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“Business Plan for the improvement of competence of industries producing energy efficient building materials for

Armenia”, AM 31

Building Materials and Buildings’ Energy Efficiency in EU Countries

Thomas Filippou, Stavros Mantzanakis, Artak Ter-Torosyan Energy Engineer MSc. MBA, PhD cand. Environmental Engineer , PhD

presented by

INOGATE-SEMISE September 2011

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Outline of presentationOutline of presentation

1. Introduction

2. SWOT analysis

3. Strategic Recommendations

4. Market projections - Scenarios

5. With a few words

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1. 1. Introduction

• At present the sector in Armenia producing energy efficient (EE) materials for buildings, is smaller than the national needs. • The aim of this project is to assess the feasibility of encouraging the improvement of this sector

• Objectives of the study: To perform a market SWOT analysis; Market short projections and long term trends; To develop some strategy recommendations of the EE buildings materials;

• Tools in contacting the study: Primary research Secondary research Methodology

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2. 2. SWOT AnalysisStrengths

Of EE materials Market

Weight Significance (1 less, 10 more)

Total Rate

2. Educated, experienced, with tacit knowledge entrepreneurs

25% 7 1.8

5. Production capacity could cope with immediate demand

15% 8 1.2

3. Young – educated people step in & try to modernize family businesses

25% 6 1.5

4. International institutes finance EE activities in the market

15% 9 1.4

1. Government is emphasizing in EE activities

20% 10 2.0

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2. 2. SWOT AnalysisWeaknesses

of EE materials Market

Weight Significance(1 less, 10 more)

TotalRate

5. Lack of financial resources, expensive financing

10% 7

0,7

1. Lack of certification capacity: Materials are rarely certified or labelled for thermal quality, while imported lack labels or are labelled inconsistently.

20% 8

1,6

4. No association 10% 7

0,7

4. Small market :the relatively small number of materials in the market

10% 7

0,7

6. Old machinery in many cases 5% 8

0,4

3. No R&D activity 15%

8 1,2

2. Absence of EE culture: Lack knowledge and willingness of housing owners, planners, architects, operators in adopting ee practices;

15%

10 1,5

2. No or little control of construction laws from the government - under staff departments

15%

10 1,5

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2. 2. SWOT AnalysisOpportunities Importance

(1 low - 10 high)

EconomyDepends a lot on construction sector - Economy has managed to grow after the crisis - High percentage of industrial GDP & Educated industrial work force (industrial culture)

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Energy / Electricity - Gas: Dependency on oil & gas (importing almost 2/3 of consumption) - Prices of Gas & Electricity have gone up the last decade with a tendency to rise more - There are no price subsidies any more - Both markets are monopolies – prices are not affected by competition

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Construction market:Construction is a large % of local GDP - A great number of apartments with bad insulation - Possibility of raise the comfort level - Severe winters along with hot summers

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EE material sectorexports potential (fe to Georgia), increase of sales in the country, in old & new buildings, as well as in industry, public buildings, new houses in earthquake area, etc New products in buildings as well as near sectors fe plasticThermal insulation is only a fraction in the cost of whole building, New customer – new “green” concept New laws regarding buildings and materials

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9

578

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Financial sector:A number of eeducated & experienced personnel in banks and other organizations - Armsef’s budget and services for EE activities mainly in industrial projects (construction, manufacturing, commercial etc), and less in residential areas and buildings - commercial projects with stable and sound effectiveness could be used as sound promotional projects - People understand the win – win situation when invest in EE

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GovernmentGovernment commits to promote (EE) and has vastly improved the economic EE use through improved regulation of energy utilities (e.g. highly subsidized energy tariffs have been largely removed in Armenia, adopts a time-bound EE action plan etc).

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2. 2. SWOT AnalysisRisks Importance

& Possibility

Economy:Continuing financial crisis will cause more unemployment and make people focus on prices in buying

decisionsHigh fiscal deficits and High interest rates

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EnergyProducing energy from nuclear and hydro plants (low cost – low price)

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Construction market:A big % of empty apartments in multi apartment buildings Most land lords don’t stay in old apartmentsLack of management of building maintenance Relatively families with small income live in old apartments

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EE material sectorA war possibility Corruption Legislation is not clear

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Financial sectorNo credit history of families will continue due to crisisLittle knowledge and experience of lending for EE activities from the banks will continue due to fear of

bad credit High interest rates will increase the total construction costsWeak economy will decrease possibilities of EE invest in commercial and residential buildingsFinancial crisis will continue and affect the economy, resulting in pure construction and tighter credit

policies, higher rate etc

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Government Existing legal framework needs to be implemented and enforced (e.g. thermal quality building standards)

immediatle

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2. 2. SWOT AnalysisArmenian EE building material market

SWOT Analysis

S T R E N G T H S W E A K N E S S E S

1 . Government is emphasizingii EE iiiiiiiiii

2 . , ,Educated experienced with tacit knowledge entrepreneurs

- 3. Young educated people step i iii ii iiiiiiiii iiiiii&

iiiiiiiiii

4. International institutesfinance EE activities in theiiiiii

1. Lack of certificationcapacity

2. Little control of construction laws

3. Absence of EE culture

4. No R&D activity

5. &Small market small number of materials in the

market

O P P O R T U N I T I E S T H R E A T S

1. increase potential of sales in the country, in old & new

buildings

2. Government commitmentii iiiiiii EE - new laws

3.iiiiiiiii iiiiiiiiii ii importing fuels and no

subsidies

4. iiiiiiiii sector will steadily provide expertise and

iiiiiiii

1. World financial crisis will affect badly the country as it

- continues deficits, interest rates etc

2. Very slow enforcement of ilaws iii iiiiiiiiiiiiii

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3. Strategic Recommendations 3. Strategic Recommendations The strategic axes that could help build a stronger market are:

1. Ecological and environmental product design

2. Innovation and R&D potential

3. Mining & Export potential

4. Awareness

5. Regulation: building codes / certified materials

6. Initiating a private - public Armenian cluster

• Having a very small, weak enough sector, one of the most important policy – tool (besides law enforcement) would have been to initiate a PP cluster, so all infrastructure, capital, expertise, knowledge etc to develop at a synergetic network, that could have immediate results.

• Although it’s methodologically correct to have the private sector lead such action, for the first steps that role could be played by a public organization, until private sector gets stronger. This is a very common and effective tool in countries with small or medium size companies, with of course an increased level of difficulty.

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3. Strategic Recommendations 3. Strategic Recommendations Initiating a private - public Armenian cluster

Cluster’s main goals could be:

1. Tackle “First buyer” challenges

2. Increase the need for performance verification & Develop pilot projects to demonstrate building best-practice

3. Help enforce laws dealing with construction, buildings, certification etc

4. R&D networking and investment

5. Promote ΕΕ and aware people

6. Provision of studies for financial incentives, tax incentives in EE, innovative financial mechanisms (Venture capital, revolving funds etc)

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3. Strategic Recommendations 3. Strategic Recommendations Initiating a private - public Armenian cluster

End Customers

Funding organizations

Industry

Associations

Government & other Public organizations

Service providers

Universities

Construction

R&D

R2E2Energy producers

Banks

Testing

Education

Promotion

Cement

Testing

ESCO’s

InsulationLighting

Networking

R&D

Incubation

Modeling, simulation

Demonstration

Architects

International donors

Building union

Media, Press, TV etc

VC’s

Union

Block cement

PP Armenian EE Cluster

IT

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3. Strategic Recommendations3. Strategic Recommendations

Cluster’s first low budget activities

Workshops and other targeted events to construction companies to show them specific ways to use EE materials with better results

Creating a forum where the main discussion will be the difficulties in law enforcement and solutions

Creating contest in fe the best low or zero energy consuming building or contests between fe public buildings that consume less energy

Develop easy to read leaflets on introduction and explanation of EE benefits for different targets

Educate engineers and architects in universities with presentations

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4. Market projections - Scenarios4. Market projections - Scenariosa/a Assumptio

nScenario 1 Scenario 2

1 Name Renovation with only thermal insulation and some repair work

Renovation with thermal insulation, windows replacement and some repair work

2 Buildings Old and new Old and new

2.1 Old buildings

430.000 total apartments in multi apartment buildings

430.000 total apartments in multi apartment buildings

2.2 New buildings

1.000 new apartments per year 1.000 new apartments per year

3 Area Mainly urban areas in the whole country

Mainly urban areas in the whole country

4 Thermal insulation materials

internally applied solution (materials like perlite, polystyrene, mineral wool etc, coatings, painting etc)

internally applied solution (materials like perlite, polystyrene, mineral wool etc, coatings, painting etc)

5 Windows - double glazed windows with thermal break

6 Finance Subsidies for old apartments Subsidies for old apartments

7 Interest rate

12,5% 12,5%

8 Target market

Only multi buildings, Potential: Public, Industry & commercial buildings, roof insulation, increase in air-conditions sales , other uses fe pipes etc

Only multi buildings, Potential: Public, Industry & commercial buildings, roof insulation, increase in air-conditions sales , other uses fe pipes etc

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4. Market projections – Scenario 14. Market projections – Scenario 1a/a Assumptions Data Data notes

1 Average space per apartment, new or old 80   m2/aprt

2 Average thermal insulation coverage - inside64   m2/aprt

3 Insulation material cost from 8 to 12 €/m2

4 Labor and other costs from 8 to 12 €/m2

5 % of old apartments that will participate / % of all new apartments that will be insulated

15% / 100%    

6number of renovated old apartments / number of new apartments 64.500 / 1.000  

7 Utility - life time of insulation materials, in years 30    

8 yearly energy use per old apartment per m2 in kwh 320    

9 average annual energy /m2 in a new 9th building in kwh 165    

10 percentage for heat &cold energy use 60%    

11 average cost per kwh in € 0,08    

12 total energy cost for heat/ cold per year per old apartment in ADRM 632.832   1.288,00 €

13 total energy for heat/cold cost per year per new apartment in ADRM 326.304   633,60 €

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Increase in yearly energy cost 5% for years 2- 5 10% until 30th year

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Save energy from solution20% for the first 10 years

15% for the next 10 after that

And 10% for the rest

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4. Market projections – Scenario 14. Market projections – Scenario 1a/a Scenario 1 main findings € From € To

1 Total cost per apartment 1.024,00 1.536,00

2 Total capital invested (total cost) 67.072.000,00 100.608.000,00

3 Total insulation materials market created 33.536.000,00 50.304.000,00

4 Total savings per old apartment in 30 years (pv) 3.239,19 3.239,19

5 IRR (internal rate of return) 30% 22%

6 pay back period in years 5 / 7 7 / 9

7 Total savings in 30 years (pv) 210.597.703,86 210.597.703,86

8Total net present Value 143.525.703,86 109.989.703,86

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4. Market projections – Scenario 24. Market projections – Scenario 2

a/a

Assumptions Data Data notes

1 Average space per apartment, new or old / Average thermal insulation coverage – inside / Insulation material cost / Labor and other costs / % of old apartments that will participate / % of all new apartments that will be insulated / number of renovated old apartments / number of new apartments / Utility - life time of insulation materials, in years / yearly energy use per old apartment per m2 in kwh / average annual energy /m2 in a new 9th building in kwh / percentage for heat & cold energy use / average cost per kwh in € / Total energy cost for heat and cold per year per old & new apartment / Save of energy from thermal insulation solution / Increase in yearly energy cost

Same as scenario 1

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Save of energy from windows 10%

3 Average windows replacement cost from 150 to 250 € /m2

4 Labor cost from 10 to 25 €/m2

5 Other costs from 10 to 15 €/m2

6 Average windows coverage 16   m2/aprt

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4. Market projections – Scenario 24. Market projections – Scenario 2

a/a Scenario 2 main findings € From € To

1 Total cost per apartment 3.824,00 6.176,00

2 Total capital invested (total cost) 250.472.000,00 404.528.000,00

3 Total insulation materials market created 190.736.000,00 312.304.000,00

4Total savings per old apartment in 30 years (pv) 4.858,78

5 IRR (internal rate of return) 15% 10%

6 pay back period in years 8/13 11/18

7 Total savings in 30 years (pv) 315.896.555,79 315.896.555,79

8 Total net present Value 65.424.555,79 -88.631.444,21

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5. With a few words5. With a few words

I. Regulation enforcement

II.Cluster / network creation

III. Awareness