EcoPolitic has prepared for its readers key information about the Ukrainian Decarbonization Fund, its purpose, goals, how much money it has already accumulated, whom the institution lends to, and under what conditions.
When it was created
The Decarbonization Fund was established in Ukraine in 2012 at the initiative of the State Agency on Energy Efficiency and Energy Saving of Ukraine. 100% of its shares belong to the state represented by the State Agency on Energy Efficiency and Energy Saving.
The Fund's objectives:
- Stimulating the implementation of energy efficiency measures.
- Implementation of energy services.
- Increasing the use of renewable energy sources (RES) and alternative fuels.
- Reducing carbon emissions.
- Implementation of financial and credit instruments exclusively in the field of energy efficiency.
When it started working
The State Fund for Decarbonization and Energy Efficient Transformation was launched on January 1. It was planned to accumulate about $26 million for its operation in 2024. At the time, experts spoke of the idea of creating such a Fund as a breakthrough, but the lack of clear mechanisms at the time of its launch caused concern among professionals.
In the first 5 months of this year, the fund was replenished with more than UAH 1.1 billion. Another $350 thousand was to be provided by UNDP in Ukraine. However, as of May, the Decarbonization Fund could not manage the money due to the lack of a bylaw. It should have defined the procedure for using the funds, a full list of measures and requirements for them. The Cabinet of Ministers of Ukraine had to approve targeted programs.
On August 26, the Decarbonization Fund of Ukraine received a license from the National Bank of Ukraine to operate as a financial company and was able to lend to projects.
As of September 19, the Fund has accumulated UAH 379 million in revenues from the CO2 tax and has begun considering applications for the implementation of such projects, says Olesia Mishchenko, chairman of the board of the Decarbonization Fund of Ukraine JSC. According to her, the next stage of financing will be carried out around March next year, and all unused funds in the current year will be carried over to the following years.
“At the beginning of 2024, the Ministry of Finance forecasted revenues from the CO2 tax and filling the Fund at UAH 800 million, but the trend and statistics show that it will be UAH 1 billion. In 2025, the forecast is UAH 1.75 billion, in 2026-2027 – UAH 1.87 billion each,” Mishchenko said.
The main indicators of the Decarbonization Fund's work have been collected by EcoPolitics on an infographic:
Sources of filling the fund
- Environmental tax on CO2 emissions, the main payers of which are large industrial enterprises;
- material and technical assistance from international organizations and partner countries.
The Fund already has an agreement with the United Nations Development Program as part of international technical assistance. This is the project “Removing Barriers to Promoting Energy Efficiency Investments in Public Buildings in Small and Medium-Sized Cities of Ukraine through the Development of Energy Service Companies (ESCOs)”. The amount of the project is currently small – about UAH 13 million, but the Fund notes that this is a pilot project.
How it works
The Fund is cumulative. Its main part is used to provide affordable loans for projects to implement energy efficiency measures and reduce carbon dioxide emissions. Another part of the funds is used to reimburse interest in banks.
The flow of funds is as follows:
- JSC Decarbonization Fund issues soft loans to its borrowers for the implementation of energy efficiency projects.
- Borrowers repay them within the terms stipulated in the agreement.
- The Decarbonization Fund again provides these funds as a loan for subsequent energy efficiency projects.
“For example, these are not just grant funds that we have conditionally “given away and forgotten”, but preferential loans that candidates return after the implementation of projects, and these funds are again directed to new projects,” says Olesia Mishchenko.
Who can get a loan from the Decarbonization Fund
All projects must meet two key indicators:
- energy efficiency, or the replacement of heat or electricity from the grid;
- reduction of greenhouse gas emissions into the environment.
Loan applications can be submitted by, among others, legal entities, individual entrepreneurs, municipal and state-owned enterprises, and local governments. The company applying to the Fund must be registered and have been operating for at least 1 year.
What are the amounts of loans issued?
The head of the Fund says that there are not many of them yet, and they are issued at 7% and 9%. Loan amounts range from UAH 500 thousand for a kindergarten to UAH 18.5 million for street lighting in a medium-sized city.
The fund's experts estimate that the implementation of an ESCO project will require about UAH 3-4 million. For the installation of cogeneration units or boilers using alternative fuels, the maximum loan amount will be about UAH 25 million. For renewable energy projects, the check can be from UAH 2 million to UAH 25 million, depending on the projected capacity.
The Head of the Fund's Board said that they are working on proposals to amend the resolution to increase project funding and expect to be able to provide loans of UAH 50 to 90 million in the near future.
What are the amounts of loans issued
The head of the Fund says that there are still not many of them, and they are issued at 7% and 9%. The amount of loans ranges from 500,000 UAH for a kindergarten to UAH 18.5 million for street lighting in a medium-sized city.
According to the calculations of the fund's specialists, the implementation of the ESCO project will require approximately UAH 3-4 million. For the installation of cogeneration plants or boilers on alternative types of fuel, the maximum amount of credit will be about UAH 25 million. For RES projects, the check can be from UAH 2 million to UAH 25 million, depending on the projected capacity.
The head of the board of the Fund said that they are working on proposals for changes to the resolution on increasing the financing of projects and in the near future they expect to be able to provide loans in the amount of UAH 50 to 90 million.
What are the terms of lending from the Decarbonization Fund?
The maximum loan rate can be up to 9%, but it can also be reduced to 4-5% and 6%. It depends on the loan amount, project type, and additional conditions.
If a candidate for state aid uses equipment from a national manufacturer in his project, another 2% per annum is deducted from the base rate.
The interest is fixed for the entire term of the loan agreement, which can be up to 10 years. The mandatory own contribution to the project is from 15% of the participation with own funds. Equipment to be used in the project or other property owned by the company can be considered as collateral.
Who has already received
The first loan was issued by the Decarbonization Fund on September 20 to an energy service company that planned to replace lighting with an energy savings rate of almost 50% of the baseline.
Olesia Mishchenko said that as of November, her institution had already issued loans for the implementation of 7 energy efficiency projects worth UAH 21 million, and another 21 projects worth UAH 320 million are under consideration.
Together, the financed projects are expected to save more than 500 MWh of electricity, which is UAH 5 million annually in monetary terms. Their implementation will reduce CO2 emissions by 20%, or 620 tons.
As a reminder, in mid-July , EcoPolitics wrote that the Decarbonization Fund started accepting applications for funding.
