Latvia faces significant social and economic challenges regarding the structural deterioration of its stock of residential buildings. Multifamily buildings in Latvia consume 50%-60% more energy than necessary. At the same time, often residents still receive unsatisfactory services: low temperatures in rooms, cold walls, draft and bad air quality. All of this is because of poor building energy efficiency and deferred maintenance.
It is estimated that over 120 million families live today in these dilapidated buildings constructed between 1954 and the late ‘80s in Eastern Europe. In Latvia alone, there are more than 30 million square meters of multifamily buildings made in this period.
Deep renovation is the idea of capturing the full economic energy efficiency potential of a building with focus on the building fabric. It leads to remarkable energy savings. As nearly all of Latvia’s stock of multifamily residential buildings continues to rapidly deteriorate due to harsh weather conditions and lack of proper maintenance, this idea is attractive.
Realizing this potential requires designing, financing and implementing complex energy efficiency investments. However, nearly all apartments in Latvia are privately owned. Practice showed that individual owners are inadequately organized to manage their collective property. Adding to the mix a lack of awareness and of technical knowledge, limited availability of funding and reluctance for debt financing, the barriers toward renovation are too high for most people.
A concept that addresses these constraints is long-terms energy performance contracting (EPC) for deep renovations. A key feature of this type of EPC is that the ESCO guarantees the energy savings, the indoor comfort of the apartments and the quality of the works. However, most ESCOs have limited balance sheet capacity and are not able to support much long-term debt.
How to turn this weakness and problems into an opportunity is the key to the SUNShINE project. SUNShINE delivered a process approach to the deep renovation of multifamily buildings by standardizing each step, from the technical, financial and legal standpoint of view; allocating risks to the stakeholders best suited to manage them and setting guarantees for apartment owners and tenants. The project established the Latvian Baltic Energy Efficiency Fund, which buys future receivables from energy performance contracts, enabling ESCOs to focus on developing new projects.
The proposed approach was tested in the markets, delivering a pipeline of deep renovation projects worth €25.5m and with the first forfating transaction executed in the sector.
