Oleksiy Shostak, the mayor of Malyn, a city located in north central Ukraine, smiled with satisfaction as he watched a group of third graders leaving Malyn School #1. This past winter, three schools in the city switched from natural gas to biofuel heating.
Shostak glanced at the boiler house, which provides heat for the schools’ 1,700 students. “I think the city will have no trouble meeting the new restrictions on imported natural gas,” he said. “This will also allow us to cut municipal heating costs.”
In 2012, Russian natural gas was increasing in price and supply was becoming vulnerable to political disagreements. That’s when the Zhytomyr Regional Council turned to the USAID Public-Private Partnership Development Program for help to convert municipal boiler houses from imported natural gas to locally produced biofuel. The council needed help to attract funds and expertise from the private sector.
Switching to locally available biofuel, such as wood or straw pellets, had the potential to reduce expenses while ensuring a reliable supply of heating fuel. USAID selected Malyn, which is located in Zhytomyr oblast, for a pilot project to test a newly developed business model known as a public-private partnership (PPP), which leverages the expertise and resources of the private sector.
“Zhytomyr oblast has a wealth of wood and agricultural byproducts, and it is shame to waste it by using natural gas for heating,” said Georgiy Geletukha, head of the Bioenergy Association of Ukraine. “With these resources, it shouldn’t take Ukraine long to substitute up to 18 percent of its natural gas use with local biofuel.”
Reforms approved by the Rada increase investment attractiveness of alternative energy projects. Draft law #2010-d better aligns green tariff rates with European practices and loosens requirements to use Ukrainian-produced equipment. The amendments support municipalities’ efforts to attract private sector investment needed for replication of P3DP’s alternative energy PPP pilot project in Malyn.
P3DP shared guidance materials and PPP development experience at a Round Table in Poltava focused on PPPs in the Biomass/Gas sector. P3DP made the case that concessions are a suitable form of PPPs that can enable substitution of natural gas with locally-produced bio-fuels. The 15 local officials attending gained a general understanding of the PPP development process.
Legislation increasing the viability of Energy Performance Contracts, including necessary budget code amendments, was enacted. P3DP provided significant input to the development and advocacy for the adoption of the reforms. The introduced legislation provides incentives for private sector investment and public-private partnerships in energy sector modernization.
Draft Laws # 1313 and #1409 on ESCO implementation, including budget code amendments were adopted by Verkhovna Rada. P3DP provided input to their development and advocated for their adoption. These drafts introduce incentives for energy modernization through Energy Performance Contracts and long term budget commitments, which is an important consideration in implementing PPPs.
The success of P3DP’s biomass heating PPP was presented at a roundtable on PPPs in biomass/gas projects organized by the Local Alternative Energy Solutions in Myrhorod (LAESM) Project. P3DP shared experience and lessons learned with local officials and representatives of business communities, emphasizing the benefits of PPPs and outlining the development process.
Draft Laws # 1313 and #1409 on ESCO implementation and corresponding Budget Code amendments were adopted in first reading. The draft laws introduce incentives for energy modernization through Energy Performance Contracts and Long Term Budget commitments. P3DP provided input to the amendments’ development and promotion.
P3DP shared experiences of the Malyn Biofuel Heating PPP at a conference in
Poltava focused on using renewable energy sources through PPP approaches. USAID’s Local Alternative Energy Fuel: Myrhorod project hosted almost 50 representatives of municipalities and the private sector in identifying approaches to expand use of biofuel in Poltava oblast. As a result of the event, P3DP identified the first group of towns that are interested to replicate the Malyn PPP model in their own municipal heating facilities. P3DP has also identified a group of possible bidders (heating operators and boiler producers that are eager to expand to production of heat under PPP) and is thus considering how to support physical replication and expand direct investments into Ukrainian municipalities already in 2015 as a result of developed PPP models.
Cities and industry aren’t the only source of waste in Ukraine. The country’s agricultural sector, which produces over 50 million tons of grain annually, generates huge amounts of straw as a by-product. When compressed into pellets, it burns at temperatures high enough to substitute for natural gas or coal to provide heating.
In Malyn, a town of 27,000 in Ukraine’s Zhytomyr Region, USAID is advising city officials on a PPP to heat schools using straw pellets as an alternative, renewable biofuel. The PPP will reduce costs, enable the schools to operate at warmer temperatures, and provide local producers of pellets with a new market.
Furthermore, heating with agricultural waste doesn’t contribute to greenhouse-gas emissions, as the carbon released by burning equals the carbon absorbed by crops during the growing season. The PPP tender was completed in the first quarter of 2014.
Malyn, a city of 27,000 in Zhytomyr Region, plans to use renewable biofuel to heat schools. Condensed straw pellets produced from agricultural waste can be used to replace non-renewable energy sources, thereby saving costs and reducing carbon emissions. Photo: Simone
A major milestone was achıeved on October 30 when the MOEDT’s PPP Unit approved its first PPP project, the Malyn Municipal Heating with Renewable Energy PPP. The decision clears the way for Malyn to proceed with the competıtıve tender, which it plans to announce in November.
The PPP Unit, which was established within the MOEDT with P3DP support, plays an important role in PPP development in Ukraine. In addition to defining Ukraine’s policy on PPPs, it mapped out a methodology that ensures that potential private sector partners will have key information necessary for participating in tenders. This includes technical, legislative and market reviews, environmental and social impact assessments, and a financial model. The PPP Unit also ensures that the proposed PPPs adhere to Ukrainian legislation and result ın brıngıng value to Ukraınıan cıtızens. The Unıt’s involvement in the PPP process increases confidence in the project’s transparency, viability, and bankabılıty.
The Malyn project is on track for becoming Ukraine’s first clean energy PPP. Malyn, a city of 27,000 in the Zhytomyr Region, plans to use renewable biofuel to heat schools, which will reduce energy costs by about 10 percent and reduce carbon emissions by 11,000 metric tons. Over 1,600 children will benefit from more reliable heating, while enabling the city to strengthen its environmental and financial resilience in the face of budget constraints. Local businesses will also benefit.
P3DP will continue its work with Malyn officials in preparing the stakeholder communıcatıon program and package of tender documents. It will also continue its work with the MOEDT to build the knowledge and skills it needs to assess and support future PPP projects.