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2019

Project Implementation Review (PIR)

Bioenergy Technologies in Ukraine

Basic Data

Overall Ratings

Development Progress

Implementation Progress

Critical Risk Management

Adjustments

Ratings and Overall Assessments

Gender

Social and Environmental Standards

Communicating Impact

Partnerships

Annex - Ratings Definitions

2019 Project Implementation Report

Page of

Basic Data

Project Information

UNDP PIMS ID

2921

GEF ID

4377

Title

Development and Commercialization of Bioenergy Technologies

Country(ies)

Ukraine, Ukraine

UNDP-GEF Technical Team

Energy, Infrastructure, Transport and Technology

Project Implementing Partner

UKR10 (Ukraine)

Joint Agencies

(not set or not applicable)

Project Type

Full Size

Project Description

The objective of the proposed GEF project is the removal of barriers to the accelerated development, deployment and commercialization of bio-energy technologies in Ukraine. The focus is primarily on agricultural biomass energy applications in municipalities and developing a national programme for biomass energy for the municipal sector. Such bioenergy resource has received very little attention to date and which, under a business as usual scenario, will most likely continue to receive limited attention.

Project Contacts

UNDP-GEF Regional Technical Adviser

Mr. John O'Brien ([email protected])

Programme Associate

Ms. Nazife Ece ([email protected])

Project Manager

Mr. Paata Janelidze ([email protected])

Mr. Ievgenii Groza ([email protected])

CO Focal Point

Ms. Alla Tynkevych ([email protected])

GEF Operational Focal Point

Mr. Vladyslav Marushevskiy ([email protected])


Mr. Sergiy Savchuk ([email protected])

Other Partners


Overall Ratings

Overall DO Rating

Moderately Satisfactory

Overall IP Rating


Overall Risk Rating

High

Development Progress

Description

Objective

The objective of the project is to significantly increase the use of biomass energy as a fuel source for heating and hot water services in the municipal sector in Ukraine by at least 20% over the baseline scenario in order to reduce direct greenhouse gas emissions by 63,577 tons of CO2 over the 4-year life of the project and, subsequently, 19,143 tons of CO2 during each year of the remaining 16-year life of the boiler equipment. When one looks at the 20 year lifetime of the boilers earmarked for development during the project period, the boilers will have generated 1,618,834 MWhTH, with a combined amount of CO2 reduced of 361,000 tons, equivalent to $13 of GEF funds per tCO2.

Description of Indicator

Baseline Level

Midterm target level

End of project target level

Level at 30 June 2018

Cumulative progress since project start

Municipalities/ Private Sector have operationalised direct investment in municipal biomass projects for heat and hot water supply.

GHG in the municipal heating sector scheduled to increase from 434.4 million tCO2 (in 2005, as per Ukraine’s Third, Fourth and Fifth National Communications to UNFCCC prepared in 2009 (all three issued in one document)) to as high as 740.7 million tCO2 by 2030.The present contribution of biomass towards heat/hot water supply is estimated at 75 GWhTH.

Negligible investments taking place in municipal biomass for heat and hot water supply.


285 GWhTH in terms of heat and hot water generated (as a result of the 18 municipal biomass systems brought on-line) by project completion.

Direct reduction of 63,577 tons of CO2 over the 4-year FSP project life cycle and 361,000 over the full lifetime of the plants.

Estimated cumulative indirect GHG emission reduction of over 1.4 million tons of CO2 by 2035 on the basis of a conservative policy scenario and a GEF causality factor of 80%.

In 2015-2016 ten straw pellets-fired boilers with 220 kW thermal capacity each, started operation in the pilot regions. Another 2 boilers will be installed additionally. The post-implementation monitoring hasn’t been implemented for all projects (as recommended by the MTR, namely Recommendation 3: Conduct Monitoring & Evaluation of the operation of pilot projects) and therefore, the monitoring data necessary for calculation of GHG emissions reductions, were obtained only for 2 projects in Zhytomyr (Secondary School #1 and Pre-School Educational Facility #10) in June 2018, after the former Project Manager left the project and project implementation strategy was adjusted.

GHG reductions for 2 pilot projects calculated on the basis of the monitoring data equal to:

i.490 t during 3 heating seasons in Secondary School #1 (2 boilers installed)

ii.300 t during 2 heating seasons in Pre-School Educational Facility #10 (1 boiler installed; old gas boiler is used during the peak loads)

If assume the same GHG reduction level for other projects, then the annual GHG reduction from 10 projects would equal to (490/2 + 300) / (3+2) x 10 = 1,090 t CO2

The monitored annual GHG reduction per boiler (109 t CO2) is far less than the expected one – 240.76 t CO2 (Table 2, MTR Report). The later was estimated based on the assumption that the boilers would be working at full capacity throughout the heating season. If other pilot projects, that will be implemented until the end of the Bioenergy project are of the same sale as the above ones, unlikely the target of 63,577 tons of CO2 over the 4-year project life cycle will be achieved even after the extension of the duration until December 31, 2019.

No actual investments in MBPs, which would be assisted by the Bioenergy project, took place so far. In general, the investments in BMPs are possible if three conditions are met: (i) MBPs are technically, environmentally and financially feasible (which in turn is impossible without adequate/favorable legal and regulatory framework); (ii) Municipalities are interested in the implementation of MBPs; and (iii) Financing is available.

The understanding of the problems related to the meeting of the above conditions was different before and after the changing the Bioenergy project management in March 2018 (former PM left the project by the end of February 2018; CTA on Sustainable Energy, acting as a UNDP Ukraine Energy and Environment Portfolio Manager started his work in the end of March 2018). In particular:

i.Feasibility of MBPs – business model for MBPs was developed at the earlier stages of thy implementation of this Bioenergy project but mostly based on the approximate estimates. In April-June 2018 the feasibility of the MBPs was carefully studied based on the actual data of 2 pilot projects as well as estimated for different agricultural biomass (Straw pellets, straw briquets, straw bales, Sunflower husk pellets, Corn stover bales) and for different capacities of boilers (from 250 kW to 10,000 kW). Sensitivity analysis also was conducted and most critical parameters affecting the feasibility identified. Based on the results of study, a power point presentation was prepared for the municipalities.

It appeared that expected decrease of the interest rates wasn’t take place. In opposite, the cost of loans in National currency increased up to 17.4% as of 10.07.2018 (https://bank.gov.ua/control/en/allinfo). Therefore, a concept of the Project Support Platform (PSP) was developed, which would facilitate making the pilot MBPs financially feasible through providing: (a) Technical Assistance (TA) in development of feasibility studies, loan applications, technical projects, etc.; (b) performance based grants (as needed but not exceeding 25% of the investment costs). Such assistance s in line with the project document. The concept of PSP envisages providing of TA through the Roster of vetted experts. Call for experts to be included into the roster will be announced in August 2018.

ii.Interest of municipalities – it was assumed that municipalities, interested in the development of MBPs would be identified through the National-wide marketing and awareness campaign, which would involve for 332 training seminars and workshops in 24 Oblasts (while the project document refers to 7 pilot oblasts). The campaign would take considerably more resources than was in the project document. Besides it has not worked as was envisaged. 50 trainings-seminars have been conducted in December 2017, and no municipality has been identified as a potential FSM client. A review of the marketing and awareness campaign concluded in early 2018 that it was not effective and a decision was taken to terminate this contract. Finally, if the marketing and awareness campaign implemented as initially planned, not sufficient resources would be left for the intensive TA and performance-based grants described above.

In June 2018 Senior Biomass Expert was hired the main duty of which includes the identification of municipalities (in the 7 pilot oblasts, Zakarpattia, Volyn, Ivano-Frankivsk, Dnipropetrovsk, Zhytomyr, Cherkassy and Poltava oblasts – first priority; n other oblasts – second priority) interested in development of agricultural biomass based municipal heat- and hot water supply programmes/projects.

On July 2, 2018 The Bioenergy project announced a contest for the MBPs using, agrarian biomass as a full, to get technical assistance from the Bioenergy project. It is planned that the short list of the MBPs will be developed by October 1, 2018. In parallel, criteria and procedures for selection/award of MBPs, developed earlier, will be reviewed and revised (if needed).

iii.FSM – According to PIR 2017 FSM was developed and ready to be launched. However, in spite of tangible progress in development of a commercial banking product, the FSM is still not launched. In April-June 2018 the Bioenergy project has arranged a number of meetings with Oschadbank and IFC and discussed current status and next steps for operationalization of FM. In line with the project document of another ongoing UNDP/GEF project Removing Barriers to increase investment in Energy Efficiency in Public Buildings in Ukraine through the ESCO modality in Small and Medium Sized Cities (EEPB project), the scope of FSM was extended and EEPB projects also will be eligible for financing. The official launching of FSM will be timed to coincide with the signing of the first loan agreement either for MBP or EEPB pilot project.

Since the outcomes of Bioenergy and EEPB projects among other include demonstration of feasibility of investments in MBP and EEPB pilot projects through FSM financing, both projects face similar problems related to the financial feasibility. Therefore, both projects will apply PSP for the assistance to the pilot projects and thus the synergy between these two projects has a crucial importance to ensure effectiveness and efficiency of usage of the available resources. The first steps have already been undertaken in this direction. The newly appointed Energy and Environment Portfolio Manager is actively engaged in implementation of both projects; Both projects have the same International FSM Consultant; Teams of both projects started together preparing and holding meetings with Oschadbank, discussing short-term plans of each other etc.

In 2015-2016 ten straw pellets-fired boilers with 220 kW thermal capacity each, started operation in the pilot regions. Additional two biomass boilers with 220 kW capacity were installed with UNDP grant support in 2018, and one more boiler with the capacity of 95 kW installed in 2019. Three boilers with the capacity of 1,500 kW each, received technical support from UNDP (technical design, consultancy on different matters), were constructed and commissioned in March 2019 (boiler-house of Odessa Clinical Hospital №11). Overall, as of 30 June 2019, sixteen boilers with the total capacity of 7,235 kW were constructed with the support of UNDP (either grant or technical assistance). The operational parameters of the installed boilers, including fuel savings and CO2 emissions reduction are being monitored by the project’s Lead Technical Consultant.

Since 2018, each boiler supported by UNDP, is maintaining a monitoring journal, including detailed information on fuel consumption, heat produced, maintenance periods and contact information of the technical personnel. The project’s Lead Technical Consultant performs semi-annual visits to boiler locations and verifies the data collected by the boiler operator. Based on the journal’s data, a semi-annual monitoring report is produced, covering fuel savings and CO2 emissions reductions by each boiler. For the period of 2015-2019 the CO2 emissions reductions achieved due are 3,875 t CO2e:

1) Zhytomyr, 4 boilers, total capacity 880 kW.

Emissions reductions (2016-2019): 1,430 t CO2

2) Kyiv, 3 boilers, total capacity 660 kW. Emissions reductions (2016-2019): 1,292 t CO2

3) Uman, 3 boilers, total capacity 660 kW. Emissions reductions (2016-2019): 1,153 t CO2

Reductions by 4.5 MW project in Odessa, which is operational since April 2019 and 95 kW project in Nevytsky, Uzhgorod, operational since February 2019, and 2 boilers in Sloviansk 220 kW each, are not included due to either not accurate or missing monitoring data.

Estimated emissions reductions during the 20-year lifetime of all the boilers in operation as of 30 June 2019, is 61,629 t CO2.

During October-December 2019 these estimations of emissions reductions will be reconfirmed based on the operational data from the boilers.

Number of MBPs are under the development, which are expected to be either commissioned or financing closed before the end of the Project (31 December 2019).

In July 2018 the Bioenergy project announced a contest for the Municipal Bioenergy Projects using agrarian biomass as a fuel to get technical assistance from the Bioenergy project. The total number of applications received amounted to 41 applications from 19 regions of Ukraine. All applicants have been invited to the workshop held by the project on 26 September 2018 to learn more about the specificities of the technical assistance to be provided for the selected projects. As of 30.06.2019, fifteen feasibility studies have been developed and transferred to partner municipalities. Six of the fifteen municipalities decided not to proceed further with construction of their projects, mainly due to the lack of financing. As of the end of June 2019, the Bioenergy project provides technical assistance with technical design to ten agrarian biomass projects, eight of them have received support on the earlier stage with Feasibility Study.

As of 30.06.2019 the following projects are under the development:

1.Projects, which might be commissioned before December 31, 2019:

-Installation of three boilers in Zhytomyr by Zhytomyr Regional State Administration

(0.8 MW; 0.8 MW; 0.5 MW)

-Installation of two boilers in Uman (0.3 MW each)

-Installation of two boilers in Palanka (0.2 MW each)

2.Projects, financing of which might be closed before 31.12.2019:

-One project (CHP working on agricultural biomass with expected with thermal capacity of 25 MW, in Kupyansk, Kharkivska oblast) that received technical assistance from UNDP has proceeded with developing technical design at the cost of municipality

-UNDP is providing assistance in detailed design (contractual works ongoing) to MBPs being developed by Berezdiv village council (0.3 MW), Maliy Pravutin village, Khmelnytskiy region (0.3 MW), Hnivan city council, Vinnytsia region (1.0 MW), Voznesensk city council, Mykolaiv region (2 x 0.35 MW), Zaitseve village council, Dnipro region (0.4 MW), and Kherson city council

(0.19 MW)

-UNDP has provided FS for Construction of a block-modular boiler-house on biofuel of 5 MW capacity at 41 Zelena Str., City of Bakhmut, Donetsk region. At present the project owner is planning the second stage of the development, technical design (UNDP is considering potential cooperation in that)

If the above-mentioned MBPs are developed as planned, then 35.69 MW capacity (10.69 MW without CHP in Kupyansk) will be added and the additional lifetime emission reductions would be about 270,000 CO2 (about 81,000 t CO2 without CHP). Thus, the total volume of emissions reductions over the 20-year period from the already completed bioenergy projects, and those currently receiving technical assistance, equals to about 332,000 t CO2

The target established for GHG reductions over the project duration is achieved by 6%; and over the 20-year lifetime – by 92% (expected). The reason for not achieving the first target is that: (i) the target was established based on the assumption that the total capacity of pilot projects would be 16 MW while by the original closure date (30 June 2018), only 2.64 MW has been installed and the largest completed project (4.5 MW in Odessa) started operation in April 2019, when the heating season was close to its end; (ii) despite the continuous efforts and intensive assistance in forms of feasibility studies, technical design and investment grants, many projects haven’t been completed and boilers are not put in operation. Nevertheless, after their commissioning and assuming that they meet design energy outputs, expected lifetime ER would be almost achieved (by 92% as mentioned above).

The progress of the objective can be described as:

On track

Outcome 1

Streamlined and comprehensive market-oriented policy and legal/regulatory framework to promote municipal biomass for heat and hot water services.

Municipal Targets for Biomass Energy for heating are agreed and established.


Baseline Level





Policy and legal/regulatory framework finalized, adopted and available for consultation by potential investors.

Confirmation that municipal targets have been established.

None available at the present time.



To be completed within 15 months of recruitment of project manager and approved by Government 1.5 years after start of project.

To be completed within 12 months of project start.

On September 6, 2017 the Government of Ukraine adopted the Resolution No. 679 Procedure for Calculation of Weighted Average Tariffs for Thermal Energy Produced by Using Natural Gas for the needs of the population, institutions and organizations financed from the state or local budget, its transportation and supply; the experts of the Bioenergy project participated in development of this Resolution.

On November 9, 2017 the Law of Ukraine # 1581-d “On housing and utility services” has been adopted. The Law contains UNDP experts’ recommendations on hot water supply services and autonomous heating systems for domestic needs (that has not been agreeable to law before); and regarding commercial accounting of utility services.

In total 4 laws, 2 resolutions of the Cabinet of Ministers of Ukraine and 2 normative legal acts of ministries on the development of bioenergy area have been adopted.

National targets for renewable energy based (including biomass) heat supply have been established in the National Renewable Energy Action Plan until 2020.

Bioenergy project experts contributed also to the formulation of bioenergy part of the “Energy Strategy of Ukraine until 2035: Safety, Energy Efficiency, Competitiveness” approved by the Government Decree #605-p on 18.08.2017 (http://www.kmu.gov.ua/control/uk/cardnpd?docid=250250456). The new energy strategy establishes the targets for renewable energy sources, 8% in 2020 and 25% in 2035 (4% in 2015).

After 14 round-table discussions and 27 workshops in 7 pilot oblasts, Regional targets were established for the use of bioenergy technologies for heat and hot water supply. Regional targets were approved: (i) In Dnipropetrovsk region - Strategy for energy saving, energy efficiency and development of renewable energy sources in Dnipropetrovsk region for 2018-2035, was approved by the decision of Dnipropetrovsk Regional Council dated 01.12.2017 No. 275-11 / VIІ; (ii) In the Zacarpattia region - changes to the Action Plan for 2017 on the implementation of the Energy Efficiency and Energy Saving Program of the Zacarpattia Oblast for 2016-2020, approved by the decision of the Zacarpattia Regional Council dated 23.03.2017 No.720; (iii) in Ivano-Frankivsk oblast - changes from 15.09.2017 to the Target program on energy efficiency and development of the energy producing regions of renewable energy sources in Ivano-Frankivsk region for 2016-2020, approved by the decision of Ivano-Frankivsk Regional Council June 10, 2016, No. 230-5 / 2016; (iv) In Cherkasy oblast - Plan of realization of the Cherkasy region development strategy for the period 2018-2020, approved by the decision of the Cherkasy Regional Council dated 22.12.2017 No. 19-8 / VII; (v) In Zhytomyr oblast - changes to the Action Plan for 2018-2020 on the implementation of the Development Strategy of Zhytomyr Region for the period up to 2020, approved by the decision of Zhytomyr Regional Council dated March 7, 2018, No. 940.

Approval of the Regional bioenergy development targets for Poltava and Volyn Oblasts are expected before the end of 2018.

In addition, upon request of the Bioenergy project’s beneficiary – State Agency on Energy Efficiency and Energy Saving, regional targets were established for Lviv oblast.

An analysis was conducted on existence of established municipal targets for the development of bioenergy in cities of oblast significance in pilot regions of Ukraine (54 oblast’s cities - 72 program documents).

To follow recommendation of MTR (Provide assistance to the municipalities – signatories of Covenant of Mayors) close cooperation was established with the EU-funded project CoM East and assistance offered to those municipalities, which would be interested in implementation of the MBPs as a part of the Sustainable Energy Action Plan (SEAP)

In general, legal and regulatory framework is favorable for the development of biomass-to-energy in Ukraine unlike the pre-project situation. Main improvement is related to the adoption of Resolution No. 679 in 2017, which made many Municipal Bioenergy Project s (MBPs) financially feasible.

Activities during the reporting period were mostly related to the establishing of regional targets for bioenergy technologies. During 2018 the last 3 out of 7 pilot oblasts (Dnipro, Cherkasy, Ivano-Frankivsk, Poltava, Zakarpattia, Zhytomyr, Volyn) have approved their Regional targets for the use of bioenergy technologies for heat and hot water supply, namely:

(i)In Zhytomyr oblast - changes to the Action Plan for 2018-2020 on the implementation of the Development Strategy of Zhytomyr Region for the period up to 2020, approved by the decision of Zhytomyr Regional Council dated March 7, 2018, No. 940. http://bioenergy.in.ua/uk/news/zagalni-novini/zhitomirska-oblasna-rada-priiniala-zmini-do-planu-zakhodiv-na-2018-2020-roki-z-realizatsiyi-strategiyi-rozvitku-zhitomirskoyi-oblasti-na-period-do-2020-roku/

(ii)In Poltava oblast - changes to the Action Plan for 2018-2020 on the implementation of the Development Strategy of Poltava Region for the period of 2018-2020, approved by the decision of Poltava Regional Council dated July 12, 2018, No. 745.

http://www.oblrada.pl.ua/ses/7/20/745.pdf

http://bioenergy.in.ua/uk/news/zagalni-novini/na-shliakhu-do-stalogo-maibutnogo-poltavshchini/

(iii)In Volyn oblast - changes reflected in the amended Action Plan for 2018-2020 on the implementation of the Development Strategy of Volyn Region for the period up to 2020, approved by the decision of Volyn Regional Council dated 26 September 2018 http://volynrada.gov.ua/session/21/3-0

In 2019 the project has received a request from the State Agency on Energy Efficiency to provide support with developing a state support mechanism for growing energy crops. In response to this request, the project has held consultations with SAEE and agreed on the scope of work. As of 30.06.2019 a ToR has been developed and tender announced to engage a legal expert to assist SAEE with reviewing best international practices with supporting energy crops, and developing a draft regulatory act describing support mechanism.


Achieved

Outcome 2

Capacity available within MAPF to support development and implementation of a municipal biomass programme through the establishment of a Biomass Support Unit.


Baseline Level





Number of staff who participated in and successfully completed capacity development programme, including training on the revised and updated Municipal Biomass Guide.



Ten staff trained within 15 months of recruitment of project manager.

Established indicator and target are not fully consistent with the Outcome 2 and therefore the following revisions have been proposed:

For indicator: Status of institutional arrangements and capacities to support implementation of municipal biomass programme.

For target: Biomass Support Unit or alternative arrangements are in place and providing necessary capacity building.

The proposed revisions will be presented to the PSC and RTA for approval.

After providing organizational assistance, advice and guidance to the Ministry of Ecology and Natural Resources of Ukraine in establishing, leading and functioning of the IBWG, the later was established on 12.09.2017. Relevant national, regional and sub-regional bodies, NGOs, investment promotion organizations, research institutions etc. have been invited to participate (as observers or otherwise) in the IBWG.

The IBWG is chaired by the representative of the Ministry of Ecology; two deputies are representing the Ministry of Regional Development, Construction, Housing and Communal Services and the State Agency on Energy Efficiency and Energy Saving. Representative of the Bioenergy project serves as a Secretary of the IBWG.

First meeting of the IBWG chaired by the Deputy Minister of Ecology was held on 4.10.2017 (23 participants representing 9 organizations); the IBWG met for the second time on 4.12.2017 (33 participants representing 9 organizations) to discuss the strategy for optimizing the state regulatory control and management of bioenergy development, production and use in Ukraine. Third meeting took place on 5.03.2018 and the fourth one – on 30.03.2018

The main task of the biomass support unit (BSU) was to support development of pilot and commercial bioenergy projects under the National Programme on Biomass. As reported in the previous PIRs, BSU was not established neither in MAPF (identified in the project document as a main partner) nor in the Ministry of Ecology and Natural Resources, being an actual Partner until 2018.

This issue (establishment of BSU) was closed (by meaning that its establishment was not realistic) by the date of MTR. Until 2018 the biomass support unit has been functioning as an inter-ministerial working group hosted by the Ministry of Environment and Natural Resources. The working group has contributed to developing bioenergy support policies, as a part of national policies supporting renewable energy. However, no direct support was provided by the working group to municipalities developing bioenergy projects.

Only the entity where the BSU could be established is the State Agency of Energy Efficiency and Energy Saving (SAEE), with whom the Project has established close cooperation since 2018. Unfortunately, there was not enough time and resources left for re-actualization an issue of establishing BSU since April 2018 when the implementation strategy changed and when the new international CTA and later the new project manager were brought on board.

To address the tasks, assigned to the BSU, the project has applied adaptive management and through the outreach programme and Project Support Platform (PSP) has provided all the necessary support to tens of the biomass projects.

During late 2018 PSP consisting of nine highly qualified experts in bioenergy and municipal heating has been established. The PSP was directly involved in analyzing applications from municipalities and providing advice to the Project regarding selecting the projects for providing technical support. SAEE was continuously involved in the work of PSP, regularly reviewing the list of applications received by the project and contributing with acquiring new municipal biomass projects.


Off track

Outcome 3

Investment promotion in municipal use of biomass through establishment/strengthening of Financial Support Mechanism.


Baseline Level





Funding available from DerzhZemBank, including funds under FSM, to support preparation of feasibility studies, business plans and investment.

Not presently available.


Construction of at least 18 municipal biomass projects completed by the end of the project.

Established indicator and target are not fully consistent with the Outcome 2 and therefore the following revisions have been proposed:

For indicator: Status of investment in municipal biomass projects; Status of FSM.

For target: At least 12 projects supported and completed within first 36 months and another 6 by the end of the project through FSM; FSM is launched and operational by the end of the project.

The proposed revisions will be presented to the PSC and RTA for approval.

10 pilot MBPs have been already implemented, 2 more will be completed soon, but without FSM and significant portion of grant financing. For the identification other MBPs, which would be financed through the FSM, the Bioenergy project has planned a number of activities, which are at different stages of implementation. As of July 25, 2018, no Loan agreement is signed on financing of MBPs under the Bioenergy project assistance; no MBP is under the implementation assisted by the Bioenergy project and financed otherwise (not through the FSM).

Activities aimed at achievement of Outcome 3 were being implemented in three directions: (i) to study the feasibility of MBPs using agricultural biomass for heating and hot water supply; (ii) to rise the interest of the municipalities (respective municipal utilities) in implementation of MBPs under the assistance of the Bioenergy project; and (iii) to make available financing through the FSM. The implementation strategy of those activities has been adjusted after the changing the Bioenergy project management (former PM left the project by the end of February 2018; CTA on Sustainable Energy, acting as a UNDP Ukraine Energy and Environment Portfolio Manager started his work in the end of March 2018). In particular:

i.Feasibility of MBPs – In April-June 2018 the feasibility of MBPs was carefully studied based on the actual data of 2 pilot projects as well as estimated for different agricultural biomass (Straw pellets, straw briquets, straw bales, Sunflower husk pellets, Corn stover bales) and for different capacities of boilers (from 250 kW to 10,000 kW). Sensitivity analysis also was conducted and most critical parameters affecting the feasibility identified. As a result, the most feasible options have been identified. The results of a study (in a form of power point presentation for municipalities) were placed on the Bioenergy project WEB and shared with the municipalities also through other networks (of Bioenergy Association, CoM East, etc.), webinars (together with CoM East in November 2017; July 2018) with over 100 participants from members around Ukraine.

In general, main concern of municipal administrations regarding the loan financing is related to high interest rates. Expected decrease of the interest rates (as stated in PIR 2017) isn’t observed; rather in opposite, the cost of loans in National currency increased up to 17.4% as of 10.07.2018 (https://bank.gov.ua/control/en/allinfo). High interest rates not only worsen financial indices of the MBPs, but also make city administrations less enthusiastic towards the MBPs through the loan financing including FSM. Therefore, an adaptive management was applied and an increase of the assistance to MBPs was planned. In particular, establishment of the Project Support Platform (PSP) was planned, which would facilitate making the pilot MBPs financially feasible through providing: (a) Technical Assistance (TA) in development of feasibility studies, loan applications, technical designs, etc.; (b) performance-based grants (as needed but not exceeding 25% of the investment costs). The concept of PSP envisages providing of TA through the Roster of vetted experts. Call for experts to be included into the roster will be announced in August 2018.

ii.Interest of municipalities – it was assumed that municipalities, interested in the development of MBPs would be identified through the National-wide marketing and awareness campaign, which would involve for 332 training seminars and workshops in 24 Oblasts (while the project document refers to 7 pilot oblasts). The campaign would take considerably more resources than was in the project document. Besides it has not worked as was envisaged. 50 trainings-seminars have been conducted in December 2017, and no municipality has been identified as a potential FSM client. A review of the marketing and awareness campaign concluded in early 2018 that it was not effective, and a decision was taken to terminate this contract.

In June 2018 Senior Biomass Expert was hired, the main duty of which includes the identification of municipalities (in the 7 pilot oblasts, Zakarpattia, Volyn, Ivano-Frankivsk, Dnipropetrovsk, Zhytomyr, Cherkassy and Poltava oblasts – first priority; other oblasts – second priority) interested in development of agricultural biomass based municipal heat- and hot water supply programmes/projects.

On July 2, 2018 The Bioenergy project announced a contest for the MBPs using, agrarian biomass as a full, to get technical assistance from the Bioenergy project. It is planned that the short list of the MBPs will be developed by October 1, 2018. In parallel, criteria and procedures for selection/award of MBPs, developed earlier, will be reviewed and revised (if needed).

iii.FSM – According to PIR 2017 FSM was developed and ready to be launched. However, in spite of tangible progress in development of a commercial banking product, the FSM is still not launched. In April-June 2018 the Bioenergy project has arranged a number of meetings with Oschadbank and IFC and discussed current status and next steps for operationalization of FM. In line with the project document of another ongoing UNDP/GEF project Removing Barriers to increase investment in Energy Efficiency in Public Buildings in Ukraine through the ESCO modality in Small and Medium Sized Cities (EEPB project), the scope of FSM was extended and EEPB projects also will be eligible for financing. The official launching of FSM will be timed to coincide with the signing of the first loan agreement either for MBP or EEPB pilot project.

The key milestones achieved so far are:

a.Unsecured Lending. The ability of Oschadbank to lend on an unsecured basis. Oschadbank has received permission from the National Bank of Ukraine to lend on an unsecured basis. This is essential as municipalities are not able to provide security in the traditional form such as real estate.

b.No Reserve Lending. The amount of reserves that a bank must apply to a particular loan has a great impact on the return of that loan (return on equity) and therefore the pricing applied.

c.Credit Rating Lending Basis. A credit rating methodology has been developed for municipalities, which has been approved by the National Bank of Ukraine.

d.No Tender Process. Under Ukrainian legislation all state entities must go through a tender process in order to purchase goods or services. The Bioenergy project has received clarification from the Ministry of Economic Development that such process does not apply to the procurement of financial services such as a loan.

e.Streamlining Ministry of Finance Approval Process. All loans taken by municipalities are subject to MoF approval. Currently this process, largely due that fact that municipalities are in general not taking loans, is not clear and subject to changing requirements from the MoF. Work is advancing on developing a standardised set of documents that will be required from the municipalities by the MoF in order to approve such loans

f.Development of Draft Loan Documentation. Oschadbank has developed loan documentation suitable for municipalities.

A detailed work plan was developed to achieve Outcome 3, main activities of which are as follows:

-Preparation and announcement of open competition to select partner municipalities/ projects (already announced)

-Identification and evaluation of the MBPs additional to projects selected through open competition

-Development of short list of projects

-Signing of MoUs between UNDP Bioenergy project and MBP owners/developers

-Preparation of ToR/SoW for the experts from the Roster under the PSP, and companies to provide TA to the short-listed municipalities/MBPs

-Organization of TA to Oschadbank (upon the request). Providing clarifications to the Oschadbank on the technical aspects of the short-listed projects as well as the municipal biomass projects applied directly to the Oschadbank

-Identification of needs in additional financial incentives to the short-listed municipalities (performance-based grant)

-Identification of needs in the improvements of the Legal & Regulatory framework

In the Project Document the FSM is described as a debt instrument, to be provided by DershZemBank with an advantageous interest rate (8-12% as opposed to the prevailing 30% at the time). The FSM would also provide support for the preparation of feasibility studies and business plans.

Additionally, the FSM was to provide an investment subsidy of up to 25% of the project cost for 18 projects at various municipalities that were expected to be debt financed and constructed by the end of the Project.

In line with the Terms of Reference for the development of the FSM, a review was made of existing FSMs in other countries and recommendations made about how FSM might best be designed, taking into account the experiences of other projects.

A key recommendation was that the FSM should attempt to move away from being subsidy oriented and be a true commercial lending product. At the next stage, a review of potential partners was made after meeting with several Ukrainian banks and multilateral institutions.

In view of the situation, especially given the IFC’s experience with the development of financial products (in particular the so called “Warm Credits” aimed at the retail market) it was decided to work together with them to develop a FSM. The FSM would be implemented through, initially, Oschadbank, the state-owned savings bank.

Outcome 3 considers investment promotion in municipal use of biomass through establishment/ strengthening of FSM, the purpose of which is: (a) to make projects financially feasible through (a.1) policy de-risking; (a.2) providing financial incentives; and (b) financial de-risking, i.e. to provide to feasibly projects, easy access to financing.

Due to the improved legal and regulatory framework majority of municipal bioenergy projects (MBPs) became financially feasible (this was proved by 15 FSs carried out by the Project). Easy access to the financing has been also provided by the created FSM (with Oschadbank and Ukrgazbank). However, there are cheaper credits available in the country (e.g. from NEFCO) and also grants from different donors. Therefore, municipalities are not interested in "regular" credits in UAH with high interest rates (above 20%). The high interest rates are a barrier, although, from a financial modeling point of view even the high interest rates can be supported by the projects. The availability of, albeit, limited amounts, of grants and subsidized lending also makes commercial lending less attractive, even though this might end up with delays for the implementation of a biomass project.

Thus, FSM is not working. Although the FSM did not become operational, the Project was looking for the financing options for the municipalities receiving technical assistance. During 25-26.09.2019 a meeting was conducted between partner municipalities and representatives of Ukrgasbank and Oschadbank. The banks have presented terms of their loan financing, however, no municipal partner was interested in the applying for a loan. This experience was taken into account during developing feasibility studies.

One of the main criteria for selecting municipalities for providing technical assistance was completion of the proposed bioenergy activities in October 2019. Municipalities provided written evidence of the project completion in 2019 at the time of applying for technical assistance; however, in several cases the completion was delayed beyond 2019. Technical design service was provided only to projects who were able to finance the projects from the local municipal budget

In July 2018 the Bioenergy project announced a contest for the Municipal Bioenergy Projects using agrarian biomass as a fuel to get technical assistance from the Bioenergy project. The total number of applications received amounted to 41 applications from 19 regions of Ukraine. All applicants have been invited to the workshop held by the project on 26 September 2018 to learn more about the specificities of the technical assistance to be provided for the selected projects. As of 30.06.2019, fifteen feasibility studies have been developed and transferred to partner municipalities. Six of the fifteen municipalities decided not to proceed further with construction of their projects, mainly due to the lack of financing. As of the end of June 2019, the Bioenergy project provides technical assistance with technical design to ten agrarian biomass projects, eight of them have received support on the earlier stage with Feasibility Study. One of the projects (Kupyansk, Kharkivska oblast) that received technical assistance from UNDP has proceeded with developing technical design at the cost of municipality.

To summarize, some MBPs, to which the Project has provided assistance, have been already implemented, some others are working on closing financing. The financing schemes are different, including soft loans from different sources and grants from the Project (grant ratio varies from 0% to 25%). But even in case of grants, as mentioned above, these projects are feasible, and the investor would get a positive NPV. The UNDP grants help them to make investment decision, to close financing (in many cases municipalities are able to allocate certain amounts for their budgets and sign loan agreements with banks but not for all needed amounts), and to implement adequate monitoring and evaluation.

It must be also noted that If the Objective of the project can be achieved even without FSM (i.e. without achieving Outcome 3 as it is determined), that would show more sustainability of the municipal bioenergy projects. Unfortunately, this is not a case for all MBPs, but only for part of them. That's why municipalities are asking UNDP for financial support to purchase some equipment for their projects.

Conclusion:

1.The Financial Support Mechanism developed as a part of Bioenergy project has not become operational during the reporting period. The partner banks – Ukrgasbank and Oschadbank – have provided commercial lending to municipalities for bioenergy activities. However, the instruments developed by the project, in particular the municipal credit rating, were not in demand from partner municipalities.

2.The Project, through the wide application of adaptive management, assisted in implementation of number of MBPs, more than 10 MBPs are at the different stages of the implementation. The adaptive management included:

-Diversification of types of agricultural biomass (before 2018 the focus was on straw only; now other agricultural biomass is also considered)

-Changing the focus of the marketing campaign. Before 2018 more than USD 150 k was spent on trainings and seminars with zero application received from the municipalities. After June 2018 the Project has used 3 short-term experts for the targeted marketing campaign (announcement of call for municipalities, establishing the cooperation with SAEE, Covenant of Mayors, Association of small cities, etc. and through their networks) has received more than 40 applications in 2018 and more than 30 in 2019 (second Call was announced in July 2019)

If the Project would be closed in June 2018 (original end date) there would be no single commercial pilot project implemented (grant ratio of 10 pilot projects exceeded 70%). The extension of the duration without cost extension allowed to initiate tens of commercial projects. Unfortunately, maximum period for the extension was 18 months and for this duration just few projects have been completed, because as already mentioned, by June 2018 there was no single pilot project identified, the Project could work with.


On track

Outcome 4

Outreach programme and dissemination of project experience/best practices/lessons learned for replication throughout the country.


Baseline Level





Outreach programme formulated. Project experience compiled, analysed and disseminated.

Lack of sufficient information to pursue programme.


Increased awareness among stakeholders in place to promote and develop the market for municipal biomass.

Elements of the outreach programme were developed at the early stages of the Bioenergy project implementation. They included development of technical materials (brochures, market studies) enhancing the understanding, by the interested parties, of biomass-combustion based energy generation for municipal heating and hot water supply systems as well as analysis of the gained experience and preparing guides. During the reporting period the following outreach materials were developed additionally:

-Practical handbook on biomass utilization in the municipal sector of Ukraine (for state and municipal departments of housing and utilities infrastructure; for authorities and specialists of agricultural sector; for environmental authorities and specialists

-Handbook on Municipal Lending for Financing EE and RE project.

-Financial feasibility of boilers using agricultural biomass as a fuel in municipal energy sector of Ukraine

-Draft report on results of monitoring & evaluation of pilot projects has been prepared

The Bioenergy project has organized "Energy Efficient School" conference (Kiev, 21-22 September 2017) targeted at women teachers and suggested to use schools to drive green technologies providing efficient solutions for smart heating, efficient air conditioning etc.

In September 2018 the Project has presented its results at the Ukrainian Bioenergy Conference. The Project has also organized a side event, presenting the opportunities of technical assistance to partner municipalities. Oschadbank and Ukrgasbank has presented financing options during the event.

On 12-15 November 2018, the Project’s Manager, the CTA and Senior Bioenergy Expert have attended the UNECE’s Ninth International Forum on Energy for Sustainable Development, presenting the main results of the Project.

In January 2019 the Project Manager has attended the ‘Sustainable Finance: Going to Scale’ workshop organized by Kommunalkredit Austria, presenting lessons learned from development of the FSM.

During 26-28 February 2019 the Project’s CTA and Senior Bioenergy Expert have attended the Ukrainian Energy Forum, presenting the main results of the Project.

In March 2019 the project has organized two-day knowledge sharing tour for the representatives of municipalities visiting successful bioenergy projects. The tour was attended by over 50 representatives of the partner municipalities, media and the national government. The tour has resulted in positive media coverage for UNDP and in signing new partnership agreements with the municipalities implementing bioenergy heating projects.

In May 2019 the Project has produced a video describing project main results in developing pilot bioenergy activities.

During the first half of 2019 the Project has contributed to at least 12 publications in the national printed and electronic media. The links to publications are provided below:

https://day.kyiv.ua/uk/article/ekonomika/fermer-na-milyon

https://day.kyiv.ua/uk/photo/30-pryrodnogo-gazu-roste-na-polyah

https://drovnik.ua/news/predstaviteli-municipaliteta-posetili-kotelnuyu-na-podsolnechnyh-pelletah-661

http://www.uabio.org/img/files/news/pdf/ecotransformation-bioenergy-2019.pdf

https://ecotown.com.ua/news/Frantsuz-vyroshchuye-na-ZHytomyrshchyni-enerhetychnu-topolyu-na-45-ha/

http://www.uabio.org/uabio-news/3860-undp-study-visits-in-ukraine-2019

http://enefcities.org.ua/novyny/vidbir-munitsypalnyh-proektiv-u-sferi-teplopostachannya-scho-vykorystovuyut-agrarnu-biomasu-dlya-nadannya-tehnichno-dopomogy-vid-proektu-proon-rozvytok-ta-komertsializatsiya-bioenergetychnyh-tehnologiy-u-munitsypalnomu-sektori-v-ukrani/

http://korosten-rada.gov.ua/news/novini-mista/rozvitok-ta-komertsializatsiya-bioenergetichnih-tehnologiy-u-munitsipalnomu-sektori-v-ukrayini.html

http://katerynopiladm.gov.ua/news/item/7273-uvaga-proekt-proon-rozvitok-ta-komertsializatsiya-bioenergetichnih-tehnologiy-u-munitsipalnomu-sektori-v-ukrayini

http://monrda.gov.ua/index.php/9-uncategorised/4325-proekt-proon-rozvitok-ta-komertsializatsiya-bioenergetichnikh-tekhnologij-u-munitsipalnomu-sektori-v-ukrajini

http://chornobay-rda.gov.ua/news/10-59-27-07-12-2017/

http://www.rea.org.ua/ru/news/news-archive/112-trenings-undp-2017


On track

Implementation Progress

Cumulative GL delivery against total approved amount (in prodoc):

85.12%

Cumulative GL delivery against expected delivery as of this year:

85.12%

Cumulative disbursement as of 30 June (note: amount to be updated in late August):

4,000,433

Key Financing Amounts

PPG Amount

90,000

GEF Grant Amount

4,700,000

Co-financing

30,037,500

Key Project Dates

PIF Approval Date

Jun 7, 2012

CEO Endorsement Date

Feb 27, 2014

Project Document Signature Date (project start date):

Jun 24, 2014

Date of Inception Workshop

Nov 19, 2014

Expected Date of Mid-term Review

Jun 30, 2016

Actual Date of Mid-term Review

Mar 31, 2017

Expected Date of Terminal Evaluation

Dec 31, 2019

Original Planned Closing Date

Jun 29, 2018

Revised Planned Closing Date

Dec 31, 2019

Dates of Project Steering Committee/Board Meetings during reporting period (30 June 2018 to 1 July 2019)

2018-12-11

Critical Risk Management

Current Types of Critical Risks

Critical risk management measures undertaken this reporting period

Financial

Substantial increase in agricultural biomass prices results in municipalities being unable or unwilling to use bioenergy technologies.

The project's Technical Design Expert is responsible for monitoring of the operations of the pilot biomass boilers. Decrease in utilization of biomass is to be recorded and explanations provided.

Continuous monitoring of the status of the existing boilers allows to provide advice to the partner municipalities if biomass prices increase. One of the possible responses could be advice on the alternative biomass suppliers who might be able to deliver biomass at lower prices.

Operational

Activities receiving technical assistance (e.g. installation of boilers, CHPs) are not being implemented or substantially delayed. One of the serious risks contributing to delay with implementation is the availability of biomass in the vicinity of the proposed boiler construction.

The project's experts pay high attention to the issue of availability of biomass fuel for every proposed activity, providing respective analysis for every feasibility study being developed. Municipalities receiving technical assistance have been selected through a competitive process, requiring preparation of an activity proposal; therefore, the degree of ownership over the proposed activities is expected to be high.

Detailed analysis of biomass availability shall provide more certainty regarding the future operational expenses of the boilers/CHPs.

Regulatory

There is low or no support of biomass for heat production from government.

The project maintains continuous communication with the State Agency for Energy Efficiency, being responsible for renewable support policy. In addition to that, high importance has been given to identifying local sources of agricultural biomass for all activities receiving technical assistance.

In the unlikely case of modification of renewable support policies, activities relying on the locally available fuel should have high resilience, e.g. by sourcing the locally produced agricultural biomass.

Adjustments

Comments on delays in key project milestones

Project Manager: please provide comments on delays this reporting period in achieving any of the following key project milestones: inception workshop, mid-term review, terminal evaluation and/or project closure. If there are no delays please indicate not applicable.

not applicable

Country Office: please provide comments on delays this reporting period in achieving any of the following key project milestones: inception workshop, mid-term review, terminal evaluation and/or project closure. If there are no delays please indicate not applicable.


UNDP-GEF Technical Adviser: please provide comments on delays this reporting period in achieving any of the following key project milestones: inception workshop, mid-term review, terminal evaluation and/or project closure. If there are no delays please indicate not applicable.

not applicable.

Ratings and Overall Assessments

Role

2019 Development Objective Progress Rating

2019 Implementation Progress Rating

Project Manager/Coordinator


- IP Rating provided by UNDP-GEF Technical Adviser and UNDP Country Office only -

Overall Assessment

One of the key targets for the project is the achieved savings of fossil fuel, and the respective reductions of GHG emissions. As per the project document: direct reduction of 63,577 tons of CO2 over the 4-year FSP project life cycle and 361,000 over the full lifetime of the plants. The Project has applied new approach of providing technical assistance to municipalities since September 2019. The majority of the biomass boilers are expected to be commissioned during the autumn of 2019 (written confirmations from the municipalities were collected from the municipalities at the time of signing the Memoranda of Understanding, and are available). Thus, only one project at Odesa Hospital #11, that was on an advanced development stage, could be completed in 2019 practically by the end of the heating season and thus, generated limited volume of emissions reductions (23 t CO2 in April 2019). Other biomass boilers are expected to be launched in Autumn 2019, and most of the emissions reductions will be generated during October-December 2019, and beyond the operational period of the Bioenergy Project. Emissions reductions generated as of 30 June 2019: 3875 t CO2e. Estimated emissions reductions during the 20-year lifetime of the boilers in operation as of 30 June 2019: 61,629 t CO2. Emissions reductions from the boilers commissioned as of 30 June 2019, and other boilers currently receiving technical assistance, during their 20-year lifetime period: 332,000 t CO2.

Another key output of the project is the streamlined and comprehensive market-oriented policy and legal/regulatory framework to promote municipal biomass for heat and hot water services. Municipal Targets for Biomass Energy for heating were to be established as a part of this output. The Bioenergy Project has substantially contributed to the development of renewable energy policies during 2015-2018. The project’s experts contributed to the development of the government support scheme providing fixed tariff for the heat producers using biomass as fuel. This guaranteed tariff scheme is one of the key decision factors for municipalities to invest in the bioenergy technologies, especially to medium and large heating installations (e.g. Odesa Hospital #11 boilers with total capacity of 4.5 MW), which deliver the heat to the district heating network. The Bioenergy Project has worked closely with the Oblast administration to establish regional goals for the use of biomass in heating. Overall, seven oblasts (Dnipro, Cherkasy, Ivano-Frankivsk, Poltava, Zakarpattia, Zhytomyr, Volyn) have formally established biomass goals. The policy component of the project was completed in 2018. However, in 2019 SAEE has addressed the Project with a request to assist with developing a state support program for growing energy crops. The energy crops work is expected to be delivered to SAEE during the second half of 2019.

The Bioenergy Project was to develop a capacity within MAPF to support development and implementation of a municipal biomass programme through the establishment of a Biomass Support Unit. Investment promotion in municipal use of biomass through establishment/strengthening of Financial Support Mechanism. Construction of at least 18 municipal biomass projects were to be completed by the end of the project. During 2015-2018 the Project has completed construction of 12 pilot biomass boilers financed by the grants. In 2019, the Project has provided one more grant for a small-scale boiler in a village school. Three large-scale boilers were constructed with the technical support of the project in 2019. Therefore, the total number of boilers operational as of 30 June 2019 is 16 biomass boilers.

During the reporting period the project has concentrated on delivering technical assistance to municipalities in uptaking bioenergy technologies. In 2018, the project has planned to deliver feasibility studies to 15 municipalities, and technical design services to 15 municipalities. As of 30.06.2019, fifteen feasibility studies have been developed and transferred to partner municipalities. Six of the fifteen municipalities decided not to proceed further with construction of their projects, mainly due to the lack of financing. As of the end of June 2019, the Bioenergy project provides technical assistance with technical design to ten agrarian biomass projects, eight of them have received support on the earlier stage with Feasibility Study. Six more municipalities have indicated their interest to receive assistance with developing technical design studies for their projects. The project has therefore mainly achieved the targets envisaged in the workplan. The main risk related to providing technical assistance to municipalities is the risk of the lack of budget available at the local level. This risk has materialized, and six of partner municipalities did not proceed with their plans to implement a biomass project (see above). This risk was mitigated by finding more partners interested in receiving technical assistance.

Outreach programme and dissemination of project experience/best practices/lessons learned for replication throughout the country. The Project has provided wide educational and outreach campaign during 2015-2018, with most of the activities completed by spring 2018. In September 2018 the Bioenergy Project has conducted a workshop for partner municipalities, with the participation of partner banks (Oschadbank and Ukrgasbank). In March 2019 the Project has conducted a study tour for partner municipalities, visiting operational biomass boilers and other projects applying bioenergy technologies (energy crop growing, production of biomass pellets, production of boilers, etc.). The tour was attended by over 50 representatives of municipalities, media and the government. A similar study tour is planned for October-November 2019 to share the positive experience of those municipalities who are able to complete biomass projects receiving technical support from UNDP.

Role



UNDP Country Office Programme Officer



Overall Assessment

The period under review is the last year of project implementation and its is easier to assess the achievement of the development objective. While reviewing the project indicators and targets, it was concluded that direct project emission reductions are very modest, direct post-project reductions are achieved by about 20%. Last year was more challenging for the project as there were only pilot projects implemented with a heavy grant component and no project was under the development. Within the period under review, the project implementation team managed to successfully adjust the implementation strategy, develop a pipeline of commercially viable (bankable) projects and started providing intensive technical assistance. Two pilots have been completed including 4.5 MW boiler house in Odessa, about 20 others are at the different stages of development. Even though majority of them will be not completed by the end of the project cycle, there is a high likelihood that they will be commissioned in early 2020. Such optimistic conclusion were made as the project applied monitoring practices and decision on providing TA in each consequent step of the project cycle (feasibility study, technical design, procurement of equipment and services) was made exclusively based on verified commitments of the project owners to co-finance pre-investment activities and to have clear plans and steps undertaken to close the financing. When the ongoing pilot project will be commissioned (hopefully early 2020), then the emission reduction target would be achieved.

The implementation progress during the period under review is impressive in terms of variety of different activities and broad adaptive management technical applied. As a result for call for proposals, 30 pilots have been identified. To identified high number of pilots the Bioenergy project has applied adaptive management extended the eligibility criteria by including different types of agricultural biomass as well as types of projects – not only biomass-fired boilers but also CHP, briquette production from agriculture biomass, pellet production, became eligible for TA.

With a PSP support 15 feasibility studies have been developed out of which town have been concluded with two technical design, while 8 are under preparation.

After the launching the above-mentioned process of the development of pilot projects, the Bioenergy project was receiving many applications and recently new pipeline of about 10 MBPs has been also developed and TA started.

As for other components of the project, legal and regulatory framework for bioenergy development (Component 1) has been largely improved. This is proved by the fact that commercial development of municipal bioenergy projects (MBPs) is becoming part of Business-as-Usual (BaU) scenario and the energy generation from biomass, including agriculture biomass, is gradually increasing in Ukraine.

Biomass Support Unit (BSU) was not created (Component 2). Reasons for that were reported in previous PIRs. Actually, PSP is providing services similar to those ones originally assigned to the BSU.

Activities planned under the Component 4 were fully implemented.

Despite the above-mentioned the Overall Objective of the project has not been fully achieved. Moreover, if formally assess, it will be not achieved by December 31, 2019 – the end date of the project. And, formally, the rating should be low. However, as mentioned above, many activities under Component 3 are ongoing and there is a high probability that many pilot projects will be completed in early 2020 even after the project closure. It must be noted that the Project will be closed without having Project Manager on board. The PM, who has selected as a PM for the International Project being implemented in IRH, will leave the project just after the PIR.

Role



GEF Operational Focal point



Overall Assessment


Role






Overall Assessment


Role



Other Partners



Overall Assessment


Role



UNDP-GEF Technical Adviser



Overall Assessment

The objective of the project is to significantly increase the use of biomass energy as a fuel source for heating and hot water services in the municipal sector in Ukraine by at least 20% over the baseline scenario in order to reduce direct greenhouse gas emissions by 63,577 tons of CO2 over the 4-year life of the project and, subsequently, 19,143 tons of CO2 during each year of the remaining 16-year life of the boiler equipment. When one looks at the 20 year lifetime of the boilers earmarked for development during the project period, the boilers supported by the project will have generated 1,618,834 MWhTH, with a direct CO2 reductions of 63,577 tonnes of CO2 with a combined amount of CO2 reduced of 361,000 tons, equivalent to $13 of GEF funds per tCO2. Cumulative GHG emission reductions from the project over the lifetime of new biomass investments in Ukraine were estimated to be some 1.4 million tonnes of CO2e. Central to the success of the project has been the establishment of a financial support mechanism (FSM) that will provide financial incentives to help commercialize biomass projects at the municipal level.

Since 2015 when the first biomass boilers were built (12 straw fired boilers using 100% grants), a total of 16 biomass boilers have been supported by the projects (13 with grants, 3 with technical assistance) and the total capacity if 7,235 kW of installed capacity. Calculation indicate that these boilers have achieved emission reductions of some 3,875 t CO2e which is slightly under 1,000 tonnes of CO2e per year which is a long way off the co-financing target which assumes that the financial support mechanism is working and leveraging significant additional investments into municipal biomass projects. In addition, the CO2 target of 63,577 tonnes of CO2e per year is not going to be met.

This project has done good work but it is clear to me that the second half of the project or at least from April 2018 onwards and the arrival of a new project manager is when the improvements began.

The key turning point in the project is the departure of project manager, Volodmyy Lyaschenko, who took decisions that were not consistent with the project document such as supporting boilers with 100% grants (first 2 years of the project) and then his insistence on a 338 training seminars campaign which was never approved and never in the project document an was a huge waste of money and which was luckily stopped in December 2018. The international CTA in the Lyaschenko years was Marina Olshanskaya and together they tried to force the marketing campaign on the project without proper approvals. Finally at the end of 2017 when it was clear that their plan had failed, project manager Lyaschenko was dismissed and Olshansaya quit in early 2018. As RTA I was very concerned about the utter disregard for what was in the project document and the seeking to undertake an activity that made no sense and did not lead to any additional projects being financed at all.

In addition, it needs to be pointed out that a financial support mechanism with non-grant financing supported by the project is not working some five years after the project started and the project is highly unlikely to meet the ambitious CO2 reductions targets without significant non-grant co-financing and given that the target is likely to only be partially met, and taking into account the fact that there have been some significant improvements in the project over the past 12 months I am going to give the project an 'MS' rating this year. However, I would like to point out that given the small GHG emission reductions achieved to date, unless it is clear that more municipal biomass projects will be financed and this estimated CO2 reduction number increases significantly by the end of this project , then this project could, in my opinion, even end up as 'MU' or marginally unsatisfactory.

Last year in 2018, I rated this project as 'MU' or marginally unsatisfactory, due to the inexplicable decision of the Project Manager, Volodmyand the international Chief Technical Advisor of the project, Ms Marina Olshanskaya, to attempt to re-direct approximately $750,000 USD (which was approximately 3/4 of the remaining funds) of the project budget to a national marketing and awareness campaign for 338 awareness seminars that was never in the project document, and which it analysis show like it did nothing whatsoever to advance the cause of helping to finance municipal biomass projects in Ukraine. Not only did this planned campaign have a very large cost, it was not even working with the IFC-Oschadbank financial support mechanism and it was attempting to re-direct funds in the project document that were clearly earmarked for technical assistance for specific biomass projects under the financial support mechanism (Outcome 3) for Marketing and Awareness (Outcome 4). The project manager wrote in his budget revision approval request that this awareness raising money was for supporting the financial support mechanism but actually the funds were planned for marking and awareness. The budget revision request went unapproved for some 6 months and when things came to a crunch at the end of 2017 , it led to the decision by the management of UNDP Ukraine to remove the project manager from his position. Shortly after, in another welcome development, the international CTA who had been pushing for this completely illogical budget re-distribution, resigned from the project.

A 12 February 2018 "Note to File" by myself, the RTA, explains this whole situation in more detail. Since February 2018, I have seen zero reporting on what, if any, results there were from this nation wide marketing campaign that both the previous project manager and the previous international CTA were so determined to see implemented.

Both the previous project manager and the international CTA left the project in early 2018 and were replaced by a new project manager, Yevgen Grosza, and a new international CTA in mid-2018. In addition, the project hired a highly experienced national CTA from the Biomass Centre in Kiev. Since, mid 2018 adaptive management has been undertaken by the project and since then the results have improved. In particular, it now looks that with GEF and UNDP support several projects will now have been supported with investment grants that provide a small part of the overall project financing package.

I will now assess each component of the project one by one. I am rating three of the components as MS or marginally satisfactory and the Outcome 2 as MU or marginally unsatisfactory. I will now explain why:

Outcome 1 called for streamlined and comprehensive market-oriented policy and legal/regulatory framework to promote municipal biomass for heat and hot water services and for municipal Targets for Biomass Energy for heating being agreed and established. Since the start of the project, the regulatory situation has improved with the third amendment (called: “On Amendments to the Law of Ukraine “On Electricity”) adjusting the Green Tariff System being registered on 15th of September 2016 and adopted by the Ukrainian Parliament on 22 December 2016. The provisions of the amendment entered into force in 2017. The project has played a minor role on amending this law. In addition, the project has assisted 3 oblasts with establishing regional targets for the use of bioenergy technologies for heat and hot water supply. Since the project has started, it has been reported that in total 4 laws, 2 resolutions of the Cabinet of Ministers of Ukraine and 2 normative legal acts of ministries on the development of bioenergy area have been adopted. Experts from the biomass project played a supporting role with the new legislation and regulations, reviewing draft documents and draft new legislation. The project has played a supporting role on Outcome 1 and therefore I am giving the project an MS or marginally satisfactory rating for Outcome 1.

Outcome 2 calls for capacity available within Ministry of Agriculture and Food Policy (MAPF) to support development and implementation of a municipal biomass programme through the establishment of a Biomass Support Unit. The Biomass Support Unit (BSU) has never been established and the MAPF has not been active in the project implementation. It should be pointed out that the decision instead to establish an Inter-Ministerial Biomass Working Group (Established on 12.09.2017) is not the same thing. Increased dialogue about what else can be done to promote the market among different government bodies on biomass is surely a good thing , but it is not the same thing as the one stop shop that was envisaged in the project document. So this indicator has not been met and I rate the progress on this indicator as marginally unsatisfactory. The project manager and UNDP CO report that the PSP or project support platform is actually the same thing but actually it is not. The BSU was expected to be a group of officials (with support from consultants) within the MAPF which was supposed to provide one-stop-help for developing municipal biomass projects in Ukraine while the project support platform is a roster of consultants who are available, for a fee, to provide technical assistance support. For this reason, I am giving this outcome a MU or marginally un-satisfactory rating. Another similar project on promoting biomass energy Serbia did manage to establish a Biomass Support Unit in the Ministry of Mining and Energy and the Ministry of Agriculture and Environmental Protection in Serbia so it should not have been impossible on this project. Yes, it was not easy. But, the strong engagement of government partners is absolutely critical for successful projects. In this project, the MAPF has not been engaged very much at all and the main partner of the project is now the State Agency for Energy Efficiency (SAEE). The lack of involvement of the MAPF in this project is disappointing. In addition, the Ministry of Regional Development (MINREGION) does not appear to have been actively involved in this project. Putting together the Biomass Support Unit (BSU) could have played an important role in increasing inter-governmental policy coordination on biomass energy in Ukraine.

Outcome 3 aims at investment promotion in municipal use of biomass through establishment/strengthening of Financial Support Mechanism. Before assessing the progress under outcome 3, I should briefly recap the history of the financial support mechanism for this project so that everyone can understand where the project has arrived at as of mid-2019. Originally, five years ago when the project started in June 2014, it was written in the project document that under Outcome 3, the project should develop a financial support mechanism (FSM) with national bank, Dzherzembank for financing biomass projects in Ukraine. However, shortly after the project started, Dzherzembank was closed by the government and the project was faced with the need to undertake adaptive management. Meanwhile, the project decided to proceed to support biomass projects with a 'grants only' approach for the first two years of the project which led to the financing of the first 12 municipal straw boiler projects. Then in 2016, the UNDP Ukraine took the decision to try to work with the IFC of the World Bank to develop this mechanism. In 2016, work began on designing a financial support mechanism. Then, in December 2016, an MoU was signed between the UNDP Ukraine and the IFC for working together for developing a financial suppport mechanism, through national bank, Oschadbank, to provide municipal lending at commercial rates to municipalities for renewable energy and energy efficiency projects. UNDP provided some $270,000 USD to the IFC , which was used for credit ratings for several selected municipalities, but did not lead to any loan agreements being signed and the UNDP and the IFC. The idea was a good one, if it worked, because a commercial lending product is much more replicable and sustainable than grants or low interest loans. However, unfortunately it has not worked and some two years later with no loan agreements being signed, it might be concluded that the FSM set up by this project has unfortunately not worked. With commercial interest rates in Ukraine being very high (> 20% ever since the project started) and with the possibilities that municipalities have to finance projects from either grants, their own municipal budgets, or low interest loans from IFI's such as the EBRD or NEFCO, there was very limited interest in the commerical lending product that Oschadbank brought to the market. As of June 30th 2019, over 2 years since the FSM was launched not a single loan agreement has been signed by Oschadbank for the financing of municipal biomass project. The project was reporting in the last two years a possible investment project with Oschadbank in the municipality of Canev but in the end the high interest rate loan did not materialize.

This is something that needs to be looked at in more details as part of the final evaluation of this project but an initial analysis by myself of this history of outcome 3 of this project and of the financial support mechanism is that it has not worked. The only support from biomass projects under this project is from grants and from funds from municipal budgets. There is no evidence, to date, of any biomass projects, where the project has been providing technical assistance, being supported by debt financing and no municipalities appear to be interested in the IFC-Oschadbank biomass financial support mechanism.

Nevertheless, the project can report some progress in this area in the past 12 months. With the project support and with money freed up from the cancellation of the nation wide marking campaign contract in mid-2018 the project has launched a Project Support Platform or 'PSP' which, to date, has provided support for some 15 feasibility studies for selected biomass projects as well as financing detailed design works for some 2 projects. An additional 8 feasibility studies are now under preparation. A critical risk of Outcome 3 is that 'co-financing fails to materialize'. Indeed, this has been the case as the project reports that 6 feasibility studies financed by the project did not lead to any investment. However, even if only a few of the feasibility studies lead to real investment and real implemented projects this is still a much more cost-effective and efficient use of funds than using the same money for a nation wide marketing and awareness campaign.

The project team (Project Manager and Interantional CTA) have been very active in the past 12 months in paying for technical assistance for feasibility studies and detailed design works over the past 12 months and it is for this reason that I am giving the project an 'MS' rating for Outcome 3.

In addition, in 2019, the project has received a request from the State Agency on Energy Efficiency to provide support with developing a state support mechanism for growing energy crops. Designing such a financial support mechanism, while it will not be implemented by the end of the project, will still be useful.

Outcome 4 of this project has focused on an outreach programme and dissemination of project experience/best practices/lessons learned for replication throughout the country and here the project manager and the international CTA have reported on the conferences that they attended and delivered improved results. Progress under this outcome is improved . The project organized in March 2019 a two days study tour for municipalities. The tour was attended by over 50 representatives of the partner municipalities, media and the national government and was covered in the media. The project is active in social media. In addition, in May 2019 the Project has produced a short video describing

the results of the project activities. In addition, the project has in the past supported some 12 publications on biomass energy in Ukraine. However, the project in this PIR has not reported on the results of the nation wide marketing campaign which spent a significant amount from a total contract size of $750,000 from which it appears there were unfortunately no results whatsoever and not a single investment project developed by a municipality as a result of the awareness raising carried out and in addition it appears that no represenative from Oschadbank even attended the trainings that were carried out before the contract was cancelled. In addition, the project did not carry out much awareness raising at all related to promoting the UNDP IFC Oschadbank financial support mechanism. While this may have not been the main reason that the FSM has not worked, nevertheless I think this is an area where the project could have done more. For this reason, I would rate the results under this outcome as MS or marginally satisfactory.

Implementation Progress for the biomass project in the last 12 months is rated as MS or marginally satisfactory due to the fact that, with the exception of the 4.5MW biomass project in Odessa region, none of the other biomass projects supported by the project have yet been financed and/or constructed. In addition, the project has spent approximately $4,000,000 of its total budget of $4,700,000 with only 6 months to go which means that even though the project is due to finish at the end of December 2019 it may take considerably longer for the financial closure to pay for feasibility studies for biomass projects that are not completed yet. However, on the positive side, the State Agency for Energy Efficiency is interested to help in seeking financing for feasibility studies prepared by the project that did not yet lead to investments.

The project lost valuable time over the first half of 2018 when it essentially came to a standstill with the changes in project personnel (Project Manager and International CTA) and the cancellation of the large marketing and awareness contract and then with the time it too to commission each of the feasibility studies. The project has only 6 months left before it should close and in the final six months, it really needs to accelerate the support to the biomass projects that are receiving technical assistance support and make an assessment of how many of them will actually be able to be financed.

In addition, it is worth noting that in July 2019, the Project Manager, Mr Yevgen Grosza, left his post to start a new position at the UNDP Istanbul Regional Hub. This leaves the project only with a part-time international CTA and a Programme Assistant to implement the project over the remaining 6 months of the project life time. The project has already been extended once from July 2017 to the end of December 2019 and it should not and cannot be extended for a second time. This is a criticial risk that the project needs to address as the project now enters into the critical final months. A short-term replacement for the departed Project Manager might be considered even though the project has only approximately six months left to go before it closes.

A final evaluator is in the process of being hired and the final evaluation of this project should start in September/October 2019. The project should close at the end of 2019.

Gender

Progress in Advancing Gender Equality and Women's Empowerment

This information is used in the UNDP-GEF Annual Performance Report, UNDP-GEF Annual Gender Report, reporting to the UNDP Gender Steering and Implementation Committee and for other internal and external communications and learning. The Project Manager and/or Project Gender Officer should complete this section with support from the UNDP Country Office.

Gender Analysis and Action Plan: not available

Please review the project's Gender Analysis and Action Plan. If the document is not attached or an updated Gender Analysis and/or Gender Action Plan is available please upload the document below or send to the Regional Programme Associate to upload in PIMS+. Please note that all projects approved since 1 July 2014 are required to carry out a gender analysis and all projects approved since 1 July 2018 are required to have a gender analysis and action plan.


Please indicate in which results areas the project is contributing to gender equality (you may select more than one results area, or select not applicable):

Contributing to closing gender gaps in access to and control over resources: No

Improving the participation and decision-making of women in natural resource governance: No

Targeting socio-economic benefits and services for women: Yes

Not applicable: No

Atlas Gender Marker Rating

GEN1: some contribution to gender equality

Please describe any experiences or linkages (direct or indirect) between project activities and gender-based violence (GBV). This information is for UNDP use only and will not be shared with GEF Secretariat.

n/a

Please specify results achieved this reporting period that focus on increasing gender equality and the empowerment of women.

Please explain how the results reported addressed the different needs of men or women, changed norms, values, and power structures, and/or contributed to transforming or challenging gender inequalities and discrimination.

As of 30.06.2019, the project has provided grant support to install 12 biomass boilers, which provide heat and hot water to local schools and daycare centers. The total number of students in the schools (daycare centers) is 5850 people; 3587 of them are girls and 2263 are boys. The

basic data - undpgefpims.org€¦ · web viewsince 2015 when the first biomass boilers were built...

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