On 21 October 2015 the Cabinet of Ministers of Ukraine (CMU) approved the model energy service agreement (ESA). This document is developed in line with the new Law No. 327-VIII “On the Implementation of New Investment Opportunities, Ensuring Rights and Legitimate Interests of Individual Entrepreneurs for the Performance of Large-Scale Energy Sector Modernisation” (“Law on ESA”) adopted by Parliament on 9 April 2015. The agreement’s primary goal is to implement international ESA practice in Ukraine, which is widely recognised as an efficient financial vehicle for funding energy efficiency programmes.
As one of the most energy inefficient countries in Europe, Ukraine has recently set an ambitious goal to reduce national energy consumption by 5 per cent by the end of 2017. Adopting the Law on ESA was the first step. It provides that public institutions may now execute ESAs with private energy service companies (“ESCOs”) following the applicable public procurement procedures. Under an ESA, an ESCO will make the investment and source the finance, while the customer will benefit from upgraded buildings, facilities or equipment. The ESCO will be paid for its services out of the funds saved by the customer due to the energy efficiency measures.
The model ESA, as approved by the CMU, provides for the following:
- An energy service is a package of technical and organisational energy efficiency measures, provided by an ESCO for a customer;
- The ESCO’s remuneration is directly tied to the savings achieved. The cost of the initial investment and ongoing management will be paid back from the savings over the term of the contract (10 years maximum). If the savings fall short, the ESCO will either implement additional measures or cover the shortfall itself;
- In the ESA the ESCO and the customer shall determine:
- the customer’s baseline consumption of energy resources and utilities (by volume and in monetary form), and
- the stipulated level of energy saving;
- The baseline consumption will be equal to the customer’s average annual consumption of energy resources and utilities over the last 3 years;
- The level of energy savings is calculated as the difference between the baseline consumption and the customer’s actual consumption, multiplied by the tariffs applicable during the reporting period;
- The annual payments to the ESCO may not be less than 80 per cent and may not exceed 90 per cent of the customer’s annual energy savings.
LAW: the Resolution of the Cabinet of Ministers of Ukraine No. 845 “On Approval of the Model Energy Service Agreement” dated 21 October 2015