Learning from JESSICA in Lithuania

Energy efficiency in Lithuania’s housing stock is set to improve dramatically over the next five years as the country implements an ambitious apartment building renovation programme supported by the European Commission (EC) and the European Investment Bank (EIB).

A recent EIB conference on financial instruments for future urban planning illustrated just how significant a priority apartment building renovation is for the Lithuanian authorities. Delegates heard that 66% of Lithuania’s population live in apartment buildings, 97% of which are privately owned. 

There are more than 38,000 apartment buildings in the state with 24,000 requiring renovation; 65% of multi-apartment buildings are served by district heating systems and average energy savings of 50% have been achieved in multi-apartment buildings renovated under the new programme.

The EIB estimates the total investment required for the Lithuanian apartment building renovation programme is more than €1 billion by 2020.

The EIB presentation highlighted how the EC and EIB – through JESSICA (Joint European Support for Sustainable Investment in City Areas) – have helped Lithuania develop the statutory and financial instruments needed to frame a public-private partnership approach to the apartment building renovation programme.

The Lithuanian government launched its first Multi-Apartment Buildings Modernisation programme in 2004. This offered state grants of up to 50% of renovation costs with the balance provided by commercial banking loan. The programme proved popular – approximately 500 apartments were renovated – but its potential was restricted by limited state resources.

Recognising that a different approach was required, in 2009 the Lithuanian government signed a funding agreement with the EIB, establishing the Lithuanian JESSICA HF (Holding Fund) for apartment building renovation. This fund was capitalised with an initial investment of €227million – €127million from the European Regional Development Fund and €100million in matched national funding.

With the necessary legislative, administrative and financial network now fully in place, significant construction work under the JESSICA programme is scheduled for 2014.

The Lithuanian Ministry of the Environment’s Housing and Energy Development Agency (HESA) is the main managing authority for the apartment renovation programme. Its brief includes:

  • Consulting with apartment owners, administrators, municipalities and other interested parties
  • Preparing and promoting standardised structural and design elements for renovation projects
  • Evaluation and technical supervision of renovation projects
  • Administration of state supports
  • Liaising with the JESSICA HF intermediaries in Lithuania on project compliance issues.

This public-private partnership approach between the EIB, Lithuanian ministries, the HESA and the JESSICA financial intermediaries is yielding impressive results. “The apartment block renovation project pipeline appears to be building up with potential for more than 3,000 building projects,” says an EIB spokesperson. “Of these almost 1500 have already had their investment plans (a total of €350) approved by the HSEA and approximately 1,000 have taken a collective decision on the part of the apartment owners.

“Financial intermediaries have now approved more than 800 buildings for financing (total loans of €160million) and signed financing agreements with around 200 in addition to these. It’s expected that almost all of the €227million funds in the JESSICA Holdings Fund will be fully committed through four financial intermediaries during the upcoming months.”

The typical loan amount per building is €200,000, repayable over 20 years at a fixed interest rate of 3% per annum. Borrowers are also entitled to claim a 15% support– from JESSICA HF as a loan rebate in a form of an interest subsidy or the state – once the project achieves energy efficiency class D (20% reduction in energy costs). An additional 15% grant is provided under the Climate Change Programme and additional 10% is provided from state budget for buildings where energy consumption is reduced by 40%. These incentives – combined with average energy savings of 50% or more – have made the renovation programme a very viable and attractive proposition for householders in apartment buildings

Other terms include:

  • 100% grant or JESSICA loan to prepare renovation documentation
  • Exceptional 100% subsidy on all expenses for low income persons from state budget
  • No loan insurance or third party guarantee requirements
  • A repayment grace period of two years during construction

Municipalities own just 3% of the Lithuanian apartment building stock, but recent amendments to the Law for State Support for Housing are enabling municipalities to play a greater role in the renovation programme. Under this new model, municipalities can identify buildings which have the lowest energy efficiency rates. An energy efficiency evaluation is commissioned for the building and this also identifies the potential benefits for the area’s central heating and energy supply system. The municipality then appoints a programme administrator for the proposed renovation project.

In early 2013, municipalities supplied the Ministry of Environment with a list of more than 1,500 apartment buildings which could be renovated under this project management model; 914 of these buildings have been approved by the Ministry for implementation. Last September, after a second call from the Ministry, the municipalities provided a second list of 1,683 buildings, all of which have since been approved for implementation.

Along with the improved energy efficiency, lower carbon emissions and reduced dependence on foreign energy sources, the EIB has identified less tangible but equally important benefits from this large scale national programme. These include reducing job creation, reducing fuel poverty, improved health and social inclusion.

It also believes other Member States can learn from and replicate the Lithuanian model of combining grants, technical assistance and loans in a single financial instrument for energy efficiency projects.