Reducing Greenhouse Gas Emissions through the Use of

Biomass Energy in Northwest Slovakia

Sub-regional Workshop for GEF Focal Points in Europe and the CIS

Dubrovnik, Croatia11-13 February 2009

Slovak success story

Basic project informationObjective: To reduce GHG emissions and to promote the

adoption of renewable energy sources

GEF implementing agency: UNDP

Total budget (MSP): US $8.5 mil. US$ 973,500 GEF grant, US$ 7.5 mil. co-financing

Duration: 3 years March 2003 – December 2006 (finished 3 months

earlier)

Country background Project area: Žilina and Trenčín Regions in the

northwest part of the country covers 6,788 + 4,502 square kilometers (23 % of

Slovakia’s area) 52 % of the region is densely forested

compared with 40% forest density for the entire country

At the time of project approval, more than 2,000 sawmills, forestry companies, and wood processing firms active in the region produce over 200,000 tons of biomass residuals

annually The project was designed to use these wood

residuals

Project outcome 1 Create a sustainable wood pellet

market in the region of Northwest Slovakia. construct a Central Processing Unit

(CPU) for wood-pellet production, create a transport system for wood-

waste residue supply and pellet delivery,

Create a sufficiently large customer base to ensure adequate cash flow.

Project outcome 2 Provide a replicable, economically

viable, and environmentally friendly source of heat in 44 public buildings Replace existing coal/coke boilers with

wood-pellet fired boilers. Upgrade of the heating system

One of the public buildings heated in Stará Ľubochňa (Sanatorium Fatra)

Project outcome 3 Contribute to increase of biomass use

as fuel source for heating Awareness raising Acquisition of new customers replacing

coal/coke boilers resp. connected to the established pellet boiler rooms

Implementation arrangements National Execution

National Executing Agency: Ministry of Environment of the SR

Supervisory role

National Implementing Agency: BIOMASA association

Day-to-day management

GEF

MoE

EU - LIFE Env.

Austrian Env. Fund /

KKA

BIOMASA members

BIOMASA operational

costs

Dexia - loan

Project budgetSource of Funds

Planned budget

Total Disburs.

GEF 973 500 973 500 10%Ministry of Environment of the SR 960 000 960 000 9%EU Program LIFE Environment 1 200 000 12%Austrian Env. Fund through KKA 760 000 7%Dexia banka Slovensko - loan 2 270 000 2 900 000 28%BIOMASA members – municipalities, schools, health centers 710 000 1 140 000 11%BIOMASA for operational costs for boiler rooms (10 years operation)

3 580 000 2 300 000 22%Total Cofinancing 7 520 000 9 260 000 90%Total for Project 8 493 500 10 233 500

Key results 20 137 tons CO2 saved annually

8 000 tons of fossil fuels consumption annually replaced by consumption of 4 500 tons of pellets in boilers

operated by BIOMASA

Further reduction of fossil fuels can be assumed in other boiler rooms that purchase BIOMASA pellets (sales in Slovak and foreign markets).

Boiler rooms supplied by heat and pellets from BIOMASA Association

Wood pellet market Pellet production unit constructed within 20

months after the project start 2005 production – 3,800 tons 2007 production – 12,000 tons (full capacity)

20,000 tons of wood waste from the region re-utilized

long term contracts for: heat delivery (25) Sale of pellets (30) wood waste residue

purchase (30) BIOMASA Offices and Central Processing Unit

Heating system reconstruction 44 new pellet automatic boilers installed

100 coal/coke boilers in 54 old boiler rooms replaced by modern pellet automatic boilers (from 7 kW to 2,5 MW)

Boilers centrally operated and maintained, pellets supply centrally managed - system of heat supply from BIOMASA (full service to members instead of pure sale of pellets)

Better heating quality in buildings Energy efficiency measures, modernization and regulations of

heating systems (regulating valves, windows, doors and radiators replacement additional thermal outside insulation)

New heating operational regulations introduced

Heating costs savings (20-30%)One of the boilers installed in Slanicka Osada

Increased use of biomass for heating

20 other new businesses, public buildings and households outside the projects converted to pellets and are regularly supplied by pellets from BIOMASA

12 new consumers replaced their fossil boilers and are connected to BIOMASA heat supply system

Some elements of the system for pellet delivery

Challenges to financial planning

3. The extensive exchange rate fluctuation on the USD between 2000 and 2004,

the final amount received from GEF in USD converted to SKK was much lower than the planned amount

Comparison of raw material and pellet prices in BIOMASA Slovakia

0

20

40

60

80

100

120

140

160

180

2004 2005 2006 2007

Eu

ro/t

wet sawdust (60 %)

price of sawdust for production of 1 t pellets

average pellet price for sale in Slovakia and abroad

1. The dramatic change in the price of the saw dust raw material;

2. The higher than expected investment costs.

Challenges to financial planning 24. Financing through several financial

grants, which needed to be synchronized EU Program LIFE Environment Austrian Environmental fund managed by

Kommunalkredit Public Consulting bank loan (higher than planned)

Conditions of other donors resulted in the need to complete the project earlier

Challenges to financial planning 35. Need for additional sources of financing

to cover: the higher investment project costs The drop-out of GEF sources

extreme exchange rate changes from the project planning phase to the end of its implementation)

the originally planned co-funding (Danish Fund) lost as a result of significant delays with the GEF approval processes Slovakia was not eligible any more

Opportunities and challenges not addressed The speeding up and scaling up of the market

transformation process for biomass in Slovakia will largely be dependent on the emergence of a more enabling policy environment for alternative energy sources to natural gas in Slovakia.

The design of the project could have been more robust to include a separate high level policy dialogue component to ensure that adequate market incentives are in place at the national level to support the efforts in production and awareness raising by BIOMASA.

Opportunities and challengesSurvey on SK situation in 2006 (BIOMASA, 2007) total production capacity in Slovakia:

72,000 tons per year for 2006, actual production:

45,000 tons per year, pellet consumption

estimated at 9,000 tons per year,

local market for pellet production developing slowly

Production to rely on export market

Sustainability continued and financially viable operations

at BIOMASA – so that pellet remains a credible energy source in the national market

ability of BIOMASA to sustain its cash flow amid depressed pellet prices Difficult predictability of cash flow in a market not yet

mature Increasing production capacity on the global market

decreased the price on the external market Local price has to compete with subsidized natural gas

price Warm winter in 2006 further depressed the demand

(and price) for pellets

Problem With adequate cash flow, a producer would wait

until the pellet price goes up again - within the year and over the years

BUT

BIOMASA does not have the cash flow does not have storage capacity Subsidizes the heating price to members from

the pellet production operation

Measures to improve sustainability Subsidies for heat prices for BIOMASA members

reduced

Expanding BIOMASA pellet storage capacity at the Central Processing Unit

Set up an emergency line of credit to help to overcome fluctuations in the price for pellets in its first few years of full operation, so that it capitalize on seasonal price fluctuations rather than be a victim of them

Lessons learnt 1Overdesign of old boilers capacity 29 MW of old boilers replaced by 13 MW of new

pellet boilers

the first phase boilers were significantly over-dimensioned realized demand only being 2/3 of what was predicted

In the second phase load calculations were reduced by 30% the second phase boilers “still have a significant reserve

capacity”.

negative impact on cash flow management unit cost associated with the reduction of CO2

emission

Lessons learnt 1 – Heat production capacity Attention must be given to the process

of consumption and capacity estimates

Many smaller demonstration projects reduce the risk of failure

Phased approach to support the learning process

Follow-up Further pellet boiler grid connection from the BIOMASA

association members

Lessons learnt 2Associative and publicly led

management of pellet and heat production

The project implementation profited from having a local association, which Covered different roles: awareness raising,

decision-making, management and financial perspective,

Associated the key local stakeholders.

Lessons learnt 2Set-up The coupling of pellet production and development

of a local/national base market for pellet distribution and consumption to kick start the market transformation process is a strategy that can clearly facilitate the market transformation process and its continued development.

When designing an initiative aimed at market transformation, plans must ensure that adequate resources and appropriate institutional structures are set up to promote cooperation and high level dialogue on enabling policies to complement actions on the ground

Associations of municipalities have easier access to EU structural funding for infrastructure projects (oriented to large investments)

Lessons learnt 3 In order to provide reliable data on CO2 emission

reductions for GEF projects, adequate baseline and monitoring and reporting systems must be systematized.

Consider different factors taht are likely to change with time: Raw material (when biomass residues become a commodity,

prices rapidly increase) heat prices, fossil fuel prices that the project has to compete with, demand, labor costs.

Energy efficiency measures should be implemented before (or together with) the specification and installation of heating systems.

Successful project ? Conclusion of the

independent Final Evaluation:

„(Project)...can be considered a success story by UNDP and GEF in bringing about market change in favor of biomass energy production and use in Slovakia.“

Achieves the objective

Generates global benefits

Is cost effective

Is replicable

Is sustainable

Thank you!For more information see:

www.biomasa.sk

or contact:

Klara Tothova, CST Environmental Officer    UNDP, Europe and the CIS    Bratislava Regional Centre    Grosslingova 35, 81109 Bratislava, Slovak Republic    Tel:  +421 2 59337 220     Fax: +421 2 59337 450    klara.tothova@undp.org     www.undp.org/europeandcis