Report

Teaser, summary, work performed and final results

Periodic Reporting for period 1 - SUNShINE (Save your bUildiNg by SavINg Energy – towards 202020m2 of deeply renovated multifamily residential buildings)

Teaser

Latvia faces significant social and economic challenges over the next 20 years regarding the structural deterioration of its residential building stock. Multifamily buildings in Latvia consume 50%-60% more energy than necessary. At the same time, often residents still receive...

Summary

Latvia faces significant social and economic challenges over the next 20 years regarding the structural deterioration of its residential building stock. 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.

Deep renovation – the idea of capturing the full economic energy efficiency potential of existing buildings with focus on building envelopes – leads to remarkable energy savings. As nearly all of Latvia’s stock of multifamily buildings continues to rapidly deteriorate due to harsh weather conditions and lack of proper maintenance, the idea is attractive.

Realizing this potential requires designing, financing and implementing complex energy efficiency and structural combined investments; but today nearly all apartments in Latvia are privately owned. Practice shows that individual owners are inadequately organized to manage their collective property. Combined with a lack of awareness and technical knowledge, limited availability of funding, high risk perception and reluctance for debt financing, the barriers overwhelm most people.

A concept that addresses these constraints is Energy Performance Contracting (EPC). A key feature of EPC is that the provider, an energy service company (ESCO), guarantees the costs, quality of the works and energy savings.

SUNShINE supports public and private ESCOs and leads to an innovative investment scheme with a pipeline of projects worth €30m, guaranteed savings over 26GWh/year, and 202020m2 of deeply renovated multifamily buildings. A major objective is to demonstrate the financial viability of deep renovation via suitable financial engineering of public funds and private capitals.

The proposed approach is simple, yet very innovative: most ESCOs have limited balance sheet capacity and are not able to support much long term debt. So re-financing is usually achieved by selling future cash flows (receivables) by a forfaiting transaction. After this transaction, the ESCO continues to guarantee energy savings for the entire EPC term (15-20 years). Unfortunately, in emerging EPC markets like Latvia, there are not enough track records, so banks are not yet ready to offer these services to ESCOs. The project delivers the same service by establishing a special purpose fund for EPC.

Work performed

SUNShINE is triggering a new industry requiring strong support from central government as well as local governments, while at the same time the project ensures the development of project pipelines to reach the ambitious target of more than 200000 m2 of deeply renovated buildings.

In this respect the project has been successful in securing public support. Most importantly this included ensuring that Energy Performance Contracting is included in the final version of the law on Energy Efficiency and also in national regulations regarding the use of European Regional Development Funds. This has required discussions with officials both at the Ministry of Economics and at the Ministry of Finance as well as with members of the management of the Latvian State owned Development Financial Institution (ALTUM). These constructive exchange of information are a continuous ongoing dialogue between different stakeholders.

In addition, SUNShINE has secured €10m to support ESCO activities from the Ministry of Economics. The form of support is under discussion.

During this period a significant amount of time has been spent at the Commission for the Protection of Consumers Rights for reviewing all SUNShINE prepared legal documentations; in particular the standard template of Energy Performance Contract. This ensured that the proposed documentation is in line with consumer’ rights.

A major SUNShINE milestone has been the incorporation and establishment of the Latvian Baltic Energy Efficiency Facility (LABEEF), which aims at “purchasing” receivables from energy performance contracts in buildings. This can occur only if the project comply with the requirements provided in the LABEEF’s Investment Guideline.

Given that SUNShINE aims at deep renovation, access to long-term lenders is a major gap and target. In this direction, SUNShINE pursued two different activities: 1. immediate financing needs to provide gearing of the LABEEF, and 2. long term financing. Regarding immediate financing LABEEF is in negotiations with European Bank for Reconstruction and Development, which is now met with some success but not yet in place.
Regarding long-term lenders meetings have been held with the Ministry of Welfare to discuss changes in regulation for pension funds operating in Latvia. This is a very early stage as it will require significant effort to ramp up. In parallel, SUNShINE has opened discussions with the European Investment Bank and several private banks.

Meanwhile ESCOs in SUNShINE have started to develop concrete project pipelines. More than 30 buildings (approximately 75000m²) have been directly contacted for engaging them in building renovation. Currently there are nine projects (about 19500m²) at an advance stage of development. This first portfolio of buildings will require about €3.03m. The physical renovation of these projects is planned in 2017. Additional six buildings are currently at the inception stage of development, and the physical renovation is also planned for 2017. The estimated energy savings for these buildings are in the range of 55-60%.

Finally the general project website and platform is available online. The platform, which is still under development, is a major achievement of the project helping ESCOs and owners of multifamily buildings to develop their project in a standardised process. This allows to reduce transaction costs and help market development, providing tools and guidelines to ESCOs addressing the challenging market of deep renovation of residential buildings.

Final results

SUNShINE has achieved important progress beyond the state of the art:
• When the SUNShINE project started, ESCOs in Latvia were not fully recognize as a relevant stakeholder in the energy efficiency industry. Now a specific regulation for ESCOs is under development and Ministries in Latvia are convinced on the potential benefits of the concept.
• SUNShINE, through a wide set of dissemination and communication activities, has contributed to promote Energy Performance Contracting; and more than seven companies, informed and trained by SUNShINE, intends to use EPC for deep renovation of buildings.
• SUNShINE is not only about energy efficiency, most of all it is about housing. To provide safe, healthy and comfortable long term housing is therefore the societal challenge of the project. SUNShINE has contributed to address this challenge by acknowledging the need of long term financing for deep renovation of multifamily buildings. It has also convinced the Ministry of Economics, which indeed has designed the support programme, based on European Regional Development Funds, with a 20 years economic model.
• Municipalities have an important role in addressing and helping their inhabitants to renovate their buildings. SUNShINE has successfully committed four municipalities to develop a support programme, where they will act as EPC facilitators. An application for technical assistance has been prepared.

Website & more info

More info: http://www.sharex.lv.