Innovative financial instrument can accelerate the deep renovation of Latvia’s Soviet-era buildings
The Soviet era didn’t exactly shine through its residential architecture. From the 1950s to the late 1980s, low-cost residential buildings commonly known as Khrushchyovka sprouted up across Eastern Europe. And time didn’t do them any favour. In Latvia for instance, most buildings keep deteriorating at a worrying pace in spite of subsidies. “Without a significant acceleration in the pace of renovations, most of the multifamily buildings will become unhabitable,” says Marika Rošā from Riga Technical University. When these buildings were constructed, energy efficiency wasn’t a concern either. But things have changed. They usually consume 50 to 60 % more energy than necessary, whilst the EU aims to reduce buildings’ energy consumption by at least 32.5 % before 2030. So why not tackle both issues simultaneously? “Renovating an existing building costs less than a quarter of the cost of building a new one. It can bring high energy efficiency standards for at least the next 30 years, and residents can remain in their home during the works,” Rošā explains. This is precisely what the project SUNShINE (Save your bUildiNg by SavINg Energy – towards 202020m2 of deeply renovated multifamily residential buildings), which brings together Latvian stakeholders, proposes.
A new financial instrument
By creating an entirely new financial instrument that enables long-term financing with affordable conditions and terms, the project overcomes the main barriers to energy-efficient renovations. These include the fact that such renovations would normally cost more than what owners are willing to pay, that energy cost savings do not fully cover the investment, and that renovating is not necessarily a priority for families. SUNShINE provides a standardised, long-term energy performance contract for deep renovation. Energy service companies (ESCOs) are directly in talks with apartment owners and understand exactly what they are paying for. “Transparency of the fee structure in the standardised energy performance contracting (EPC) was a key issue we worked out. The contract also provides clear guarantees related to energy efficiency, indoor climate and performance, along with new maintenance practices. Instead of acting upon complaints, ESCOs now proceed to a previously scheduled maintenance,” Rošā adds. In addition, the project tackled a significant barrier preventing ESCOs from engaging in energy retrofitting projects: improve ESCOs’ balance sheet capacity to take on more projects. SUNShINE set up the Latvian Building Energy Efficiency Facility (LABEEF) with the aim of forfeiting receivables from EPCs and therefore reducing the debts on ESCOs’ balance sheets. The project successfully enabled 31 projects across Latvia, totalling EUR 25.5 million of investments, to be scheduled for implementation. Nine of them are already at an advanced stage of development and the remaining ones should be completed within the next 2 years. LABEEF has for instance forfeited a portfolio of six buildings from project partner RenEsco. As Rošā points out, each EPC is equivalent to a 20-year project. “Every year the project must deliver a measurement and verification (M&V) report,” she notes. A website has also been developed to help ESCOs and owners of multifamily buildings to develop their project in compliance with a standardised process. This reduces transaction costs, boosts market development, and provides tools and guidelines to ESCOs interested in the deep renovation of residential buildings. Beyond these achievements, SUNShINE has delivered high standards of renovation quality, jobs and stable work opportunities for the construction sector, and a solution attracting private finance. It will help preserve existing housing over the next 30 years as well as support the EU’s Green Deal objectives, in particular its renovation wave. “The road ahead is long and difficult,” says Rošā. “But even if it is, our team certainly made a point and demonstrated the scalability of our solution.”
Keywords
SUNShINE, standards, Latvia, residential buildings, energy efficiency, financing, energy performance contract, forfeiting, renovation wave, multifamily buildings, Green Deal, deep renovation
