Feature story

Turning up the heat - efficiently -- in Sofia

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Related links Bulgaria homepage Energy efficiency homepage Sofia District Heating Rehabilitation [Project Summary Document] EBRD finances district heating in Sofia [Press Release]

The old pipelines and exchangers will be replaced by modern, energy-efficient tecnologies consistent with EU standards.

The brand new EBRD-financed system will allow Bulgaria to put wasted energy to other productive uses.

EBRD teams help improve energy efficiency in Bulgaria.

Close to one million residents of Sofia will soon enjoy modern, energy efficient heating services thanks to €60 million in a loan and donor funds organised by the EBRD to rehabilitate the city's heating system. Through this project, the system's operator, Toplofikacia Sofia AD, will install new, energy efficient pipelines and exchangers around the city.

The revamped system will help free up energy for other uses, such as manufacturing and commerce. Toplofikacia is Bulgaria's largest heating company, currently providing 65 per cent of district heating in the country. The Bank's Energy Efficiency team, the Nuclear Safety Department, the Sofia RO and the World Bank jointly stand behind this project.

"This project is going to the heart of Bulgaria's biggest energy consumer," says Peter Hobson of the Bank's Energy Efficiency team. The project will finance the replacement of the 6,840 sub-stations serving residential buildings in Sofia, explains Mr Hobson who was the EBRD's operation leader for this project.

Improves efficiency

But how will this venture reduce Bulgaria's energy bills?

A network of water pipes sends heat around the city and local exchangers transfer it to homes in apartment buildings. In contrast to modern conduits, Soviet-designed pipes are large, steel-bound and prone to scaling. They do not transmit heat efficiently. Modern heating networks require little maintenance and are equipped with automatic control systems capable of responding to short-term temperature changes. They can also be programmed according to consumers' needs and preferences.

But perhaps most importantly, the older system provided no incentives to save energy. The lack of meters meant each household paid a fixed amount, which possibly did not reflect consumers' actual heat consumption. The project will help put in place cost-allocating devices providing close to actual readings for individual households. Accurate billing may spur more savings. Thermostatic radiator valves, allowing households to choose how much heat they consume, will also be installed. In addition, a public awareness campaign, aiming to encourage Sofians to conserve energy, is being financed by donor funds from the UK government.

"It is cheaper to save energy than to produce it," explains Mr Hobson. Studies show that if it takes $1,000 to produce energy, an equivalent amount of energy can be saved with only $500 of energy efficient technologies. This means that energy saving is a much better investment than new production capacity.

Cost recovery

Despite the clear benefits of energy efficiency projects, doing business with utilities is not always feasible.

"In general, heating tariffs are below the actual cost of the service," says Mr Hobson. The level of investment necessary to reform heating utilities is extremely large. Often loans cannot be repaid by solely relying on company revenues. "So a grant component is fundamental to making these projects happen."

The perfect fit was with a Bank-administered nuclear decommissioning fund, 50 per cent of which supports the strengthening of Bulgaria's energy sector, particularly through energy efficiency practices. The Kozloduy's International Decommissioning Support Fund, managed by the Bank's Nuclear Safety Department, provided a grant of €30 million, key to getting this project off the ground.

The fund's investments in Bulgaria's energy sector complement its decommissioning activities in the country's Kozloduy nuclear power plant. Kozloduy's units 1 and 2 were closed in late 2002. The fund supports restructuring and upgrading in Bulgaria's energy sector, extending to energy production, transmission and distribution. The fund is committed to supporting activities consistent with Bulgaria's new, and more efficient, energy strategy. The strategy supports the country's pre-accession negotiations with the European Commission.

Board encouragement

"We needed to find a project to match that criteria and the Banking department proved the perfect partner," says Zoltan Kiss of the Nuclear Safety Department. "This project provides an efficient solution for Sofia's heating needs." Mr Kiss, who manages the fund's activities, also acknowledged the EBRD Board's support in making this 'match'. Former Board Director for Austria, Heiner Luschin encouraged this investment.

"Good heating systems free up energy for other uses and we plan to continue working on similar projects," adds Mr Kiss.

Another key partner in this project was the Bank's Sofia resident office (RO) which worked closely with Bulgarian authorities to ensure an adequate regulatory framework was in place to support the company's restructured services.

Donors active

The project's total budget is €114 million, €30 million of which will be covered by the EBRD loan and €30 million by the Kozloduy International Decommissioning Support Fund grant. The World Bank will contribute €26 million, which will be mainly used to replace pipelines. The rest will be paid for by Toplofikacia Sofia.

Donor funds also support this project. Funds from the European Union's Phare programme are helping the company cover implementation costs. The US Agency for International Development is helping Sofia's municipality run a tendering process for selecting an international operator to run the district heating facilities. The chosen operator would run them in a commercially viable manner.

Construction work is scheduled to start later in the spring.

Contact: The EBRD Energy Efficiency Team

17 April 2003