Riga to support the energy renovation of 6,000 houses

6,000 houses (12M m2) should benefit from comprehensive energy renovation starting in the Latvian capital city. The municipality has created a revolving fund linked to a soft loan scheme which will provide loans at a low interest rate (up to 3% APR) to citizens and non-profit organisations via ESCOs and tenant cooperatives. The goal is to increase energy efficiency and the use of renewable energy and to reduce energy consumption in the housing sector.

The fund is planned to start with EUR 34.5 million, where EUR 4.5 million would be a contribution from Riga municipality and EUR 30 million would be a loan from the European Investment Bank. It is expected that additional capital would come from local municipal heating company or international financial institutions such as the EBRD. To ensure the revolving mechanism, savings from utility bills will be repaid to the fund until the cost of renovation is covered. Then the savings are further reinvested into energy renovation projects.

The city council plans to launch a public procurement call to select a commercial bank to manage the fund. The bank will manage the cash flows but is not expected to issue the loans.

The revolving fund model is structured in such a way that no upfront nor collateral investments are required from the house owners. The business and financial models were designed to ensure transparency and sustainability of the fund for a period of over 30 years, which is enough to observe operation of the fund at its highest potential considering existing sources and scale of available finance.

Several variables of the financial model rely on economic conditions, such as the price of heat energy on the market and growth of renovation costs. The more favourable economic conditions, the more houses will be renovated.

Expected conditions applying to future beneficiaries of the fund are:

• The supported measures are complex building insulation, heating and ventilation systems renovation and purchase of equipment for energy consumption monitoring and regulation
• Amount lent is up to €150 / m2 (average EUR300,000 / building)
• Interest rate is ≤ 3% / year
• Maturity is 12-20 years, depending on the type of the house
• Eligibility criteria is the household’s utility payment (bills) financial flow.

A market study conducted at local level showed that the main barriers to energy renovation are investment attractiveness and communication with owners in multi-apartment dwellings. Thus the “Rigas Namu Parvaldnieks” which is a municipal company managing services for residential buildings will play a crucial role in establishing trust and building a bridge towards the home owners.

The Riga project team developed and submitted a comprehensive revolving fund concept that shall be approved by the City Council in the 3rd quarter of 2016. This concept includes the local study, market study, business model as well as various development scenarios, including financial forecasts and the economic impact analysis.

First energy renovation projects batch are expected to be launched by April 2017.

© photo: Aleksey Stemmer – shutterstock.com