Follow-up Latvian CITYnvest workshop
CITYnvest organised two national Latvian workshop, the first workshop in February 2016 and the second follow-up workshop in May 2017. The first workshop had the objective to bring stakeholders together to discuss how to trigger the market uptake for energy efficiency in buildings. The second focused on the progress done so far in the last year, and on recommendations to be delivered to policy decision makers.
In each focus country, CITYnvest first investigates the characteristics of the energy efficiency market and which support local and regional governments need to deploy their own long-term financing models. The second workshop allowed to see the progress done so far in terms of understandings and actions in Latvian building retrofitting.
In this section, you can read a summary of the findings, which were developed in cooperation with the Latvian Association of Local and Regional Governments. It will be continuously updated, based on the feedback of municipalities that participated in the workshop and national experts.
What is the current context?
In Latvia, the main focus is on renovations of the residential sector and on multi-apartment buildings in particular. Multi-apartment buildings are strongly dominate the residential sector.
Most of the multi-apartment buildings in Latvia have a mixed ownership (59%), but there is also private individual ownership (29,4%), municipal property ownership (4,8%), property of legal persons and firms (4,2%), and state property (0,2%). In those buildings, retrofitting projects are difficult to implement, because the approval of at least ¾ of apartment owners in the building is required in order to obtain financing and to start a project. As a result, in Latvia, renovations of buildings progresses very slowly. According to Latvian legislation and bank financing rules, in order to obtain a credit for renovation of multi-apartment buildings, at least 51% of owners should accept the collective decision regarding the renovations (voting takes place before the renovation project starts).
Latvian citizens are not convinced that renovations of apartment buildings are necessary. The apartment owners do not perceive the whole building as their property, as they own only a part of a building (their apartment) and energy retrofits need to be done holistically (including common parts, such as corridors, roofs etc.). They are also afraid of various financing models for energy retrofitting, as they are reluctant towards the credits with long payback periods. On top of that, Latvian banks mainly accept loans with 5 years payback period or less. They also do not have knowledge about renovation processes and possible technical solutions.
ALTUM is a state-owned development & finance institution, which offers state aid for various target groups with the help of financial tools. The main goal of ALTUM is to improve energy efficiency in multi-apartment buildings.
Conditions to receive ALTUM support:
- Apartment owners need to agree on renovations.
- Energy audit of buildings is necessary.
ALTUM was developed as a competence centre and first projects were submitted. However, ALTUM assessed that the first project proposals were of very low quality. ALTUM offers advice to the project beneficiaries; buildings or apartments’ owners. ALTUM approves energy audits and makes sure that the projects are in line with EU rules, construction law and bankable. It means that ALTUM provides technical and financial assistance to the beneficiaries.
There are two possibilities to finance buildings renovations through the ALTUM scheme:
1). The building owner can obtain a loan directly from ALTUM
2). The building owner obtains a loan from a commercial bank, while ALTUM issues guarantees.
The funds provided by ALTUM are mainly for owners of apartments. If ESCOs would like to obtain funding for renovations, it should be done via commercial credits from banks and existing guarantees for businesses. However, ALTUM is considering providing financial support for ESCOs in the future.
In Latvia, energy prices are regulated by the state: the heat tariffs for district heating companies are approved by the Public Utility Commission, which issues licences for district heating services as well. Thus, a real energy services market (which includes renovation of houses) does not exist. ESCO-type financing is slowly developing but until recently its growth was hindered by low awareness and lack of an appropriate legal framework.
The role of LALRG
Being a voluntary organisation of municipalities in Latvia, LALRG cannot directly participate in the renovation of private property of inhabitants, nor can LALRG give any credit guarantees. A similar situation exists in municipalities: they cannot give municipal credits due to the lack of finances, nor can they give any credit guarantees for inhabitants. Experience in Latvia shows that municipalities can support house renovation with advising, energy auditing, and technical expertise. Municipalities can directly renovate the apartments that they own, but it is a small part of all existing residential stock. Thus neither LALRG, nor municipalities can finance the renovation, they can only have a consulting and advising role.
What are the main barriers to accelerate investments in energy efficiency projects in buildings?
Policy oriented, legal and structural barriers
- Lack of coherent policy, lack of long term vision and excessively changing construction laws.
- Insufficient technical support for municipalities and apartment owners for project preparation and implementation. An additional barrier is that project development, project documentation and administration costs are excluded from the eligible costs in case of financing via loans.
- Insufficient number of professionally trained specialists (building managers, energy auditors, designers, construction workers) and lack of qualified workforce hinders the implementation of good quality renovation projects.
- Low awareness of buildings and apartment owners regarding the advantages related to the renovations of buildings which limits their interest in participation in retrofits of the residential sector.
- Low awareness and little trust in EPC/ESCO model on the side of both, citizens and banks
- Changes in legislation, that give the rights to the municipalities to create “rotation funds for energy efficiency” are only under preparation in government.
- Lack of financial resources on the side of local governments and the final beneficiaries (apartment owners). Limited possibility to take loans due to prior communal debts of the houses as centralised service users (mainly heat and water).
- Low availability of long term financing options (up to 20 years) from private sector. Reluctance of commercial banks to provide credits for renovation, especially in multi-apartment buildings. This reluctance is related to the requirement of obtaining the agreement of at least 70% of the inhabitants before applying for a loan.
- High renovation costs related to the bad condition of multi-apartment buildings constructions and engineering systems.
Market orientated barriers
- Lack of a fully developed ESCO market.
- The average size of projects too small to attract international ESCOs.
- Current low energy prices result in low return on investment in energy efficiency. Therefore, short payback time of energy efficiency investments is currently not possible.
Country specific guidance materials and reference projects
The main guidance document in renovation is the rules of Cabinet of ministers for getting support from EU funds (see the websites of the Ministry of Economy, ALTUM and the legislation news). ALTUM also had prepared some instructions and toolkits for retrofitting of houses, which can be found on the official website of the organisation.
The Riga Energy agency has made a proposal to create “Municipal rotation fund for energy efficiency”, but until now the legislation has not been finalised: it is allowed by the Energy Efficiency Law, but necessary documents for implementation have not yet been finalised.
- Find funding for technical assistance to develop your project:
One of the barriers identified in Latvia is insufficient technical support for preparation of the renovation projects. The European Union offers a range of support measures, which could be used in that case. More information in CITYnvest FAQ.
- Find ways to overcome the lack of an appropriate energy services market in your region
If there is lack of trust in EPC/ESCO models and the market of energy services is not fully developed, choose Separate Contractor Based models. Find examples in the CITYnvest barrier guidance tool.
- Find ways to overcome an insufficient number of professionally trained specialists
Developing dedicated structures (Programme Delivery Units) within the local and regional authorities, which will hire skilled project developers with sufficient knowledge about financing instruments and building renovations. Such specialists should be prepared in technical universities: only the people with a solid background can guarantee good quality of works provided.
See example of Energies Posit’if, which acts as an integrated service provider offering technical design, implementation and operations, financing and insurance services to owners of multifamily residential apartment buildings.
Similarly, developing standards for renovation projects within your business model can help to overcome this obstacle. See example of Sunshine.
- Find ways to bundle your investments in order to make them more attractive for international investors
Bundling renovation projects can significantly reduce transaction cost and make the project bankable.
See the section on “How to efficiently bundle buildings?” in the CITYnvest FAQ.
Consult a toolkit on how to set up a one-stop-shop to bundle different buildings across municipalities following the Renowatt model.
- Overcome the low return on investments by looking at additional grants as financial instruments
In order to learn more about the possible complimentary funding, see the FAQ section on European Support on the CITYnvest website. You can also look at examples of projects using grants as financial instruments in the CITYnvest barrier guidance tool.
- Reach out to other initiatives, which can support you with expertise on building retrofits
- Sustainable Energy Investment Forums
- Latvian-Baltic Energy Efficiency Fund
- Latvian Energy Efficiency Association
- Building and Energy Conservation Bureau
- Riga Energy Agency
- Latvian Sustainable Building Council
Get a step by step guidance from CITYnvest
Follow the different steps to build your own local financing model for energy efficiency renovations.
Local governments and experts in Latvia call on developing a nation-wide communication campaign targeting citizens in order to convince them of the necessity of implementing renovation of buildings, which would help to accelerate investments in energy efficiency retrofits.
Building good, trustworthy relationships between municipalities, the private sector (especially commercial banks), housing maintenance companies and skilled construction workers are crucial in order to unlock financing for energy efficiency renovations.
The sub-national level calls on developing competence centers, which would support preparation of renovation projects, which would lead to higher levels of investment in energy efficiency retrofits.