The big majority of the EU building stock needs to be upgraded. It is well recognised that in order to achieve a decarbonised building stock by 2050, renovation will need to move at a faster pace and attract considerable investment. Public funding alone is not enough to meet this target. Innovative financing schemes that will progressively maximise the leverage ratio of public funds to private finance are necessary. It is expected that through many ongoing EU level initiatives and funds a drive towards favourable energy efficiency investment conditions and attractive and adequate financing products will be created, that will accelerate the renovation of the EU building stock. Numerous best practices from local and national initiatives that have successfully financed renovation projects on a large scale in the past are there for whoever wants to be inspired or replicate them.
The use of private funds and innovative financing instruments for energy efficiency in buildings is encouraged through many EU initiatives. In line with the Smart Finance for Smart Buildings initiative, the new Horizon 2020 Work Programme includes a call dedicated to Innovative financing for energy efficiency investments. Also, as part of the Investment Plan for Europe, the European Fund for Strategic Investments (EFSI) will support sustainable energy renovation in buildings by unlocking private financing for energy efficiency and renewables in buildings at a greater scale. Sustainable Energy Investment Forums (SEI Forums) is another initiative of the European Commission aiming to boost large-scale investment and financing for sustainable energy by working with national stakeholders. Furthermore, the BUILD UP Financing Schemes section includes a very large number of financing schemes for residential or non-residential buildings, for homeowners and tenants and for municipalities, social housing, companies and enterprises. Financing available for renovating buildings can also be found in the EU Building Stock Observatory.
The Impact Assessment of the revised Energy Performance of Buildings Directive (EPBD) identifies the lack of aggregation of small scale renovation into larger scale investments, which can lead to a decrease of the transaction costs and the level of risk perceived, as one of the most important barriers for building renovation. In order to meet their long term renovation strategies, EU Member States should increase their renovation rates through mobilising finance and investments. In addition, resourcefulness and open-mindedness to invent and test new financing mechanisms is required.
A plethora of innovative financing mechanisms have already been invented and are implemented across Europe. These include: Energy Performance Contracting for the public and the private sector, energy efficient mortgages, revolving funds, soft loans, public-private companies (third party financing), green bonds, guarantee funds, local public companies or public Energy Service Companies (ESCOs), tax increment financing, local saving accounts, citizens’ cooperatives and crowdfunding. Some examples where innovative financing was used successfully in large scale renovation are presented below.
Internal Contracting scheme, City of Stuttgart, Germany
Intracting is an internal performance contracting scheme that is based on the “Contracting” concept. The city of Stuttgart was the first to experiment with the concept of Intracting in 1995 and has been adopted by other cities ever since. The scheme, as implemented in Stuttgart, is a ring-fenced zero-interest rate loan, entirely financed from municipal budget funds, that is available to technical departments wishing to implement energy saving measures. The loan is repaid into the fund from the savings made on energy costs. The management of Internal Contracting is performed by the municipal energy department, which offers energy services as an internal ESCO. The fund’s operational scope covers over 1,400 municipal public buildings including educational establishments, office buildings, housing units and sports facilities. Until 2015, 247,000MWh, 50,000 MWh Electricity, 568,000 m3 Water and 118,000 tonnes of CO2 were saved.
Cost savings for the City of Stuttgart through Intracting (Source: Financing the Energy Transition – Internal Contracting)
Soft loans for multi-apartment building modernisation, Lithuania
The renovation programme for multi-apartment buildings was launched in 2005 and since then laws for its renewal have been drawn up and programme rules and conditions have been corrected, revised and updated in order to create the most favourable conditions for participation. Renovation of multi apartment buildings in Lithuania was initially funded through the 2007-2013 JESSICA Holding Fund. As of March 2015, funds for the renovation are provided as soft loans through a newly established multi apartment building modernisation fund (DNMF) which is supported by the 2014-2020 European Regional Development Fund. So far, more than 1500 apartment buildings have been renovated and close to 63,000 tonnes of CO2 emissions saved. Additional benefits include a 15-20% increase in the value of affected buildings, better awareness of apartment owners of the benefits of renovation and materialisation of over €400 million investments in the construction sector.
KredEx Revolving Fund, Estonia
The KredEx Revolving Fund was the first Energy Efficiency Revolving Fund in Eastern Europe. It was part of the KredEx Foundation, a government owned non-profit provider of financial services established in 2001. Through the KredEx Fund the Estonian government managed to make a shift in the focus of its energy efficiency support strategy from a grant-only scheme to a more adequate support system based on a combination of loans, loan guarantees and grants. Through this fund, KredEx offered four types of financial support: grants for energy audits, loan guarantees, renovation “soft loans” and reconstruction grants. The funds were provided by the European Regional Development Fund (ERDF), the Government of Estonia, the Council of Europe Development Bank (CEB) and by the KredEx Foundation. The KredEx Fund’s beneficiaries were cooperative housing associations, communities of apartment owners (built before1993) and local authorities (owners of social housing). By the end of 2013, 798 buildings were renovated, namely, 415 buildings used a combination of reconstruction grants and KredEx soft loans, 185 buildings used only KredEx loans while 198 buildings used only reconstruction grants.
KredEx Revolving Fund, Estonia (Source: Use of Cohesion Funding for Home Renovations, presentation)
High renovation rates is one of the measures that the EU is taking for meeting its long-term climate and energy targets. To achieve this, the market for deep renovation of buildings needs to be transformed and one of the ways of doing so is by making deep renovations more attractive to relevant stakeholders. Previous experience of the Member States has shown that conventional financing is not enough and access to attractive and adequate financing products from the market is needed. Along with the multiple initiatives supported by the European Commission over recent years this is creating significant momentum towards innovative financing that will support sustainable energy renovation in buildings and unlock private financing for energy efficiency and renewables in buildings at a greater scale. However, innovative financing schemes are not something that was recently invented. Such schemes have been around for at least a decade and a lot of them have a success story to tell, that can inspire public and private sector stakeholders in replicating or creating new schemes that will accelerate the renovation of the EU building stock.