Decarbonization, i.e. reducing the amount of greenhouse gas emissions, is one of the main international obligations of Ukraine in climate policy. To promote the process of decarbonization of the economy, the Decarbonization Fund of Ukraine Joint Stock Company (Decarbonization Fund) has been operating since January 2024.

The full package of shares was transferred to the state in the form of the State Agency for Energy Efficiency and Energy Saving (State Energy Efficiency Agency). And already at the end of August 2024, the company received a license from the National Bank to operate as a financial company. So, together with the status of a financial company, the Decarbonization Fund acquired the ability to lend to projects.

These changes finally launched a financing mechanism that gives organizations and businesses the opportunity to implement projects to improve energy efficiency, green energy and reduce greenhouse gas emissions into the environment.

Who can apply for financing from the Decarbonization Fund, what are the prospects for the implementation of projects and the credit conditions for their implementation, Olesya Mishchenko, head of the board of JSC "Decarbonization Fund of Ukraine", shared with "Ukrainian Energy".

- You have significant work experience in the financial sphere, how did your work in the energy industry begin?

- If you look at my background in this way, I am still a person of finance. My practical work experience began in 2002 and was related to financial organizations, banks, financial companies, and lending. So, I can consider myself a specialist in exactly these issues.

However, in May 2023, I radically changed the direction of my activity and came to work at the State Energy Efficiency Agency, namely the Department of Strategic Development. At that time, the Agency, headed by Hanna Zamazeyeva, faced the task of developing a tool that would allow for the effective use of funds from the Fund for Decarbonization and Energy-Efficient Transformation of Ukraine.

Working at the State Energy Efficiency Agency provided invaluable experience, which now allows me to conduct a comprehensive assessment: analyze projects in the field of energy efficiency and at the same time combine it with project financing expertise. At the first stage, specialists of the State Energy Efficiency Agency communicated with the market, analyzed potential directions and worked out various options for the fund's work.

In this way, a unique state financial instrument was born, as a joint-stock company "Decarbonization Fund of Ukraine". The developed tool will allow the funds of the Fund for Decarbonization and Energy-Efficient Transformation of Ukraine to be effectively managed.

- What are the prerequisites for the formation of the Decarbonization Fund?

- In order to avoid confusion, it is worth distinguishing between the concepts of the Fund for Decarbonization of Ukraine, as a joint-stock company, and the Fund for Decarbonization and Energy-Efficient Transformation of Ukraine, as a budget article.

Therefore, the Fund for Decarbonization and Energy Efficient Transformation of Ukraine was established on April 8, 2023. But work on its formation began back in 2016 in cooperation with the State Energy Efficiency Agency and relevant ministries: the Ministry of Energy, the Ministry of Regions, the Ministry of Infrastructure.

It was very active joint work on the development of energy efficiency, which is related to the fulfillment of the mandatory conditions for joining the EU. According to the National Energy Efficiency Action Plan, a 17% reduction in final energy consumption and a 65% reduction in CO2 emissions compared to 1990 is expected by 2030, which is provided for in the Updated Nationally Determined Contribution of Ukraine to the Paris Agreement.

In order to achieve the stated goals, a specialized budget fund was created, that is, the Fund for Decarbonization and Energy-Efficient Transformation of Ukraine, which is filled with CO2 emissions taxes.

At the same time, the "Decarbonization Fund of Ukraine" joint-stock company, in contrast to a line in the budget, is a financial instrument that, in accordance with the procedure for using the funds of the fund, directly implements the process of issuing soft loans in order to implement energy efficiency projects.

Of course, in the work on the creation of a joint-stock company, the best European experience was analyzed. For example, we worked closely with the Danish Energy Agency, which has many similar decarbonization programs. Today, we already comprehensively apply European practice, taking into account our legislation and our realities.

- It is known that the Decarbonization Fund operates according to the principle of a revolving mechanism. How does it work?

- That's right. The revolving mechanism, like the Fund for decarbonization and effective transformation, was created according to the "polluter pays" principle, which provides for filling the Fund with an environmental tax on CO2 emissions. The main payers of this tax are large industrial enterprises. Similar European funds, which use a revolving mechanism, operate according to this principle.

So how does it work? The fund is accumulative, part of the funds is directed to the reimbursement of interest in banks, and the main part - to the provision of discounted loans for the implementation of projects for the implementation of energy-efficient measures and the reduction of carbon dioxide emissions.

The funds that were issued on credit will be returned by our borrowers, and then they will again be directed to preferential lending for energy-efficient projects. That is, it is this rotary mechanism that indicates its revolver. Because these, for example, are not just grant funds that we conditionally "distributed and forgot", but preferential loans that, after the implementation of projects, the candidates return and these funds are re-directed to new projects.

- Considering that there is currently a small tax on emissions in Ukraine, with what financial volumes can the fund operate?

- The fund has been operating for the first year, and we do not yet have our own statistics to forecast performance. But according to the Ministry of Finance, the fund is expected to fill up to UAH 800 million in 2024, about UAH 1,750 million in 2025, and UAH 1,860 million in 2026. But these are calculations for now, if the rate of this tax will remain at today's level.

– What are the sources of funding and the purpose of the Decarbonization Fund?

- We have several options. The first and, to date, the main source of filling is taxes on CO2 emissions. The next source is material and technical assistance from international organizations and partner countries. By the way, we have already signed an agreement with UNDP in the framework of international technical assistance. We are talking about the project "Eliminating barriers to promote investments in the energy efficiency of public buildings in small and medium-sized cities of Ukraine through the development of energy service companies (ESCOs)".

Yes, there is still a small amount, about 13 million hryvnias, but this is a pilot project. That is, this is the first step, which will further make it possible to fill this Fund with international financial resources and direct them specifically to energy efficiency projects.

With regard to the target purpose, the directions are clearly prescribed in the procedure for using the funds of the fund - these are projects in the field of energy efficiency and decarbonization, as well as the development of alternative, renewable energy sources and alternative types of fuel.

- And in terms of decarbonization, which projects could be suitable?

- The fact is that all projects must meet two key indicators: energy saving, or the replacement of thermal or electrical energy from the network, and the reduction of greenhouse gas emissions into the environment.

These two indicators are interrelated. For example, if we reduce electricity consumption, then greenhouse gas emissions are automatically reduced. If we switch from traditional fuel sources, such as hard coal, to alternative fuels, for example, biomass from corn, sunflower, etc., this also leads to a reduction in greenhouse gas emissions.

So, it would be wrong to say that some project in the field of energy efficiency is aimed only at decarbonization, since they contribute to the reduction of two indicators at the same time.

- That is, if dirty production implements a project that will reduce emissions, then it can also apply for preferential credit?

- In principle, yes, if this project, for example, involves the installation of additional greenhouse gas traps. There will definitely be additional equipment, which most likely will have energy efficiency indicators, and decarbonization is added as a plus. Yes, I think it is possible.

Unfortunately, we do not yet have the practice of such solutions, but if we take it as an idea and rely on the experience of European countries, then such projects can indeed be considered.

- Which target candidates can take advantage of preferential lending and what are the main conditions for obtaining a loan?

- First of all, these are legal entities of private, communal and state law, these are natural persons, entrepreneurs, and these are local self-government bodies.

Regarding requirements for customers. The company that applies to us must be registered and have been operating for at least one year. That is, the Decarbonization Fund lends to active business projects, not startups.

As for the lending conditions, the maximum loan rate can be up to 9%, but it can also be reduced to 4-5 and 6%, it depends on the amount of loans, the type of project and additional conditions.

If a candidate for state aid will use equipment from a national manufacturer in his project, then another 2% per annum is deducted from the base rate. The interest is fixed for the entire term of the credit agreement, which can be up to 10 years. Mandatory personal contribution to the project is from 15% of participation with own funds. The equipment that will be used in the project or other property that the enterprise has can be considered as collateral.

- Are there real projects that have already received funding, or are they awaiting loans from the Decarbonization Fund?

- Currently, applications are submitted to us for quite a variety of projects, however, not all of them fall under the conditions.

The first loan issued was directed to the implementation of an energy-efficient street lighting project in the city of Voznesensk, Mykolaiv Oblast.

Replacing old lamps and equipment with new ones will save almost 50% of the energy currently consumed. The project implementation period according to the plan is six months, the partners received a loan on time, work is proceeding actively, without delays in the supply of equipment. We even see that the project can be implemented earlier than the stated deadline.

The following projects concern the financing of energy service companies. They are aimed at improving heating systems in kindergartens. Thanks to this, the use of thermal energy will be reduced in buildings without loss of comfort for children.

At the same time, the Fund is considering ESCO projects for water utilities, medical facilities, and educational institutions. There are projects aimed at installing solar capacities for the own production of industrial manufacturers of small and medium-sized businesses.

We are considering a project to install boiler rooms on an alternative type of fuel for heating small towns. A successful project for the installation of a cogeneration plant is also being finalized.

- What is the amount of loans issued today, maybe you can say something about the average check of the Fund's projects?

- The received loans are still few, they are issued at 9% and 7%, from small ones - for 500,000 UAH for a kindergarten to 18.5 million UAH for street lighting in a medium-sized city.

Since there are still few loans, the average check will be irrelevant for now. But when we studied the market and evaluated possible projects, if, for example, we implement an ESCO project, the average amount that clients will ask for will be approximately UAH 3-4 million.

If we evaluate the installation of cogeneration plants or boilers on alternative types of fuel, then these are the maximum loan amounts - about 25 million hryvnias.

As for solar stations for own production, or in general for receiving electricity from renewable sources, in this case, the amount of the loan will depend on the project that is submitted. And there the check can be from UAH 2 million to UAH 25 million depending on the power of the solar station.

We are currently working on proposals for changes to the resolution on increasing project funding. Because there are already many projects whose needs exceed the maximum amount that we can lend. Therefore, in the near future we expect to be able to provide loans in the amount of UAH 50 to 90 million.

- How do you assess the pace of project consideration?

- As they say, for someone something big is not big, and for someone it is the opposite. We issued the first loan on the 20th of September, around the same time we started the full-fledged work of our joint-stock company.

We currently have about 16 projects under consideration. Of course, on the scale of Ukraine, this is not a lot at all, but if you clarify that it was done in a month and a few days, then 16 projects is already a significant number. Because it is necessary to really evaluate and understand the importance, interest and most importantly the effectiveness of each project, because we are also, in some sense, responsible for their successful implementation and the subsequent gradual return of funds to finance new projects.

- What would you advise candidates for funding so that their applications are considered and successfully accepted?

- I can advise you to approach the preparation of the project very adequately, because the term of consideration of the application depends on how responsibly the borrower treats the preparation of documents.

I advise you not to be afraid to ask questions. Even if our help requesters understand that they ate a pound of salt on the implementation of such projects, and know and know everything, it is worth consulting and making sure that they really fill in everything correctly.

Accordingly, it is very important to understand the reality of the proposed project and possible risks. This is a guarantee that the project will be launched, implemented and will continue to work.

-What issues would you like to highlight from what we did not touch on?

- Perhaps the main task is to convey directly to the future clients of our organization: regardless of the fact that our company is 100% owned by the state, we are open to the market, open to communication with its participants. And we would really like to be in touch with our future partners.

The terms of the Decarbonization Fund may not yet be suitable for some individual projects, but we remain open to you. Therefore, we invite companies to share their ideas and experience, to provide information so that we can improve our tool together and implement as many cool and important projects as possible for the country.

Larisa Bilozerova, specially for "Ukrainian Energy"