79th Session of the Committee on Housing and Land

Management

Roundtable 3

Geneva

4th October 2018

Developing a Sustainable Financing Mechanism

for Energy Efficiency Investment In

Multi-apartment Buildings

Experience from

Bosnia and Herzegovina

and Armenia

Content

• Challenges

• Issues to consider

• USAID Development hypotheses

• USAID approach to supporting investment in EE

• Financing model

• Barriers to EE investment

• Summary

2

ChallengesMulti-apartment buildings use 30-60% of the country’s energy, offering

substantial energy and emissions saving potential, BUT implementation has

many challenges:

➢ Difficult to Organize

➢ Insufficient Legal Environment

➢ Lack of Incentives

➢ Low Political Will

➢ No De-risking Mechanism

3

Issues to Consider

4

Governments

• Prefer to avoid political risk, rather providing subsidies and incentives

• Tend to develop directives/regulations and subsidize implementation cost,

• Are slow to implement legislative changes related to housing sector, and

process is often derailed by contradicting interests

Donors:

• Prefer working with public buildings

• No emphasis on sustainable financing schemes without grants or

subsidies

• Energy Efficiency investment in multi-apartment buildings past the Donors-supported “free” or “heavily subsidized” demonstration

phase happens rarely in countries with developing economy

Issues to Consider

Banks:

• Recognize extremely large market potential offered by the residential

building sector, but are shy to develop it

• View HOAs as risky borrowers and are reluctant to share the risk

Home Owners:

• Adverse to assume ownership and responsibility for proper Operation

and Maintenance of their own building

• Lack resources and economic incentives and are often passive.

• Accustomed to the past housing maintenance system

5

USAID Development Hypotheses

6

If the investment in energy efficiency is economically justified,

functioning legal framework is in place, funds are available, and benefits

are understood by the active apartment owners, then energy efficiency

investment will happen without subsidies.

If the government needs to mitigate negative impact on environment,

reduce dependency on energy import, or support economically vulnerable

citizens, subsidies should be used in targeted manner for limited time.

Subsidies and incentives are working without unintended consequences

only under very specific conditions. If applied prudently, subsidies function

as a “startup fuel”. If not, they could (and will) cause market distortion,

disincentivize investment, and cause other issues

USAID approach to supporting energy efficiency

investment in residential sector:

• Apartment owners must drive the process, be motivated

• Investment funded through commercial loan

• Subsidies used only for supporting vulnerable residents

• Incentives used for only for advancing national and global objectives

• Loan guarantee mechanism supported by the government

• Donors provide technical assistance and capacity building for:

➢ Residents, HOAs

➢ Government agencies, officials and staff at State, Canton or municipal levels

➢ Bank officers

➢ Contractors

➢ Press representatives

7

USAID approach to supporting investment:

8

Amended Laws and Regulations

Homeowners Associations

Tariffs

Social Protection

Norms,

Directives,

EE, RE, Metering

AssistanceGovernment

Subsidy Programs for HOAs

Loan Guarantee programs

Donors, IFIs assistance Programs

Education, capacity buildingPublic outreach

Performance

HOA decision process

Loan/loan repayment

scheme

Loan guarantees Implementation

and Feedback

HOA

EE Project Financing Process by HOA tested by REELIH in Armenia and BiH

9

HOA

Government

Subsidized Loan Guarantees Program

Financial Source (Bank)

Donors (TA)

Transitional Technical

Assistance

Selected

Construction

Company performs

the Works

Government (municipality)

Targeted Subsidy to Low Income Households

HOA manages the

entire process or hires

project manager

Preliminary agreements

with Government &

Bank(s)

Technical tasks, design,

costs

HOA purchases loan

guarantees at

subsidized premium

Government provides

targeted subsidies to

LIH

Bank Finances the

project, no collateral

from HOA

USAID approach to supporting investment:

Financing Model Tested by REELIH, Habitat for Humanity

10

USAID approach to supporting investment

In Armenia – City of Yerevan

In Bosnia and Herzegovina – Tuzla Canton, Municipalities of Banovici, Doboj, Tesanj, Zivinice

Barriers to Energy Efficiency Investment

1. Legislative Environment: Needs to provide necessary legal basis

for EE investment, including clear definition of ownership, authorities,

responsibilities, operation and risk management in multi-family houses

2. Access to funds: While funds are readily available, actual access to

such resources is complicated, hindered mainly by “distribution of risks”

3. Risk Management: Loan guarantee needs to be addressed. This is one of the most important issues hindering the investment

4. Subsidies: Governments need to go through the “pain” and structure

targeted subsidy approach and sensible use of incentives

5. Apartment Owners: Must realize they are responsible for maintaining

their property – their home - and be proactive.

11

Summary

USAID’s objective is to develop sustainable financing

mechanism based on commercial principles:

• Use of well structured, time-limited government subsidies as a “startup

fuel” for the process and as assistance to vulnerable low income households

• Provide technical assistance to develop and demonstrate the process,

not to fund implementation

• Establish de-risking mechanism for commercial bank loans, eliminating

need for collateral (usually apartment) with government or commercial involvement

• Utilize best practices from other countries.

12

Thank you

Andrew Popelka

Senior Energy Advisor

Unites States Agency for International Development

E&E/TSO/EI

Washington DC

apopelka@usaid.gov

Tel: +1 202 567 4514

13