1. Grant agreement n°: IEE/08/668/SI2.528421 Christophe Milin, ICE Financing energy Refurbishment for Social Housing Synthesis of recommendations “Opportunities & limitations: financial supports for energy efficiency” Brussels, 15 th May 2012

2. 2 SUMMARY 1. Interest of EPC in social housing 2. Main recommendations from FRESH

3. 3 Current trends in the housing sector  Social Housing in the UE:  35 million homes (17% of the overall stock)  120 millions tenants Change scale Accelerate rhythm  Current trends in Social Housing  Over 70% of the 2050 stock is already built in 2005  Current energy refurbishment trends do not allow Factor 4 in social housing

4. 4 Lack of adapted financing mechanisms  “Factor 4” largely exceeds the direct investment capacity of most building owners  23k€ on average for low energy refurbishment (1)  270 up to 670 billion € at European level between 2010 - 2050  The only financial resource available in an appropriate volume is the energy savings  Cost of refurbishment 140 €/year/40 years on average per inhabitant of social housing  To be compared with UE budget in 2010 of 280 €/year/EU inhabitant (2)  To be compared with average domestic energy bill of 590€/inhabitant/year (3)  Is Energy Performance Contract a solution ? (1) Source: IDDRI 2010 (2) Source: Euractiv 2010 (3) INSEE 2006; data for France (71% heating; 13% light and appliances; 10% hot water; 6% cooking)

5. 5 FRESH overview  Comprehensive Social Housing Refurbishment through EPC  Test implementation in France, UK, Italy and Bulgaria  Demonstrate feasibility conditions to social housing operators and authorities  Produce guides and recommendations for large scale replication

6. 6 SUMMARY 1. Interest of EPC in social housing 2. Main recommendations from FRESH

7. Clarify EPC definition  Energy Performance Guarantee  Guaranteed Energy Savings?  Guaranteed Energy Consumption?  Guaranteed Energy Efficiency?  Measurement and verification  Real or conventional performance ?  Third-Party Financing to be included? 7 Not one generic definition but a family of operational definitions Improve understanding by potential clients of the possibilities and risks. Facilitate the marketing of their services by ESCOs.

8. Clarify applicable rules  Large share of SHOs conforms to public procurement rules  EPC is compatible with current EU public procurement rules but…  … complexity, real or perceived:  Is still an obstacle for large scale use  Requires highly trained expertise and increases the transaction costs 8  Clarification of the rules for EPC could trigger wider use:  Distinction between design, construction and operation  Differed payment  Maximum duration  Possibility to externalize debt through EPC  Guidelines & methodologies would also be useful

9. Split incentive barrier in Social Housing  Capped rents (except Bulgaria, owner occupied)  No contractual relationship between the ESCO and the tenant (France, Italy)  The SHO has an EP contract with the ESCO  EPC costs are integrated in the traditional rent contract like O&M charges 9

10. Specific status for EPC in housing charges  With current conditions, energy savings recouped from tenants (if any) are not sufficient to repay a significant share of investment  Italy: can be recouped with the agreement of 100% tenants  France: savings can be recouped but l imited 50% of the conventional savings for a maximum duration of 15 years, without any energy price adjustment At the French pilot site, savings recouped from tenants represents 16% of the investment (without financial charges)  Rent laws need to be adapted:  Introduce a specific status for EPC in recoverable housing charges  Introduce the possibility to charge an “energy efficiency service”  Increase the share / duration of savings recouped from tenants  Switch to « warm rent » = global fee for the rent and energy charges (reasoning in global cost) 10

11. Harmonize support mechanisms  In some EU countries, SHOs benefit from:  Subsidies  Tax exemptions (notably lower VAT)  Subsidized loans  Those advantages shouldn’t be lost through EPC 11  Allow access to existing support schemes for the ESCO, working for and on the behalf of a SHO through an EPC, as:  the retrofit of Social Housing is ultimately beneficial to tenants;  ESCO would not be substituting SHO but rather working on its behalf;  SHO remains the owner of the operation.

12. Allow the combination of EPC and Structural Funds  Specificities of social housing in Eastern Europe  No Social Housing sector as such : most residential buildings are privately owned and owner-occupied.  No widely recognized legal basis for association of home owners: governance of condominiums is a major obstacle.  Low payment capacity of homeowners and high risk sector 12  Improve governance of the condominium sector  Mandatory creation of a co-owners associations under a Condominium Law  Allow the combination of EPC and Structural Funds  Adopt the relevant rules for the utilization of the EU Structural Funds, allowing inclusion of ESCO as a contracting party.

13. Quality labels & voluntary certifications  Awareness & understanding of EPC has increased in recent years  But skepticism towards its advantages among both clients and financiers remains a barrier  Most important motives for mistrust:  Inhomogeneous ESCO offer  Lack of experience of clients, ESCOs and financial institutions 13  Create quality labels and voluntary certification schemes  improve confidence in the services offered by ESCOs  facilitate the marketing of ESCOs’ services

14. Generate investor confidence  Real and perceived risks in the housing sector  If a technical default is to occur, it is more likely to take place during the first years of the contract 14  Support further pilot operations in the housing sector  Develop Member States’ specific assistance and guidelines  Create voluntary certification for EPC independent auditors  Develop insurance mechanisms  Support the development by insurance companies of specific energy performance insurances  Support the creation of guarantee funds to mutualize the risks among investors

15. Conclusion  Due to rent regulations, the « conceptual » EPC model does not work in social housing  Factor 4 will not be self-financed, even with long term contracts  They will always require an additional contribution of the owner  Yet: increased « green value » of buildings, legal obligations… the owner should pay for a part anyway!  Engineering costs will remain high: EPC’s make sense on pools of dwellings, not 1 building  They could be a real tool for SHOs to:  Guarantee the efficiency of investments  Boost the realization of energy strategy  Outsource debt / do more with their equity  EPC are not THE solution! But one more tool in the toolbox for Social Housing 15

16. Thank you for your attention www.fresh-project.eu Christophe MILIN ICE, BURGEAP Group 27 rue de Vanves 92100 Boulogne Billancourt FRANCE +33 (0)1 46 10 25 51 c.milin@burgeap.fr for further information...

17. EPC: a tool for comprehensive energy retrofitting? Source: IEA DSM / Graz Energy Agnecy,Comprehensive Refurbishmentof Buildings through Energy PerformanceContracting. N ovember 2008. www.ieadsm.org www.ieadsm.org  3 innovations:  Design-implement-operate contract for works and services by an ESCO  Guarantee on energy performance in the operation phase  Third party financing (optional) 17

18. Obstacles and conditions for up scaling  Need for an integrated service supply (design, build, operate AND finance)  Third party financing operators should be initiated by public authorities  Enable « factor 4 » EPC’s with very long contracts  Reduce engineering costs  Facilitate access of SME’s to the market  Accessing low cost debt for third party financing EIB loans Jessica revolving funds (EIB): using ERDF grants as equity Other...  Framework for risk management:  Insurance for EPC providers need to be developed to enable SME’s to access the market  Measurement and Verification protocols should be simplified and adapted for comprehensive refurbishment 18

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