The EBRD is lending Colterm, a district heating company owned by the Romanian city of Timisoara, €15mn to invest in the energy efficient generation of both heat and electricity in a move that will reduce harmful greenhouse gas emissions.

By replacing outdated heat only generation units with more environmentally-friendly gas turbines, Colterm will cut carbon dioxide emissions by around 120,000 tonnes per year.

To cut a similar amount of CO2 using offshore wind-farm technology, an investment of around €120 million would have been needed. These reductions will help produce up to €4mn worth of carbon credits, which will be sold to the EBRD for the account of the Netherlands, following a joint agreement between the two in 2003 to help reduce emissions in central and eastern Europe.

It is the first project in Romania to directly link the financing of a project with carbon credits. The sale of these credits is instrumental in making the project viable.

It is a successful formula which should be considered in other cities, especially since district heating operators across many former command economies still require substantial restructuring, says Thomas Maier, EBRD director for municipal and environmental infrastructure. It also highlights the importance the bank places on cutting greenhouse gas emissions in eastern Europe and the need to mobilise extra income from the sale of the carbon credits, he added.

The total project cost is estimated at €23mn. A third of the EBRD loan will be syndicated to a commercial bank, while Colterm will provide an additional €
8mn towards the project. A portion of Colterm’s investment will be paid using an advance payment from the sale of carbon credits that will be generated by the investment.

Established in 2004, Colterm employs around 1,300 staff, and produces heat and electricity for more than 91,000 households across the city.

Gheorghe Ciuhandu, mayor of Timisoara, says this project will help turn around an ageing heating company into one that is more modern, efficient, and will also provide local households with a secure and constant supply of heat and electricity. The idea of generating and using carbon credits to pay towards the investment is an innovative approach that works greatly in favour of the company because it makes the project more financially viable, adds Ciuhandu.

The EBRD is the largest investor Romania, having committed more that €
3.2bn in around 115 projects. In the Municipal and Environmental sector alone, the bank has invested nearly €400mn providing financing for over €1.2bn in investment in Romania.