2013, ÖKO Ltd., Corvinus University of Budapest
Impacts of subsidy intensity on
the efficiency and profitability of
EEOP energy projects
Evaluation of certain conditions
of EEOP implementation
Structure of the presentation
• Efficiency: Impacts of subsidy intensity on
relative cost indicators, based on EMIR data of
1427 applications (hypothesis: the higher the
subsidy intensity the lower the efficiency is);
(analysis is based on calculating averages,
correlation and crosstab analysis).
• Profitability: Internal Rate of Return (IRR)
analysis based on detailed financial data of 102
projects
• Conclusions and recommendations
EEOP renewable energy projects
(4. priority)
• 4.1. Heat or electricity generation based on renewable
energy sources
• 4.2. Satisfying local heating or cooling demand based
on renewable energy sources
• 4.4. Renewable based electricity generation, cogeneration of heat and electricity, utilization of biomethane
• 4.7. Support for preparation and project development
activities regarding geothermal heat and electricity
generation projects
• 4.9. Combined building energy development based on
renewable energy utilization
• 7.4. Rationalization of energy use in health care
facilities
EEOP energy efficiency projects
(5. priority)
• 5.1. Increasing energy efficiency
• 5.2. Third-party financing
• 5.3. A. Building energy development and
modernization of street lighting systems
5.3. B. Increasing energy efficiency combined
with the utilization of renewable energy
5.4. Energy modernization of the district
heating sector
Variables used for analyzing renewable
energy and energy efficiency projects
– Categorizing variables: type of the application, type of the
organization of the applicant, decision making procedure,
geographical region of the project, total budget, subsidy
intensity, own resources
– Environmental savings : increase in renewable based electricity
generation (GWh/year), utilization of renewable energy
sources (GJ/year), decrease in GHG emissions (t/year),
energy saving due to increased energy efficiency (GJ/year),
– Unit cost indices: investment need for 1 kW heat generation
capacity (1000Ft/kW), investment need for 1 kW electricity
generation capacity (1000Ft/kW), unit cost of 1 m2 solar
collector (1000Ft/m2), unit cost of 1t GHG emission decrease
(1000Ft/t), unit cost of 1 GJ annual energy saving
(1000Ft/GJ/year).
Average subsidy intensity based on
project type, % (N=1427)
61.1
Total
48.4
5.4
71.1
5.3
17.8
5.2
40.8
5.1
76.5
4.9
50.0
4.7
59.0
4.4
63.8
4.2
46.5
4.1
0.0
10.0
20.0
30.0
40.0
50.0
average subsidy intensity
60.0
70.0
80.0
Subsidy intensity according to
organization type of the applicants (%)
61,09
Total
82,78
Municipalities
63,93
Non-profit
organizations
75,95
Public organizations
48,10
Businesses
0,00
20,00
40,00
60,00
80,00
100,00
Results of efficiency analysis
• Renewable energy projects based on organization type:
local municipalities achieved the worst performance in
energy savings per unit (with the highest costs for 1t
GHG emission mitigation in this group).
• Energy efficiency projects based on organization
type: local municipalities achieved the worst
performance in the unit cost of 1t GHG emission
mitigation and unit cost of 1 GJ annual energy
saving.
• There was no significant difference in
efficiency regarding the further variables (type of
the application, type of the organization of the
applicant, decision making procedure, geographical
region of the project).
Concluding remarks regarding the role of
subsidy intensity on efficacy
Subsidy intensity does not influence the
efficacy of project investments (regarding per
unit costs) in general.
Only the case of solar collectors suggests that
higher subsidy intensity results in higher per
unit costs.
Evaluation of EEOP energy projects
from a profitability aspect
• Aim of subsidizing: increasing profitability
of financially non returning, but
environmentally beneficial projects –
taken into account market-level
profitability expectations
• Analysis based on the Internal Rate of
Return indicator (IRR)
• Based on detailed financial data of 102
completed projects
Distribution of IRR based on total costs
(without subsidies)
- Analyzing necessity of subsidized projects based on IRR values
- Analyzing links between IRR values and subsidy intensity
IRR based on total costs
(without subsidies)
Distribution of IRR with subsidies
taken into account
IRR with subsidies taken into account
IRR based o total costs (without subsidies)
according to the type of the investments
Although energy efficiency projects deliver lower IRR than
expected in the market, but already lower level of subsidizing may
be sufficient to turn them profitable. Renewable energy
projects, however, need to receive significant subsidies.
IRR without subsidizing according to
the type of investment
Higher subsidy intensity available for renewable energy projects
partly eliminates the profitability gap between renewable energy and
energy efficiency projects. Average IRR (with subsidies) achieves
14% even in case of renewable energy projects that is considered
reasonably good compared to market expectations.
IRR based on total costs (without subsidies)
according to the type of the applicant
Potential reasons behind higher IRR regarding projects of the
business sector:
• more conscious financial planning, more thorough selection and
analysis of project alternatives,
• municipalities and other public bodies can achieve in many cases
higher subsidy intensity, resulting in the acceptance of lower IRR
values (without subsidies) when deciding about project alternatives.
IRR with subsidies taken into account
Corrected IRR values show that projects in the private sector
are more profitable also with subsidies taken into account, but
this difference is not significant statistically. Indeed, differences
in subsidy levels equalize to some extent the differences
between the profitability of private and public projects.
Conclusions and recommendations
based on the profitability analysis
•
IRR fails to achieve market expectations regarding both
energy efficiency and renewable energy projects. However,
energy efficiency projects need lower, but renewable
energy projects require higher rates of subsidizing to be
able to be realized.
• The current subsidy system decreases
differences between the IRR of energy
efficiency and renewable energy projects, this
is recommended to be maintained also in the future.
(Similarly in case of municipalities/public
organizations vs. businesses).
• Further suggestions to increase efficiency:
– minimal subsidizing (approx. 10%) even in case of
certain returning projects (e.g. third party financing)
– minimal requirements for IRR (0%, 2%, 4% etc.)
Thank you for your attention!
2013
ÖKO Ltd.
Corvinus University of Budapest