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Financing the future of buildings in Central, Eastern and South-East Europe: a new study by BPIE

The Buildings Performance Institute Europe (BPIE) published the analysis of the funding streams directed to energy efficiency in buildings in Central, Eastern and South-East Europe (CESEE).

The study shows which funds available in the region are allocated to upgrading the building stock. Both EU and non-EU funding streams were included in the analysis:

EU funding

Non-EU funding

The analysis revealed that less than 3% of the funds that could be used to support energy efficiency investments in the region is dedicated to upgrading buildings. Within EU funding streams, only 4.35% of the region’s Cohesion Policy Funds is allocated to demand side infrastructure, amounting to €3.96 Billion. The European Fund for Strategic Investments (EFSI) has very little impact in the region, with only two energy projects active (including a gas project). The international financial institutions included in the analysis allocate only 1.7% of their total committed investments to demand-side infrastructure.

The study shows that, despite their critical role in reducing energy dependency, buildings are not perceived as a critical infrastructure and the opportunities for investments in demand-side infrastructure are not fully exploited. The current system fails to leverage sufficient private or institutional investment to upgrade the building stock.

The report addresses several challenges and suggests potential measures to overcome the lack of investments in demand-side infrastructure. According to BPIE, building technical capacity in the region is of utmost importance. BPIE suggests the creation of a regional energy efficiency financing platform that integrates capacity building, investment facilitation and project aggregation to create effective financing instruments and investment opportunities for demand-side energy efficiency. This would encourage private and institutional investment and result in a high investment leverage factor. Adopting an “efficiency-first” approach and promoting building renovation would be a viable alternative to increasing supply investments. Reducing uncertainty to spur private investments was also one of the challenges identified by BPIE, due to perceived high risks for investing in residential projects. That is why, stakeholder facilitation is one of the central aspects to our REELIH project, which you can learn more about here.

For this reason, BPIE suggests to set out comprehensive long-term national strategies for decarbonizing the building stock and guiding public and private investments, as well as to set up an independent non-political body, responsible for handling financial streams, in order to increase market confidence.

According to Oliver Rapf, Executive Director of BPIE, “The majority of buildings in the region urgently need deep renovation to reduce health and security risks, providing business opportunities and a stable return on investment. This debate becomes all the more relevant with the forthcoming negotiations on the next EU Multiannual Financial Framework (MFF). It should increase funding and support for demand-side efficiency investment and give up its bias for energy-supply infrastructure” (see BPIE press release here). BPIE proposes specific solutions that can be taken both at the EU and country level to increase the impact and reach of available funding for building renovation.

Written by Stuart Macdonald, a World Habitat trustee and Managing Director of PR agency See Media. See the original post here.
REELIH – Residential Energy Efficiency for Low Income Households is a project of Habitat for Humanity International and USAID.

We are in a quiet, windswept car park on a hill above Yerevan. The Soviet-era blocks of flats that surround us have impressive views down to the capital of Armenia below and west to Mount Ararat and Turkey.

An old man is painstakingly sweeping autumn leaves into a neat pile, when suddenly the peace is broken by a group of colourful women who burst around the corner of one of the blocks of flats.

Immediately our small group of World Habitat Awards judges is enveloped by enthusiastic chatter about the difference the REELIH energy-efficiency project has made to the lives of residents of these high-rise blocks.

‘We are so much warmer’, says one. ‘The difference is incredible’, says another. ‘Before there was wind blowing through the front door and now there is not – it is very simple!’

On the surface, REELIH – led by non-profit housing organisation Habitat for Humanity International with the support of USAID – means that some relatively simple refurbishment jobs are undertaken in old Soviet-era high-rise blocks. It ensures funds are in place through existing ‘homeowner associations’ for energy-efficiency works to communal areas to install new double-glazed windows and secure, air-tight front doors. REELIH has also started a programme of external insulation work to buildings that – despite the exposed nature of many of the homes and sub-zero winter temperatures – were built with little or no insulation in the 1960s to 1980s.

This work is crucially important in helping tackle the fuel poverty that affects many Yerevan households.  Around one-in-three are classed by the government as being in poverty. Yet the improvements are simply the final act in what has been a painstaking process to put in place the necessary funding.

So what is it about the REELIH project that caught the attention of the World Habitat Awards judges and saw it become a finalist in the 2017 Awards?

To my mind, it was because they are:

How does REELIH work?

REELIH helps groups of high-rise residents to use their existing ‘homeowner associations’ to access bank loans to contribute to the cost of energy-efficiency improvement works. The difference is then made up by a local government grant.

The concept is relatively simple, but it had never been done before in Armenia due to lender concerns about the creditworthiness of homeowner associations. Also, while local and national governments could see that citizens face an issue with poorly insulated homes and rising energy prices, the capital works bill to adequately address this is steep. The REELIH mixture of loan and grant funding addresses these issues.

How did it overcome the challenges?

Habitat for Humanity Armenia was so keen to demonstrate the potential of REELIH that it first ran a pilot where it lent money to a homeowner association in order to convince lenders to come on board. This was a gamble, but it worked, with the homeowner association repaying the loan from its service fees.

As a result, lender Inecobank became a REELIH partner alongside the Yerevan Municipal Authority – the latter investing up to 40% of the overall cost per high-rise block.

By the end of 2017, 30 Yerevan blocks had been refurbished at an average cost of just $5,000. The Municipality plans to work with REELIH, Inecobank and homeowner associations to complete works to a further 100 buildings.

What is the impact?

The outcome of all parties working together to strike a deal on REELIH is that fuel poverty is reduced among some of Yerevan’s most vulnerable people.

However, it has proven difficult to accurately measure the fuel bill savings due to people now heating their homes adequately, whereas before they were simply living with cold rooms.

As well as the Armenian government taking notice of the success of the REELIH model and looking to build on its success at a national level, other former Eastern Bloc countries are also learning more. Bosnia and Herzegovina and Macedonia are also implementing REELIH-based approaches.

While in Yerevan, our group of World Habitat Awards judges met residents of several high-rise blocks and at each one the message was the same: ‘REELIH has significantly improved our homes and lives’.

The first residents we met were right: REELIH is definitely worth making a noise about.

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