European Investment Bank – JESSICA and Investment Funds 1

JESSICA - Financing residential energy efficiency renovations in Latvia

March 2012

European Investment Bank – JESSICA and Investment Funds 2

• A management and advisory programme, launched by the EU Commission in

collaboration with EIB, to assist Member States and regions to invest Structural

Funds in urban projects forming part of an integrated plan for sustainable urban

development (including energy efficiency)

• Overall JESSICA objectives:

Higher productivity of Structural Funds / public funds

Increase efficiency and productivity of Structural Funds by making use of innovative

and revolving financing instruments in the urban sector (complementary to grant

financing)

Leverage effect

Mobilise additional public and private sector resources for the benefit of sustainable

and integrated urban development (schemes)

Expertise - new partnerships and synergies

Utilise financial, managerial and project implementation expertise from private sector

or international financial institutions such as EIB

Overview of JESSICA

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EUROPEAN COMMISSION

Structural Funds

MEMBER STATE

Via a designated Managing Authority

Holding Fund (HF)

URBAN DEVELOPMENT FUND (UDF)

Projects forming part of an Integrated Plan for Sustainable Urban Development

Grant (not repayable as long as EC Regulations adhered

to)

optional

OTHER INVESTORS

(Public & Private)

CITIES

IFIs/Public

Agencies/

Banks Investment (equity, loan or guarantee)

Contribution (repayable or non-repayable)

General JESSICA implementation model

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State of play of existing JESSICA mandates

As of the end of 2011, EIB is managing 19 Holding Funds totaling EUR 1.75 bn of Structural Fund commitments from Managing Authorities in 9 Member States. 1 Holding Fund was set up with a national financial institution (Estonia), investing in 2 Urban Developments Funds. 3 Urban Development Funds were established without Holding Fund (Brandenburg/DE, East Midlands/UK and Wales/UK)

In total nearly 20 Urban Development Funds are already in operation, having a

primary investment focus on urban regeneration, as well as energy efficiency and renewable energy investments in the urban environment.

European Investment Bank – JESSICA and Investment Funds 5

• Limited amount of funds are available under the current grant based renovation programme (Structural Fund grant allocation for multi apartment block renovations are expected to be fully allocated towards the middle of 2012; ERDF funding for multi apartment block renovations is close to the 4% limit imposed by the Structural Fund Regulations).

• Real need to renovate multi apartment buildings:

the housing to be renovated only in Riga is 6,000 buildings with total area of 12 million m2. Based on 2010 costs, it would require LVL 50 per m2, which is approx. LVL 615 millions (Riga City Sustainable Energy Action Plan for 2010-2020).

average household energy consumption per residential area in 2009 was 285 kWh/m2, but average household energy consumption for heating per residential area was 193 kWh/m2. These numbers are higher than generally in Europe (Second energy efficiency action plan, 2011).

• Improvement of the energy efficiency of residential buildings is both a Latvian and EU priority objective (Proposed EU Directive on energy efficiency).

• Reduce energy bills for citizens, improved energy independence for the country, and significant potential for job creation in the energy services and construction sectors.

Reasons for JESSICA Study

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Potential JESSICA loan product for Latvia

Benefits of JESSICA loan product: • Revolving fund – more efficient way of using scarce public sector grant

funding; • Long repayment periods and low interest rates; • Attract additional or complementary financing from financial institutions; • No financial gap between current and next Structural Funds period; • To assist transition from grant to loans, preferential terms and

complementary grant funded incentives could be included; • Building companies familiar with financing issues; • Energy service companies (ESCOs) could improve quality of energy

efficiency renovation works. JESSICA loans product could be offered to: • building managers for the benefit of apartment owners (building manager

association, co-operative society, limited liability company); or • energy service companies (ESCOs) based on guaranteed/shared savings

model.

Establishment of a Pilot UDF , by selecting a financial intermediary, to provide loans for energy efficiency in the housing sector at least until 2014.

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Loan Product 1 - Building Managers

Parameter Description

Product Fixed interest loan and/or other preferential terms

Borrower Building manager, which is not an authorised entity, but acts for the benefit of the community of apartment owners

Preconditions

o Decision of the community of apartment owners o Agreement with the building manager in an acceptable wording o Energy efficiency measures project based on an energy audit report, prepared by an appropriate specialist and approved by competent state or municipal institution o Multi-apartment residential building complying with certain criteria: the building divided into apartments, non-residential area does not exceed 25% of the total area, one owner does not own more than 20% of the total number of apartments

Payment frequency Monthly

Security

- Public commercial pledge on the accounts receivables from the apartment owners to the building management company; - In relation to building managers, which are not entities registered with the commercial register, a deposit and assignment agreement

Prepayments No restrictions or added fees

Loan write-off To be discussed

Implementation of the project

oEnergy efficiency measures project reviewed by an energy auditor; oConstruction process supervised by a construction supervisor and field supervisor, both with professional civil liability insurance

Measures eligible for financing

Measures included in the project and approved by the energy audit report prepared by an appropriate specialist and measures included in the technical design or simplified renovation documentation that ensures sustainability of those energy efficiency measures and approved by a competent state or municipal institution

Self – financing Certain minimum down-payment could be required

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Loan Product 2 - Energy Service Companies (ESCOs)

Parameter Description

Product Fixed interest loan

Borrower ESCO

Preconditions

o Decision of the community of apartment owners to enter into EPC o EPC between the building management company, ESCO and lending institution, representative of apartment owners o Energy efficiency measures project approved by a competent institution

Payment frequency Monthly

Security Public commercial pledge on the accounts receivables from the apartment owners to the building management company and on the assets of ESCO

Prepayments To be discussed

Re-financing To be discussed

Loan write-off None

Implementation of the project

o Energy efficiency measures project approved by an energy auditor; o Construction process supervised by a construction supervisor and field supervisor, both with professional civil liability insurance

Measures eligible for financing

Measures included in the project and approved by the energy auditor and measures included in the technical design or simplified renovation documentation that ensures sustainability of those energy efficiency measures and appropriate state and municipal institutions

Self – financing 10 – 20% of the loan amount

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Contact

JESSICA and Investment Funds

European Investment Bank

98-100 Bvd Konrad Adenauer, L-2950 Luxembourg

www.eib.org/jessica

Lina DRECHSEL

Holding Fund Officer, Northern Unit

Tel: +352 43 79 82977 Mob: + 352 621 36 85 29

l.drechsel@eib.org

DISCLAIMER: The views expressed are purely those of the presenters and may not fully coincide with an official position of the European Investment Bank