Financing the energy renovation of residential buildings through soft loans and thirs-party investment schemes

In December 2014, Frederikshavn adopted a Master Plan to become a 100% renewable energy city by 2030. The key measures that will
help achieve this objective are the reduction of energy consumption and
ensuring increased energy efficiency in all the sectors, in particular in the
housing stock which accounts for 23% of Frederikshavn’s CO2
The objective of the municipality is to facilitate the energy renovation of
16,000 housing units built before 1970, while reducing their energy consumption by at least 30%. The average cost of energy renovation work for all types of residential buildings (individual houses and condominiums) is estimated at 200 EUR/m2. An investment of EUR 416 million will be needed to achieve this goal.

The issue

A need to mobilise homeowners’ savings for energy renovation of the housing stock. Frederikshavn carried out a market study which revealed that citizens have never had such large savings in their accounts as they have today. However, it is not easy to convince households to make use of these savings to carry out an energy renovation of their homes. Indeed, a side effect of the global financial crisis is that house owners fear using or borrowing funds because they feel uncertain about their own economic situation in the near future. Moreover, the stagnation of property values over the last 7-8 years does not create an incentive for making investments in private properties.

To encourage the energy renovation of residential buildings, the Danish tax
authority provides tax credits of 2,015 EUR per capita per housing unit, and a maximum of 4,030 EUR per home.
The government also reimburses the value of CO2 savings (from 0.35 to 45 DKK per kg of CO2 savings) which is another form of subsidy for
homeowners. The value of CO2 savings will either be used to cover the cost
of an energy consultant service, or be deducted from the homeowner’s
investment in energy renovation.


  • Set up a network of independent home energy advisors who are employed by the Frederikshavn Utility and a ‘Better Home’ organisation. They provide individual and tailor-made technical assistance to homeowners. Advisors carry out energy audits and technical checks resulting in a ‘Home Energy Report’. This report recommends energy saving measures in order of priority and provides basic information about the annual energy and financial savings potential, estimated investment costs for each measure and its payback time. If the homeowner wishes to carry out other non-energy related measures such as house enlargement, renovation of the bathroom or kitchen, the Energy Advisor includes these measures in the report. The Energy Advisor also informs the homeowners about the soft loan schemes and refers them to their bank.
  • Establish partnerships with local
    banks with two objectives:
    – Train customer advisors aboutthe benefits of energy renovation. The advisors improve their understanding of the ‘Home Energy Reports’ and are aware of the impact that the cash flow generated, thanks to energy savings, has on a household’s financial situation. They are also able to provide better advice to their customers on the financial opportunities for energy renovation and offer them a tailor-made financial plan.
    – Develop specific soft loans for the energy renovation of housing. The municipality convinced local banks to develop a new product with reduced interest rates and a longer maturity period compared to standard market conditions. The loans target those homeowners who cannot or do not want to use their financial savings (only) for energy renovation work. The city managed to create competition between the banks leading to spontaneous improvement of the loan conditions offered to homeowners. Cooperation is now established with 8 national banks’ branch offices located in the municipality: Nord Jyske Bank, Jyske Bank, Spar Nord Bank, COOP Bank, Danske Bank, Sparekassen Vendsyssel Bank, Nykredit Bank, Arbejdernes Landsbank. The COOP Bank which has recently opened its offices and wants to attract new customers offers a 0% interest rate loan.
  • Train and cooperate with local market actors such as estate agents, craftsmen, construction companies and encourage them to contribute to the municipality’s objectives. The city has developed a specific training programme to inform them about the benefits of energy renovation and build their capacities to promote and facilitate the energy renovation process for homeowners. Estate agents inform their clients about the benefits of energy renovation when they consider buying the property.
  • Actively promote the soft loans through dissemination and the publication of positive customer cases related to energy refurbishment, a demonstration site of energy efficiency and renewable energy technologies, meetings with homeowners, local media and specialised local communication materials.

Business Model

The municipality does not allocate any funds to the financing scheme. Soft loans are provided by the partner banks. They run a creditworthiness check of homeowners, decide who gets a loan and under what conditions. All risk is borne by the partner banks.

Homeowners’ advantages

Energy renovation step-by-step
  1. Homeowners visit a mobile Info Truck run by the municipality, visit their bank, estate agency or local craftsmen or find information about energy renovation in local media, in the municipal magazine or at public meetings. Citizens can also use the city website and Facebook pages to request a visit from an Energy Advisor.
  2. They get information on home energy renovation benefits, services offered by Energy Advisors and soft loans offered by partner banks.
  3. An energy Advisor visits the home and prepares a Home Energy Report.
  4. The homeowner goes to a partner bank, selects the measures suggested in the Home Energy Report and applies for a soft loan.
  5. They sign a contract with one of the partner banks and get a loan.
  6. They sign a contract with certified architects, construction companies and craftsmen who signed a quality partnership charter with Frederikshavn or one of the banks and get the work done.
Financing scheme highlights
Strong pointsWeak points
– No investment from the municipality into the scheme.
– Access to ‘unlimited’ funds offered by the partner banks.
Condition: banks are open to cooperation with the municipality, willing to test new products and offer low interest
loans without any guarantee from the municipality.
– Banks are more aware of the city climate goals and are
actively involved as key actors.
– The city is a trusted organisation and a ‘guarantor’ of the
technical solutions and financial products offered by its
partners. It puts a ‘city stamp’ on the products.
– Low and very low income households are not eligible for
bank loans.
– The municipality does not guarantee energy savings achieved.
– Energy Advisors employed by big companies (Better Home)
may not be independent.