Deep renovation – the idea of capturing the full economic energy efficiency potential of existing buildings with focus on building envelopes – leads to remarkable energy savings. As nearly all of Latvia’s stock of multifamily residential buildings continues to rapidly deteriorate due to harsh weather conditions and lack of proper maintenance, the idea is attractive. Realizing this potential requires designing, financing and implementing complex energy efficiency investments, but today nearly all apartments in Latvia are privately owned.
Practice shows that individual owners are inadequately organized to manage their collective property. Combined with a lack of awareness and technical knowledge, limited availability of funding, high risk perception and reluctance for debt financing, the barriers overwhelm most people. A concept that addresses these constraints is Energy Performance Contracting (EPC).
A key feature of EPC is that the provider, an energy service company (ESCO), guarantees energy savings. In the case of SUNShINE, it also includes health, safety and affodability guarantees.
SUNShINE supports public and private ESCO's and leads to an innovative investment scheme based on the long term guaranteed safety, health, comfort, and affordability of deeply renovated buildings.
A major objective is to demonstrate the financial viability of deep renovation via suitable financial engineering of public funds and private capitals. The proposed approach is simple, yet very innovative: most ESCOs have limited balance sheet capacity and are not able to support much long term debt.
So re-financing may be achieved by selling future cash flow (receivables) through a forfaiting transaction. After this transaction, the ESCO continues to guarantee long term energy savings. Unfortunately, in emerging EPC markets like Latvia's, there is no track record, so banks are not yet ready to offer these services to ESCOs. The project delivers the same service by establishing a special purpose fund for EPC.
SUNShINE is designed and executed by a multidisciplinary team which includes investors from several European Union (EU) countries who wanted to address the issue what they see as a growing housing crisis in Eastern Europe. The multifamily buildings built during Soviet Era are deteriorating due to wear and tear, and climate conditions combined with a lack of funding for quality building maintenance. The barriers to funding are multiple but most important are the perceptions of risk associated by stakeholders, including owners themselves to such projects.