76102 CASE STUDY 4: MACEDONIA - SUSTAINABLE ENERGY FINANCING FACILITY Barriers Lack of long term debt financing Instrument Credit line for subordinated debt Application Finances 50% of investment, matched dollar for dollar by MBDP Amount US$1.5 million PROJECT BACKGROUND AND OBJECTIVES - Component 3: Sustainable Energy Funding Facility – some changes are made in this component as The Sustainable Energy project, started in 2007 in explained in following sections. Macedonia was aimed to develop a sustainable market for energy efficiency and renewable energy by For the purpose of this case study, only component 3 supporting the development of an enabling framework, will be discussed in details in the following sections, as it institutional capacity, and necessary financing is most relevant. mechanisms. The project components to be funded by a Component 3 of the project addresses the lack of long GEF grant include: term debt financing and later proposed to also address - Component 1: Market framework – market the lack of capacity in renewable energy project transformation activities using technical assistance development. funds; INSTRUMENTS USED - Component 2: Support to Utility-based ESCO – development o f a utility-based Energy Service The original component 3 was a financing facility Company (ESCO) to implement third party financing consisting o f a loan guarantee facility and a loan facility, of energy efficiency projects; and on a co-financing basis with commercial institutions and - Component 3: Sustainable Energy Funding Facility – the Macedonian Bank for development Promotion investment in energy efficiency and renewable (MBDP). This component will be managed by the MBDP. energy through a Sustainable Energy Financing The guarantee facility will focus exclusively on energy Facility. efficiency projects, given the shorter paybacks and the However, the project was proposed to be restructured traditional difficulty of collateralizing energy efficiency in 2010 following an evaluation process. The proposed deals. It was planned that once the utility-based ESCO changes include: begins doing business, it may be possible to set aside a portion of reserves to address problems in collection - Component 1: Institutional Support and Technical from public entities. Primarily the guarantees will be Assistance – a continuation of the initial component partial credit guarantees, covering 50-70 % of the 1, with a creation of a new project implementation principal of loans made by commercial banks to energy unit (PIU); efficiency projects. - Component 2: Financial Support for Energy Efficiency in Public Buildings – a modification due to Loans from the loan facility would be applied to both slow implementation of the original component 2; energy efficiency and renewable energy projects. Energy and efficiency loans would be focused on the industrial and 1 | R E F I N e www.worldbank.org/energy/refine municipal markets, and would be structured most likely that around US$1.2 million could be disbursed from the as subordinated debt in order to attract additional GEF grant in FY11 Q2 contingent to a positive result of commercial credit. Similarly, renewable energy projects the technical due diligence. may require a subordinated loan structure, but with different repayment terms than energy efficiency loans. Because of the longer payback times, RE projects will need longer loan tenors and will likely be larger because Further reading of project size. Loans with grace periods on principal repayment will help attract senior (commercial) lenders World Bank, Macedonia - Sustainable Energy by improving the cash flows of the project. Financing Facility, click here In the new proposed component 3, the guarantee facility will not be implemented and the funds will be reallocated. The loan facility will continue to fund energy efficiency and renewable energy projects, and will be administered by MBDP, who will match dollar for dollar the disbursed fund. A key difference is the proposed allocation of US$50,000 to MBDP for the purposes of pipeline development and technical due diligence to enable them quickly identify and process commercially viable project proposals. INSTITUTIONAL ARRANGEMENTS The financing facility is managed by and loans or guarantees made will be administered by MBDP. MBDP lends through its commercial bank partners for eligible projects. OUTCOMES In 2010, there were 2 operations financed through the loan facility of the original component, totaling US$ 163,000. After the restructure, a commercial bank, Ohridska Banka has approved the financing of a 1 MWe solar PV plant from the MBDP credit Line. This indicates 2 | R E F I N e www.worldbank.org/energy/refine