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ScienceDirect Energy Procedia 72 (2015) 245 – 249

International Scientific Conference “Environmental and Climate Technologies – CONECT 2014”

Energy efficiency in multi-family residential buildings in Latvia. Cost benefit analysis comparing different business models Kristaps Zvaigznitis*, Claudio Rochas, Gatis Zogla, Agris Kamenders Riga Technical University, Institute of Energy Systems and Environment, Azenes iela 12/1, LV-1048, Riga, Latvia

Abstract Energy Performance Contracts (EPCs) are very seldom used in the residential sector, especially for extensive renovations of multi-family or apartment buildings. Only up to 10 % of energy service companies’ activities are targeted in the sector. A cost benefit analysis was carried out to compare different renovation business models. It was proved that EPCs can be applied for extensive renovations reducing the annual costs for residents and ensuring safe, comfortable and sustainable housing. © by Elsevier Ltd. by ThisElsevier is an open access article under the CC BY-NC-ND license © 2015 2015Published The Authors. Published Ltd. ( Peer-review under responsibility of Riga Technical University, Institute of Energy Systems and Environment. Peer-review under responsibility of Riga Technical University, Institute of Energy Systems and Environment Keywords: apartment buildings; extensive renovation; cost benefit analysis; Energy Performance Contracting; energy efficiency

1. Introduction A large number of apartment owners in Eastern Europe today are faced with a complex, persistent problem: their housing is crumbling and they have no access to resources to refurbish it. Under the socialist economy model, a policy of forced urbanization was instituted to move a primarily agrarian population to cities as part of the planning process for all elements of production [1]. Buildings had to be ready quickly to meet this influx. Over 300,000,000 sq. meters were built in the period of 1960-1990 in Eastern Europe alone [2]. During the transition to market economies, local governments in Eastern Europe were encouraged to privatize entire apartment buildings to the residents of those buildings. At the same time, the new owners saw their income

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1876-6102 © 2015 Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license ( Peer-review under responsibility of Riga Technical University, Institute of Energy Systems and Environment doi:10.1016/j.egypro.2015.06.035


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drastically reduced in real terms, and they did not have adequate knowledge on how to manage their new property. Nowadays they still do not have these skills in most cases. Slava D. and Geipele S. has investigated this issue from point of view of Latvia [3]. The main findings were that if there are competent and active residents it is possible to establish an association of apartment owners (a non-profit organization) to maintain the building cheaper and more effectively than a private maintenance company. Since then, a combination of cash-strapped maintenance companies and unprepared owners have caused buildings to fall into disrepair. The fall in disrepair was accelerated by rapid construction techniques and the use of prefabricated materials. These same materials make the buildings energy inefficient. For example the average apartment building energy consumption in Latvia is about 180 kWh/(m2 a) for space heating. In the worst case the total specific energy consumption may reach up to 300 kWh/(m2 a). Consumption is calculated on the heated area. One of the solutions for the issues mentioned above is extensive renovation using Energy Performance Contracting (EPC) principles. As defined in Directive 2012/27/EU, EPC is a contractual arrangement between the beneficiary and the provider of an energy efficiency improvement measure, verified and monitored during the whole term of the contract, where investments (work, supply or service) in that measure are paid for in relation to a contractually agreed level of energy efficiency improvement or other agreed energy performance criterion, such as financial savings. However, only up to 10 % of energy service companies’ (ESCOs’) activities are targeted in the residential sector across Europe in 2005[4]. There has been slow growth in the residential ESCO market reaching the number of 22 % till 2013[5]. ESCO is a provider of the energy service in the form of EPC. The first steps of EPCs in the Latvian residential sector were discussed in a previous paper [6]. The term “extensive renovation” can be applied both to the extension of the lifetime of a building and the increase of the building energy performance significantly [7]. The energy consumption can be reduced for space heating to 60í70 kWh/(m2 a) when extensive renovation has been conducted. The authors’ previous work showed that it is possible to achieve up to 65 % energy savings through extensive renovations [6]. The aim of the this second research is to provide the long-term benefits of the EPC in the apartment building sector carrying out the cost benefit analyses of three buildings. 2. Method A comparative analysis of both technical and economic aspects was carried out in three identical apartment buildings which are all located in Valmiera, Latvia. A cost-benefit analyses was carried out taking into account three different project investment costs and their benefits – saved energy costs. The buildings are on the same street side by side and one of them was extensively renovated by an ESCO using Energy Performance Contracting (Gaujas 13), the 2nd was renovated using a bank loan organized by apartment owners (Gaujas 11), and the 3rd was not renovated (Gaujas 9). These buildings belong to the 467th type building series (one of many series built in the Soviet Era) made from pre-fabricated concrete panels. The buildings entered into exploitationin the period of 1977–1980. They all are nine storey buildings with a single staircase. The average height of one storey is 2.5 m; the total surface area is about 2165 m2, of which 1860 m2 are heated in winter. All three buildings have 36 apartments. To evaluate the need for the extensive renovation of apartment buildings and the long term benefits of EPCs, the indicator of net present value of all future payments was used to compare the three buildings. The following data set and assumptions were used: x heat tariff 51.8 EUR/MWh; x inflation 3 %; x discount rate: 6.5 %; x loan for 11 Gaujas iela: – maturity15 years; – interest rate: 4.5 %+Euribor; x EPC contract for 13 Gaujas iela:

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– the contract is 20 year long and indexed to the energy inflation; x 9 Gaujas iela – without any further renovation: it was assumed that the building will be uninhabitable in 15–25 years. Residents will have to buy or rent other housing. 3. Results and discussions 3.1. Cost of renovation and annual payments The renovation organized by an ESCO under an Energy Performance Contract cost 170,000 EUR. With this investment the ESCO renovated the building envelope, the space heating system and installed a new domestic hot water (DHW) system as well as different structural measures were implemented, like roof and balcony refurbishment. Cosmetic repairs on the staircase and entrance were done as well to improve the look, comfort and overall impression of the building. The renovation organized by the apartment owners cost about 225,000 EUR. The renovation plan was similar to the plan used by the ESCO. However, some energy efficiency improvement measures were not implemented, for example the installation of a new domestic hot water system and the installation of thermostatic valves on each radiator. A grant from the European Regional and Development Fund’s support program was given for both of the renovations. Residents of the 3rd building decided not to renovate their building and did not invest any money. The annual payments made by residents are summarized in Figure 1.


Heat energy


ESCO services

House maintenance

45000 40000 35000 30000 25000 20000 15000 10000 5000 0 Gaujas 9

Gaujas 11

Gaujas 13

Fig. 1. Annual payments for the residents in 2013.

The results represent the annual payments of the buildings in 2013 including energy and house maintenance costs (cleaning services, lighting in the communal areas, etc.), the payments of the loan (15 year loan; interest rate of 4.5 % + 3 months Euribor) and ESCO services (20-year contract). 3.2. Energy consumption and the savings The monitored energy consumption data of 2013 were analyzed to assess the energy performance of these three buildings. Figure 2 represents the total actual energy consumption with the following breakdown: domestic hot water (DHW) preparation, circulation losses and space heating.


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Space heating

400 350 MWh/year

300 250






100 50 0






Gaujas 9

Gaujas 11

Gaujas 13


Fig. 2. Total actual energy consumption in 2013.

It can be seen that Gaujas 13 are consuming less energy than Gaujas 11, despite the fact that renovation costs were lower in the former building as discussed above and the same construction company was used to perform the renovation work. A very important aspect is that it is possible to achieve up to 95 % savings installing a new DHW system. The original domestic hot water system consisted of six risers and one return circulation pipe; towel heaters were connected to the risers. The new system has a single circulation loop, which was installed in the staircase. This loop consists of industrially pre-insulated pipes, which guarantee the highest quality in terms of thermal insulation, performances and durability. 3.3. Long term evaluation The deep renovation of buildings will extend their life for at least 30 years. Therefore, residents’ payments have to be evaluated in this time period. Figure 3 represents the 30-year results. Gaujas 9

Gaujas 11

Gaujas 13

70000 60000 Euro

50000 40000 30000 20000 10000 0





Fig.3. Discounted payments of the residents.

25 Years

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Residents of Gaujas 13 are paying the same baseline payments every year according to the inflation of the heat tariff. At the end of the EPC (20th year) the full benefits of the cost savings revert to the residents. Residents of Gaujas 11 till year 15 are paying for heat, bank loan and house maintenance. When the loan is repaid, annual payments drop and are later increasing according to energy inflation. In the long term, residents of Gaujas 13 will pay for energy, house maintenance and ESCO services (20 years) with a cumulative bill of about 506,000 EUR. The residents of Gaujas 11 will have to pay ca 83,000 EUR more, meaning a cumulative bill of about 589,000 EUR. The authors consider that residents of Gaujas 9, without renovation, at a certain point in time will have to look for new housing, with major investment costs. In the mean time, their comfort and quality level is significantly lower and continues to deteriorate. 4. Conclusions The results of the paper show that the total costs in year 2013 are reduced by 650 EUR compared to the EPC project with non-renovated building. Besides, in the long term, residents of Gaujas 13 will have larger cost savings and a more secure home due to deep renovation carried out by ESCO. The main reason why the renovation of Gaujas 11 was 32 % more expensive and less measures were implemented than in Gaujas 13 project, was that the residents did not have the necessary experience and know-how to implement the renovation project. The paper shows that EPCs can be used effectively for extensive renovations of apartment buildings despite the fact that only up to 22 % of ESCOs’ activities are targeted in residential sector across Europe.

Acknowledgements The authors wish to thank the company Renesco, which is an ESCO, and the municipality maintenance company “Valmieras namsaimnieks” for the data provided and allowing this work to be carried out as well as the authors are very thankful to the Building and Energy Conservation Bureau for the support during the work. References [1] [2] [3] [4] [5] [6] [7]

Gentile M, Sjoberg O. Soviet housing: who built what and when? The case of Daugavpils, Lavia. Journal of Historical Geography. 2010, p. 453-465. The Buildings Performance Institute Europe. Data hub for the Energy Performance of the buildings. Available from Accessed 12.09.14. Slava D., Geipele S. Legal and Economic Problems of Housing Management in Latvia. Proceedings of the 52nd International Scientific Conference of Riga Technical University: RTU FEEM Scientific Conference on Economics and Entrepreneurship (SCEE’2011), Riga, Latvia, 7-7 October 2011. Vine E. An international survey of the energy service company (ESCO) industry, Energy Policy 2005;33(5):691–704. Garnier O. European EPC market overview-Results of the EU-wide market survey, Transparense project report, December 2013. Rochas C., Zvaigznitis K. et al. Energy performance contracting for multi-family buildings in Latvia. First steps. In: 9th International Conference on Environmental Engineering, Vilnius, Lithuania, 22–24 May 2014. Shnapp S. et al. What is a deep renovation definition? Global Building Performance Network, Technical Report, February 2013.


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