Energy consumed in the residential sector accounts for up to 30 per cent of Latvia’s energy usage. Approximately 23,000 multi-apartment buildings need to be renovated, but only 1,600 buildings have been insulated since 2009, a renovation rate of 0.5 per year. Will Latvia seize the chance and use REPowerEU chapters for renovation?
Maksis Apinis, Green Liberty | 30 November 2022
For Latvia, the renovation of multi-apartment buildings is a huge challenge. More than 23,000 multi-apartment buildings need to be renovated, but only 1,600 buildings have been insulated since 2009, a renovation rate of 0.5 per cent per year. Energy consumed in the residential sector accounts for up to 30 per cent of the country’s entire energy usage, which means that this sector has great potential for reducing greenhouse gas emissions and air pollution.
The national energy and climate plan for Latvia (NECP) from 2019 aims to increase energy efficiency in at least 2,000 multi-apartment buildings by 2030 by installing non-emitting renewable energy technologies or by connecting them to district heating. The NECP will soon be revised to renew the targets, and it is clear that the target for renovated apartment buildings will be raised. The funding allocation in the Recovery and Resilience Facility (RRF) and the cohesion policy alone will not achieve this goal. Thus, the renewed targets will reinforce the fact that changes are needed in the current approach to the renovation of multi-apartment buildings.
When the existing version of the NECP was prepared, this need was already recognised; the current NECP aims to develop and start to implement a comprehensive long-term solution for increasing the energy efficiency of the housing stock by 2030, which hasn’t yet been realised. There have been improvements made in recent renovation programmes and regulations – for example, now, it is sufficient to have a majority (51 per cent) of a building’s residents vote in favour in order to start renovations, and the costs of preparing technical documentation for renovation (up to EUR 10,000) will be eligible for funding from the state. Yet this is not enough, especially given the current energy and climate crises.
On a positive note, The Riga Energy Agency is working on the creation of its own fund, which would combine financing from various investment funds at national and international levels to ensure that the residents of Riga have continuous access to financing for insulating their buildings. This could have a potentially significant role on the performance of the whole country, since almost 30 per cent of all multi-apartment buildings in Latvia are in Riga. However, Riga won’t be able to decarbonise its building stock without state support.
Low-income households excluded
To reduce the most emissions per euro invested, it makes sense to provide a minimum support intensity (grant or financial instrument) relying largely on households’ capacity to fund projects using bank loans. If the grant is kept to a minimum, provided that there are households still able to fund renovations with that level of state support, then more houses can be renovated with the same amount of money. Relying on middle-class households to participate in these schemes is also much less risky from a financial standpoint than getting involved with low-income households, which might not have secure income and might struggle to pay their energy bills on time. However, in the long term, largely excluding vulnerable households only aggravates social inequality.
If we want to be serious about social cohesion and reducing energy poverty, programmes funded by the EU must be designed to overcome social inequality. So far, EU funds for building renovation are used quite inefficiently given that 65 per cent of the funding across the EU is absorbed by high-income households that would have renovated their buildings regardless of the existing grants. (See Quentin Jossen’s 2022 report Pre-financing mechanisms for climate renovations accessible to all Flemish homeowners for CLIMACT (not available online)).
Short-sighted administrative cuts cause problems
Technical assistance from state and local governments would increase the capacity of apartment building owners and managers to properly renovate their buildings. This is supported by the Ministry of Economic’s ex-ante evaluation of the availability of finance for increasing the energy efficiency of multi-apartment buildings, which came to conclusion that the state and local governments must provide technical assistance to increase the capacity of apartment building owners and building managers. A lack of resources for Altum Financial Development Institution, the administrative body managing this money, is also causing problems. The current political paradigm is to cut administrative costs as much as possible without truly considering the long-term consequences of such a policy. High-level ministry officials have informally said that the number of staff could be approximately only 10 per cent of that of similar agencies in other Member States with a comparable population size.
This lack of capacity means that work is either not being done or is being done too slowly on measures that would speed up and make the building renovation more efficient. Latvia must include a long-term strategy and financial mechanisms that combine different sources of funding; offer long-term structure and stability for construction and material supply chain companies; and provide financial support continuously, regardless of EU planning periods and the availability of EU funds. The European Commission has also repeatedly indicated that Latvia must strengthen the capacity of this agency.
The energy crisis has put an immense strain on our economies, so it is understandable that state authorities wish to save money on administrative capacities and design uniform support programmes for various cases. But at least in terms of building renovation, the approach should be different. It should offer various financial support schemes and conditions (intensity of non-refundable financial support, pre-financing availability, length of repayment period) for different households, depending on their income level and building type. These proposed measures are supported by studies (see Jossen) differentiating social groups by their ability or inability to fund renovation projects and apply for different loan schemes, as well as their corresponding need for support from state programmes. Furthermore, the acceleration of investments in energy efficiency is one of the most concrete and immediate measures that will help citizens address energy prices.
A chance to prioritise and invest smartly
The REPowerEU plan and the option for Member States to request additional funds that will add to existing recovery and resilience plans are a chance to address some of these needs. Apart from the aforementioned challenges and the simple need for a greater amount of funding, the following measures or programs could provide the necessary boost for housing renovation in Latvia:
- A programme for local governments to receive support for increasing their capacities. This could include measures such as educating and employing project and energy managers who would help communities or residents to successfully apply for funding and implement the renovation.
- A programme for cities to support the district renovation approach. The precondition of this program could be that local governments must speed up the approval process within building administrations and prioritise projects that increase energy efficiency.
- Introducing a ‘stick’ element by establishing penalty fees similar to a CO2 tax. This could be a long-term penalty for those who have a house of a certain type/age/technical condition and who do not decide to start renovation within a reasonable period or do not achieve specific energy efficiency results by implementing individual measures. At the same time, a specific financial support mechanism for vulnerable households needs to be in place.
- Implementing a standardised approach. The state should organise tenders for the insulation of multiple apartment buildings of the same type as part of one procurement, including the mass production of insulation elements, like what is being implemented in Estonia. Latvia could also develop pilot financial mechanisms for energy efficiency measures targeting energy-poor communities following the example of the Lithuanian government.
Instead of investing in large-scale fossil gas projects in the name of energy security, the Latvian government should use REPowerEU funds to reduce energy demand and turn the EU renovation dream into a reality. This includes expanding special programmes for vulnerable households, designing programmes to help municipalities hire and train residential building project managers, implementing a standardised approach where possible and ensuring continuous funding.
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