cities

General information on a comprehensive analysis of the efficiency and effectiveness of pilot projects, taking into account the planned and actual savings of fuel and energy resources (FER) during the term of the contracts in the period 2019-2022.

During the summer of 2023, the GEF/UNDP initiative, known as the "Removing Barriers to Promoting Energy Efficiency Investments in Public Buildings in Towns and Cities of Ukraine through ESCO Mechanism" (the "Project"), conducted a comprehensive review of 53 energy service contracts finalized in 2019 across 10 partner cities. These cities include Odesa, Slavutych, Drohobych, Dubno, Pervomaiske, Korosten, Sievierodonetsk, Nizhyn, Savran, and Borodyanka.

In the period of 2018-2019, the Project facilitated the introduction and adoption of innovative energy service models in public buildings across cities. Specifically, among the 53 ESCO contracts:

- 37 projects adopted the traditional energy service model, where the ESCO executed all energy efficiency measures;

- 16 projects embraced the in-depth ESCO partnership model, involving joint implementation of energy efficiency measures by both parties (the city and the ESCO company), with future savings distributed based on the depth of energy modernization carried out. The collective value of the 53 concluded ESCO contracts amounted to UAH 55.69 million.

Collectively, there were 52 projects dedicated to upgrading heating systems and implementing remote energy monitoring for buildings, along with one project focused on enhancing the outdoor lighting network.

As of July 2023:

- 26 ESCO contracts have been successfully fulfilled;

- 15 ESCO contracts are currently active, with ongoing energy services;

- 10 ESCO contracts are temporarily suspended due to military operations, leading to the cessation of services;

- 2 ESCO contracts are temporarily suspended due to legal issues (refer to the description below), resulting in a halt in service provision.

Thanks to the implementation of ESCO contracts, partner cities have achieved significant savings, reducing heat consumption by 5.6 thousand Gcal and electricity usage by 6.5 million kWh over the past four years. The average annual CO2 reduction from 2019 to 2022 amounts to 1241 tonnes per year. The Project experts meticulously assessed the efficacy and efficiency of the pilot initiatives, considering the planned and actual savings in fuel and energy resources (FER) throughout the contract period from 2019 to 2022.

The analysis of planned energy efficiency indicators revealed the following outcomes:

1. Under 26 ESCO contracts (49% of the total), actual FER savings surpassed expectations, attributed to effective weather regulation, regime adjustments, and increased heat supply tariffs. Consequently, these contracts were terminated ahead of schedule.

2. Two ESCO agreements (4% of the concluded agreements) continue to deliver energy services, exceeding the target with an average annual energy savings of 2%.

3. In 13 ESCO contracts (24% of the total), the planned energy efficiency indicators were not met, primarily due to issues such as the failure of heat supply organizations to adhere to temperature schedules, imperfect management schedules, non-compliance with sanitary conditions, and incomplete or improper implementation of energy efficiency measures, particularly under the "in-depth partnership" model by local authorities (ESCO customers).

4. Nine ESCO contracts (19% of the total) were suspended due to damage from Russia's large-scale aggression against Ukraine.

5. One ESCO contract for the modernization of the outdoor lighting network in Slavutych was temporarily suspended due to Russia's large-scale aggression in February 2022 but has since resumed.

6. Two ESCO agreements (4% of the total) in Borodianka and Savran were suspended due to the failure of local authorities to fulfill obligations under the "deepened partnership" model, with relevant cases under court consideration.