6,000 buildings which cover almost 75% of the total floor area (12 million m2 ) were built during the post-war period and need urgent renovation. The city housing accounts for 36% of energy consumption. Emissions related to district heating account for about 28 % of total emissions in the city territory.
Latvia’s National Reform Programme was set up to reach the sustainable development targets defined in the “Europe 2020” strategy. At the local level, the city of Riga approved the Riga Development Plan 2030 which includes energy and climate related measures in the housing sector. The mayor also signed the Covenant of Mayors, thus committing the city to reducing its CO2 emissions by at least 20% by 2020. Since this objective has already been reached, the new emissions reduction plan approved by the City Council aims to reduce emissions by 60% by 2030.
In Riga, one can distinguish three types of buildings:
The post-war buildings have the biggest energy saving potential.
When it comes to energy renovation, 6,000 post-war multi-apartment buildings have the highest priority. However, the renovation process is too slow. By 2015, only 68 buildings (1.13%) had been renovated. One of the reasons is that 75% of households plus 1 have to agree with the renovation. Although this may seem quite feasible, there is not enough information on possible options for carrying out the renovation. Secondly, the financial benefits are perceived to be low and not motivating despite the fact that the initial projects have shown promising results (energy savings of up to 60%).
Several financial instruments for energy renovation were available in the past or are still on the market but they have proved to be unsustainable or unattractive for homeowners:
On behalf of the city of Riga, Riga Energy Agency (REA) assessed several financial instruments that could fill the market gap.
Finally, REA selected the most relevant tool and proposed setting up a revolving fund and offering low interest and long-term loans to homeowners and non-profit organisations via ESCOs and tenant cooperatives. The loans are gradually repaid and flow back to the fund. Then they can be used again (the money revolves).
The soft loan is designed in a way that the monthly loan installments are always lower than the money saved thanks to energy savings. The loan is paid back through the utility bills managed by the Riga municipality administration. Homeowners have more flexibility when selling their property as the future homeowner takes on the responsibility of paying the utility bills. The debt is attached to a property not a homeowner.
The city provides free-of-charge technical expertise to homeowners and does not require any guarantee apart from the homeowners’ utility cash flow (banks normally require a lot more). The Fund targets the homeowners of the priority post-war multi-apartment buildings with energy consumption exceeding 177 kWh/m2 /year, whose average annual debts on utility bills are below 10% and who have voted for renovation (75%+1 flat owner). Although 60% heat energy savings have proved to be feasible in the past, REA’s business model assumes energy savings of 40%, to be on the safe side.
A short-term goal is to renovate 10 buildings in the first year and then at least 20 buildings per year.
It is planned that the Fund will start with EUR 34.5 million, of which EUR 4.5 million would be a contribution from Riga City Council and EUR 30 million would be a loan from a financing institution or an investment fund. It is expected that additional capital would come from a local municipal heating producer and supplier in addition to international financial institutions such as the European Investment Bank (EIB) or the European Bank for Regional Development (EBRD). The most important point with regards to external financing is that the interest rate charged by a financing institution / investor should be below 1% which will ensure the fund offers loans at the lowest possible rate for citizens. Should the city be unable to attract an external investor, the business model would probably fail. With capital of only EUR 4.5 million, the whole revolving concept would not be able to perform at the scale planned. The plan is to first carry out 5-6 pilot building renovations, make necessary adjustments if needed and gradually increase the renovation rate and scale. The proposed model can easily be adjusted in terms of financial flow changes. Thus larger investments will result in an increased renovation rate.
Management costs: the Fund management costs are estimated at €100,000 per year. These will be covered by the interest rate the soft loan beneficiaries will pay.
Technical assistance provided free of charge by the Riga Energy Advice Centre.
Reduced monthly costs, higher energy efficiency and more comfort. After renovation, homeowners pay for their energy and the monthly loan installments. The total annual costs (energy bill, redemption and interest) should be lower than the original energy bill. A 5% discount is introduced which makes the loan more attractive, especially for older people. As a consequence, the duration of the loan will be longer (on average 1 year). The table below gives an overview, assuming an energy bill of 100% at the start.
|Before renovation||After renovation||After renovation and after|
|Redemption and interest||0%||40%||0%|
|Type of housing||Type of households||Measures|
|Type of housing:|
– Housing units in Riga that require
renovation. The loan targets multi-apartment buildings built after the
war and before 1996.
– Energy consumption above 177 kWh/
(this is part of the energy audit).
– 75% + 1 owner must agree with the
|Type of households:|
– All types of households
– Insulation of an attic, roof, ground floor and
– Replacement of windows, replacement or insulation of external doors.
– Renovation of a ventilation system.
– Renovation or replacement of a hot water preparation system, incl. insulation of pipelines.
– Renovation or replacement of heating units.
– Renovation of a heating system, including
replacement of radiators, installing temperature
controls, allocators and other heat metering
Loan amount: approx. €150/m2; on average €350,000 EUR per building
Maturity: between 10 and 15 years
Interest rate: below 3%
Guarantee: reduced energy bills are the guarantee for the Fund. The assumption is that all beneficiaries have lower monthly spending and are able to pay back the loan. Existing debts on utility bills must not exceed 10%.
Beneficiary’s own contribution: no own contribution is required.
|Strong points||Weak points|
|– Focus on a target group with the highest energy consumption|
– Discount for homeowners makes the loan more attractive
– Sustainable model, fund can operate for 30 years
– Reimbursed money is used for new loans
|– Decision to operate the fund for 30 years may slow down|
the pace of renovation.