Renovation innovation in Latvia 

Continuing my occasional series on interesting energy efficiency financing initiatives around the world…….. 
 
I have just returned from my first visit to Riga, the capital of Latvia, which is a very civilized city and well worth a visit.  Whilst there I continued a dialogue with a very interesting project to fund residential renovations in Soviet era panel buildings.  For anyone not familiar with these, all through the former Soviet republics in central and eastern Europe, through Russia, into central Asia and even China, the default method of building housing was highly systematized and standardized concrete panel blocks.  Even in the UK of course we experimented with this kind of technology during the sixties and seventies – usually with bad results.  The panel buildings in Latvia and throughout central and eastern Europe are extremely energy inefficient, in climates which get severe winter weather, and are often in danger of collapse through problems of “concrete cancer” and structural defects. 
 
In Latvia, Renesco (a private ESCO) has renovated 15 panel built apartment blocks with some impressive results.  Energy savings ranged from 45% to 65%,  more comfortable conditions were created, the lifetime of the blocks were extended and residents kept paying the same utility bills – all without additional subsidies.  The retrofits are deep retrofits incorporating insulation, windows and doors as well as other aspects such as structural repairs, roof repairs and upgrading elevators (with high energy savings due to the low efficiency of Soviet era elevators compared to modern high efficiency units).  The energy savings allow these other measures – which are essential to the building – to be paid for.  Residents buy into the increase in comfort.  The Renesco projects were a great example of entrepreneurial effort overcoming many social, economic and technical barriers.  Now the project is moving into a new larger and very exciting phase.  Renesco, like all Escos, was capital constrained and so now the Latvian Baltic Energy Efficiency Facility (LABEEF) – a forfaiting fund – has been established to refinance similar projects carried out by ESCOs once they have been in operation for a year.   
 
This arrangement allocates risks and rewards appropriately.  Residents take no risk and their homes increase in value 15 to 25%. Over the lifetime of the financing deal, they can expect over 30% lower costs than other financing models.  The ESCOs take the project implementation and performance risk, and the forfaiting fund takes the long-term payment risk.  (To date there have been no defaults on payment).  The ESCOs or their financing banks can recycle capital.  LABEEF has systematized the process, making application easy through an on-line portal, and completely standardized the process.  On the technical side it advocates the use of Investor Confidence Protocols as a way of ensuring best practice during project development, implementation and on-going monitoring.  Over time, once enough projects have been aggregated, the forfaiting fund should become an attractive investment for pension funds which in the Baltics currently invest mainly in the Nordics due to a shortage of investment opportunities at home.   
 
It is worth considering the potential impact of this project.  If applied to Latvia’s 50 million square metres of panel apartment blocks the reduction in gas imports – which all come from Russia – would be reduced by 50%.  This alone should mean the project should get a lot of attention on energy security grounds.  In addition there are huge non-energy benefits such as the effects on health and well-being, and improvements to the social fabric as residents become involved in the long-term future of their block and their neighborhood.  The latter kind of “soft” benefit is often forgotten but is very real.  When applied to the estimated 1 billion square meters of panel buildings across central and eastern Europe the potential gains are huge – a potential reduction in gas imports of over 10-15 billion cubic meters/year. 
 
The LABEEF forfaiting fund is a world-class example of energy efficiency financing in action and we look forward to following its development and working with it in future.