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Czech Republic

The Czech Republic suffered considerable deterioration of environmental conditions while under a centrally planned economy. In the 1990s, during its transition to a market economy, these environmental conditions, combined with a dramatic increase in energy prices, strongly favored the role of energy efficiency in the Republic's development.

An important step toward promoting energy efficiency was the creation of the Czech Energy Agency (CEA) in 1995. The main role of the agency is to promote and support energy-saving activities and to mitigate negative environmental impacts caused by energy consumption and conversion. The agency conducts the State Program for the Support of Energy Savings and Use of Renewable Energy Sources, which supports energy efficiency projects including those in the public sector. In 2001 the program helped implement 14 projects in schools, healthcare facilities, and other public buildings. The total cost of these projects was around 120 million CZK (about US$4 million) with around 10% coming from CEA subsidies. In 2002 the program allocated up to 24 million CZK (about US$1 million) for conducting energy audits for 127 public buildings

In addition to its state programs, the Czech Republic has a well-developed energy efficiency services sector. For example, in 1995 Energy Performance Services Czech Republic (EPS CR), a subsidiary of a U.S.-based company, implemented an energy efficiency project in the Bulovka Teaching Hospital in Prague through a performance contract. The hospital was guaranteed that during the 8-year contract term, the savings achieved would cover the total cost of implementation (and finance) of the project. Any additional revenues were to be shared between the ESCO and the customer. Energy conservation measures installed included implementing a new energy management system, switching from a steam heating system to district heating, installing a new air handler heat recovery system, and adding a new high efficiency natural gas boiler for sterilization and laundry . The US$2.7 million project received a small amount of financial support from CEA, supplementing EPS CR's investment. The project has led to annual savings of US$700,000, which represents a roughly four-year simple payback on investment. A similar project was implemented by EPS CR at the Jilemnice District Hospital in northeast Bohemia.

In 2000, the country adopted an "Energy Management Act." The law contains special sections on energy efficiency, energy labels, and energy audits, and includes a requirement for mandatory audits of large public facilities (those with annual energy consumption above 1,500 GJ (35 TOE)). In addition, the act establishes the obligation for each of the 14 Czech regions to prepare a regional energy efficiency plan within five years.

In 2000, the International Finance Corporation (IFC) and Global Environment Facility (GEF) launched the "Efficient Lighting Initiative" (ELI). The Czech Republic's leading non-governmental energy efficiency organization, SEVEn, was designated as the local project manager. ELI is primarily focused on the public sector, with special emphasis on street lighting. For example, several seminars on public lighting were organized for representatives of towns and municipalities. Also, one of the first activities of ELI was the creation of a street lighting manual, which was then distributed to 250 Czech municipalities. In addition, several interesting pilot projects have been launched, such as a Czech school curriculum program on efficient lighting; more than 150 schools participated in the program. ELI's budget is roughly US$1.2 million per year.

One incentive for promoting energy efficiency projects is the reduction of greenhouse gases, which was made especially desirable by the Joint Implementation (JI) mechanism of the Kyoto Protocol. In 2002, CEA and the Czech State Environmental Fund (SEF) obtained contracts from the recently established World Bank Prototype Carbon Fund (PCF) for US$2.6 million each. The funds are earmarked for energy efficiency projects that are estimated to generate 1.3 million tons of carbon dioxide equivalent (CO2e) emissions reduction, at an impressive rate of US$4/tCO2e (where $15 per ton or more would be normal in most industrialized country projects). Upon completion of the project, PCF's member countries and corporations will own the rights to the carbon reductions.

One of the projects supported by CEA in cooperation with PCF is the Thomayer Hospital project. The project involves energy efficiency measures in 24 buildings of the hospital. ECMs include wall insulation, window replacement, and conversion from a steam heating system to a hot water one. Annual energy savings from the project are estimated at 35,000 GJ (820 TOE). CO2 emission reductions for the lifetime of the project have been valued at US$200,000. The cost of the project is 86 million CZK (US$2.3 million). Initial investment costs will be split between the ESCO and the hospital; Thomayer anticipates that the ESCO will pay for 75% of the initial investment, with the rest to be drawn from its own funds. The ESCO will take 100% of the savings, recovering its initial investment and interest (it is anticipated that the ESCO will seek a pre-tax rate of return of 15%) for a defined period, after which the hospital would realize the full benefits of the project. A financial analysis demonstrated that without PCF's purchase of the carbon credits, the project would not be viable.

Currently, PCF is developing several new projects. It intends to achieve CO2e emissions reductions primarily by helping to fund energy efficiency projects - in exchange for the carbon emissions rights - in district heating, public buildings, and industry, as well as with renewable energy projects. It is expected that at least 10 and up to 25 projects will be conducted.

Following the successful experience of Hungary's Energy Efficiency Co-Financing Fund (HEECF), it became apparent that strengthening financial mechanisms was one of the key elements for successful implementation of energy efficiency projects in transition economies. Consequently, GEF and IFC initiated the "Commercializing Energy Efficiency Finance" (CEEF) program. The initiative is focused on five central European countries including the Czech Republic (the others are Slovakia, Estonia, Latvia, and Lithuania). A four-year loan guarantee program will support local financial institutions financing energy efficiency projects. Street lighting upgrades and district heating projects are examples of eligible projects, which may receive a guarantee of up to 50% of their commercial loan or lease. The subsidy for the program from IFC and GEF is estimated at US$90 million, which will be equally shared among participating countries. The total project cost (the overall size of the energy efficiency project portfolio supported by the project) is estimated to be up to US$225 million.

The Czech Republic combines its state energy efficiency programs with local and international initiatives. The country is one of the first in Central and Eastern Europe to capture energy efficiency opportunities presented by the JI mechanism of the Kyoto protocol. It is expected that after the Czech Republic's accession to the European Union in 2004, energy efficiency will continue its importance, helping to promote sustainable development in the nation.