Poland - Energy Efficiency and Renewable Energy Development Policy Loan Project

 Document of TheWorld Bank Report No: ICR2605 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-80700) ON A LOAN IN THE AMOUNT OF €750 MILLION (EQUIVALENT TO US$1.11 BILLION) TO THE REPUBLIC OF POLAND FOR AN ENERGY EFFICIENCY AND RENEWABLE ENERGY DEVELOPMENT POLICY LOAN June 25, 2013 Sustainable Development Department Central/South Europe and Baltics Country Department Europe and Central Asia Region  CURRENCY EQUIVALENTS (Exchange Rate Effective as of February 2011) Currency Unit US$1.00 2.8 PLN EUR 1.0 3.97 PLN Weights and Measures Metric System FISCAL YEAR JANUARY 1 – DECEMBER 31 ABBREVIATIONS AND ACRONYMS BAU Business As Usual (scenario) CHP Combined Heat and Power CPS Country Partnership Strategy CFAA Country Financial Accountability Assessment EE Energy Efficiency ESCO Energy Service Company FDI Foreign Direct Investment GDP Gross Domestic Product GIS Green Investment Scheme GNP Gross National Product HIPC Heavily Indebted Poor Countries IBRD International Bank for Reconstruction and Development IDA International Development Association IFC International Finance Corporation IMF International Monetary Fund JSAN Joint Staff Advisory Note LDP Letter of Development Policy MAC Marginal Abatement Curve MDGs Millennium Development Goals MOE Ministry of Education MOF Ministry of Finance MOH Ministry of Health MOI Ministry of Infrastructure MTEF Medium-Term Expenditure Framework NBP National Bank of Poland NEEAP National Energy Efficiency Action Plan NREAP National Renewable Energy Action Plan OPFs Open Pension Funds PER Public Expenditure Review PHRD Japan Policy and Human Resources Development Trust Fund RE Renewable Energy ROSC Report on the Observance of Standards and Codes SDR Special Drawing Rights TMRF Thermodernization and Renovation Fund  Vice President Philippe H. le Houerou Country Director Peter C. Harrold Sector Manager Ranjit J. Lamech Project Team Leader Gary Stuggins ICR Primary Author Ryszard Malarski  THE REPUBLIC OF POLAND ENERGY EFFICIENCY AND RENEWABLE ENERGY DEVELOPMENT POLICY LOAN CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Program Performance in ISRs H. Restructuring 1.  Program Context, Development Objectives and Design ............................................................ 1  2.  Key Factors Affecting Implementation and Outcomes .............................................................. 4  3.  Assessment of Outcomes ........................................................................................................... 7  4.  Assessment of Risk to Development Outcome ........................................................................ 17  5.  Assessment of Bank and Borrower Performance ..................................................................... 18  6.  Lessons Learned ....................................................................................................................... 20  7.  Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......................... 20  Annex 1. Bank Lending and Implementation Support/Supervision Processes .............................. 21  Annex 2. Beneficiary Survey Results ............................................................................................ 22  Annex 3. Stakeholder Workshop Report and Results .................................................................... 23  Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR ...................................... 24  Annex 5. Comments of Cofinanciers and Other Partners/Stakeholders ........................................ 25  Annex 6. List of Supporting Documents ........................................................................................ 26  MAP ............................................................................................................................................... 27  A. Basic Information Energy Efficiency Country: Poland Program Name: Development Policy Loan Program ID: P115426 L/C/TF Number(s): IBRD-80700 ICR Date: 06/25/2013 ICR Type: Core ICR REPUBLIC OF Lending Instrument: DPL Borrower: POLAND Original Total USD 1,114.50M Disbursed Amount: USD 1,077.79M Commitment: Revised Amount: USD 1,114.50M Implementing Agencies: Ministry of Finance Cofinanciers and Other External Partners: B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 12/06/2010 Effectiveness: 07/05/2011 Appraisal: 03/22/2011 Restructuring(s): Approval: 06/07/2011 Mid-term Review: Closing: 03/31/2012 03/31/2012 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Moderate Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Moderately Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance: Performance: C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Rating: Performance any) Potential Problem Program No Quality at Entry None i at any time (Yes/No): (QEA): Problem Program at any Quality of Supervision No None time (Yes/No): (QSA): DO rating before Closing/Inactive status: D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Energy efficiency in Heat and Power 83 83 Other Renewable Energy 17 17 Theme Code (as % of total Bank financing) Climate change 92 92 Pollution management and environmental health 8 8 E. Bank Staff Positions At ICR At Approval Vice President: Philippe H. Le Houerou Philippe H. Le Houerou Country Director: Mamta Murthi Peter D. Thomson Sector Manager: Ranjit J. Lamech Ranjit J. Lamech Program Team Leader: Gary Stuggins Gary Stuggins ICR Team Leader: Gary Stuggins ICR Primary Author: Ryszard Malarski F. Results Framework Analysis Program Development Objectives (from Project Appraisal Document) The program development objective of the proposed operation is to support the Government's program to: (i) decrease actual final energy consumption by 9% by 2016 and reach a 20% reduction target by 2020 compared to business as usual; and (ii) increase the share of renewable energy in final energy consumption to 15.0% by 2020. These targets are part of Poland's commitment towards the EU in the context of the latter’s energy and climate change package. Against the backdrop of tight fiscal constraints and the need to maintain economic growth and alleviate poverty, energy efficiency measures have been identified as the highest priority and least cost way to decrease airborne emissions. Because of its large energy savings potential, the buildings sector will be the primary focus of measures to reduce energy use. Biomass and wind power are expected to be the main sources of new renewable energy through 2020. ii Revised Program Development Objectives (if any, as approved by original approving authority) (a) PDO Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Draft Ordinance determining the level and method of calculation of the energy Indicator 1 : savings obligations imposed on energy suppliers for the implementation of the White Certificate Program to be prepared by Ministry of Economy Draft Ordinance was Value prepared and finanl (quantitative or No Ordinance Draft Ordinance ordinance was Qualitative) adopted Date achieved 06/07/2011 06/30/2012 09/04/2012 Comments (incl. % Fully achieved achievement) Adequate support for the implementation of the energy efficiency program as Indicator 2 : measured by at least maintaining 2011 staffing and budget levels of the energy efficiency unit within the MoE. Value (quantitative or 4 staff 4 staff 7 staff Qualitative) Date achieved 06/07/2011 06/30/2012 06/30/2012 Comments (incl. % Fully achieved achievement) Indicator 3 : Energa to install 200,000 smart meters Contract in place for installation of Value 200,000 smart 310,000 by end of (quantitative or 0 meters to be 2013, of which Qualitative) installed 109,000 were installed in 2012 Date achieved 06/07/2011 06/30/2012 06/30/2012 Comments (incl. % Partially achieved and in progress to achieved by end 2013 achievement) Provide financing for the Thermo-Modernization and Renovation Fund of at least Indicator 4 : PLN 200 million in 2011 200 million PLN allocated for the In 2011 260 million Value No allocation in the 2010 TMF in the 2011 PLN was allocated, (quantitative or budget for the TMF budget, leveraging and 1.7 billion Qualitative) more than 1 billion leverage PLN iii  Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Date achieved 12/31/2010 12/31/2011 06/30/2012 Comments (incl. % Fully achieved achievement) First year data available on categories of heavy vehicles, their emission levels and Indicator 5 : their estimated fuel consumption Total fuel consumption and top down estimation of Value CO2 emissions (quantitative or No data available No data available available. Complete Qualitative) data by category of heavy vehicles not available. Date achieved 06/07/2011 06/30/2012 06/30/2012 Comments (incl. % Partially achieved. achievement) Indicator 6 : The share of renewable energy in final energy increases Value 7.2% of final energy 9% of final energy 2010: 9.58% (quantitative or consumption consumption 2011:10.60% Qualitative) Date achieved 12/30/2009 12/30/2011 06/30/2012 Comments (incl. % Fully achieved achievement) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Number of applications for approval of heat tariff changes and forecasted reduction of Indicator 1 : heat and power Value No applications were 15 applications to be (quantitative or 12/31/2011 submitted submitted Qualitative) Date achieved 12/15/2010 12/15/2011 06/30/2012 Comments (incl. % achievement) iv G. Ratings of Program Performance in ISRs Date ISR Actual Disbursements No. DO IP Archived (USD millions) H. Restructuring (if any) Not Applicable v 1. Program Context, Development Objectives and Design 1.1. Program Context: 1. At appraisal, Poland had shown remarkable resilience to the global financial crisis. In the decade leading up to the crisis, Poland’s increasing integration with Europe brought strong economic expansion and convergence to EU income levels. As the crisis broke out, this integration made Poland vulnerable to collapse in regional capital, trade and labor flows, but Poland’s companies, workers and households weathered well the impact of the global financial crisis. Poland remained one of the fastest growing EU countries in 2010. Real GDP expanded by 3.8 percent in 2010, the fourth highest rate in the EU. Growth was driven by growing domestic demand and supported by the overall resilience of the labor market and reviving bank credit expansion to households. The decline in private investment was largely compensated by a double-digit expansion in public investment, which constituted about 30 percent of total investment. Public investment was stimulated largely by EU funds. 2. Fiscal policy supported the recovery. The general government deficit was estimated to have increased further from 7.4 percent of GDP in 2009 to 7.9 percent of GDP in 2010. The overrun in the 2010 fiscal deficit compared to the target of 6.9 percent of GDP was due to higher local government deficits as well as weaker-than-expected tax collection, linked mainly to low corporate income tax collection, as enterprises used loss carry-over provisions to lower tax returns. For example, state budget execution data suggest that the underperformance of corporate income tax and personal income tax caused an increase in the fiscal deficit of 0.5 percent of GDP. The Public debt according to ESA95 (Eurostat) methodology was estimated to have increased from 50.9 percent of GDP in 2009 to 54.8 percent of GDP in 2010. 3. In this macroeconomic context, the Government faced the dilemma of reducing harmful emissions while maintain its focus on economic growth to converge with EU-15 and do this in a constrained fiscal environment. Poland is committed under EU regulations (referred to as the EU 2020 climate package) to make improvements in energy savings on supply and demand sides, limit Greenhouse Gas (GHG) emissions, and introduce a larger share of renewable energy in its energy supply mix. Energy efficiency measures particularly in the buildings sector were identified as the highest priority and least cost way to decrease GHG emissions. Renewable energy was also expected to help reduce GHG emissions to some extent, with biomass and wind power expected to be the new main sources of renewable energy through 2020. 4. Consistent with these findings, the Government’s Energy Policy until 2030, adopted by the Council of Ministers in November 2009, identified the key objectives of Polish energy policy: (i) improve energy efficiency; (ii) enhance the security of fuel and energy supplies; (iii) diversify electricity generation by introducing nuclear energy; (iv) develop the use of renewable energy sources, including biofuels; (v) develop competitive fuel and energy markets; and (vii) reduce the environmental impact of the power industry. The Energy Efficiency and Renewable Energy DPL was an anchor for the strategic dialogue between the Bank and the Polish authorities, in particular in the area of regional and global public goods. The overarching goal of the Country Partnership Strategy (CPS) is to support Poland’s convergence towards EU living standards. The Bank’s strategic partnership with Poland is based on four pillars: (i) Growth and Competitiveness; (ii) 1 Public Sector Reform; (iii) Social and Spatial Inclusion; and (iv) Regional and Global Public Goods. With the Energy Efficiency and Renewable Energy DPL, the Bank focused on supporting energy sector reforms related to the EU’s energy and climate policies. 1.2. Development objective: 5. The program development objective of the operation was to support the Government’s program to: (i) decrease actual final energy consumption by 9% by 2016 and reach a 20% reduction target by 2020 compared to business as usual; and (ii) increase the share of renewable energy in final energy consumption to 15.0% by 2020. 1.3. Project design: 6. The Policy Areas and prior actions supported by the program were: 7. Policy Area I: Developing the Legal Framework to support the Energy Efficiency Strategy. In the Government’s Energy Strategy for 2030, Energy Efficiency was given key priority and considered a cornerstone for successful implementation of the Policy. A National Energy Efficiency Action Plan (NEEAP) was prepared in compliance with the requirements of the EU’s Energy Services Directive. However, it was unlikely that energy efficiency targets were met without changes to the legal and regulatory frameworks. 8. The prior action supported by the DPL was approval in 2011 of the Energy Efficiency Law. The Law put in place the enabling environment for the Government’s White Certificates program which was critical in helping Poland meet its EU targets on energy efficiency in a quasi-market- based manner. The Energy Efficiency Law also made provisions for the Government to reduce its energy consumption; thus playing an important role in setting a good example for others. 9. Policy Area II: Decrease Supply-Side Energy Use. Increased use of cogeneration for the production of electric power and heat, particularly in the small-medium size plant ranges, was of critical importance in increasing energy efficiency on the supply side. To accomplish this, the Government set a target to double the amount of electric power supply through cogeneration between 2006 and 2020. One of the principal tools used by the Government was expansion of the existing “rainbow scheme