Energy Efficient Renovation

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					                          ENVIRONMENTAL OPPORTUNITIES            Sustainability in
                ENERGY EFFICIENCY FINANCE                        Housing Finance

Sustainability in the Housing Sector                               Key Issues and How IFC Can Help
Developers and households can incorporate relatively sim-            Financing expertise: IFC offers sector knowledge and
ple efficiency improvements in homes to reduce energy                flexible financing to enable its client FIs to develop proj-
consumption and costs. Projects encompass either new                 ects with confidence. Since individual transactions may
construction or renovation of existing homes by installing           be small, IFC can assist in designing larger scale but
energy efficient and renewable energy fixtures for heating,          economically viable projects by standardizing transac-
cooling, and lighting; improved insulation and water effi-           tions to build a portfolio and reduce transaction costs.
ciency; and use of sustainable building materials, such as           IFC also offers risk sharing instruments to share risks
certified timber. Finance for sustainability projects in the         and incentives among project partners.
housing sector is a promising market for financial institu-          Technical expertise: IFC leverages its sector knowledge
tions (FIs) as demand for housing and energy continues to            and technical expertise in energy efficiency to help
rise. IFC has unique products and technical expertise to             structure projects that capture energy savings and raise
help them access it.                                                 property value to improve collateral and project out-
What Does the Market Look Like?
  Rising demand for affordable housing and energy: More            What Are the Opportunities for Market
  than two billion people will be added to the growing glob-       Actors?
  al demand for housing, energy, and urban infrastructure
  over the next 25 years. Energy demand in the housing             FINANCIAL INSTITUTIONS
  sector can represent as much as 50% of a country's total            Access to largely untapped market with good growth
  energy consumption, increasing costs for households in           potential
  many countries Making room for efficiency is critical.              Higher than average margins
  Large potential for energy efficiency in housing: Energy            Energy-cost savings serve as security for a loan with-
  efficiency improvements are increasingly economical              out significantly increasing the LTV ratio once increased
  and have large potential for application in existing             property value is considered following upgrades
  residential housing blocks and individual family homes.             New business line enabling market differentiation from
  Activity in some developing countries is also focused on         other banks
  construction of sustainable housing (e.g. South Africa).            Energy efficiency savings increase borrower's
                                                                   willingness and ability to pay
What Are the Benefits of Financing
Sustainability in Housing?                                         HOUSEHOLDS
  High energy cost-savings: Renovations to residential                Access to credit for home improvements or construc-
  housing blocks can reduce energy use by up to 30%.               tion
  Energy efficient eco-homes can reduce energy use by up              Long term energy-cost savings
  to 50% compared to traditional homes of the same size.              Energy savings finance all or at least part of investment
  This greatly reducing costs for homeowners.                      over time
  Simple paybacks: Projects usually pay for themselves as             Desirable property features and increased property
  energy cost-savings contribute to financing the upfront           value
  investment.                                                         Increased comfort and living standards
  Social empowerment: Projects are desirable for their
  social benefits as households enjoy increased comfort,           DEVELOPERS

  living standards, and property value from affordable
  home improvements.                                                  Access to credit to expand business offering
  Environmental impact: Sustainable housing projects
  encourage responsible resource and energy use to
  reduce carbon emissions.

                           ENVIRONMENTAL OPPORTUNITIES           Sustainability in
                ENERGY EFFICIENCY FINANCE                        Housing Finance

What are Typical Projects?                                          Home Renovation Loan/Second Mortgage
Sustainability in the housing finance sector falls into two           Bank extends "home improvement loan" to housing
categories: sustainable housing construction and home                 association tenant or a "second mortgage" where a
renovations:                                                          primary mortgage is already in place on the property
                                                                      Financing covers energy efficiency installations in two
Construction Finance                                                  residential segments:
  Financial institution extends credit facility to developers         – Shared communal areas in residential housing blocks
  for construction of residential properties with specific            – Single family homes and apartments
  sustainability features:                                            Homeowners finance total investment from energy cost-
  – energy efficiency and renewable energy installations              savings over time.
  – sustainable resource use (local materials, recycling,
    water efficiency)
  – environmental rehabilitation (planting, landscaping)                 Residential Block Housing Renovations,
  – community development and revitalization                                             Estonia
  IFC offers financing and technical assistance on best                                 Purpose Energy efficiency renova-
  practice energy efficiency and sustainability features                                          tions to residential block
                                                                                                  housing "communal areas"
                                                                           Initial Portfolio Size $5-7 million
                                                                          Financing institution Major Estonian bank
         Sustainable Housing Construction                                             Borrower Housing cooperatives
                                                                            Average Loan Size $40,000 to $200,000
                 Purpose IFC credit line to mortgage                           Debt repayment Energy savings
                           finance institutions for con-               Energy efficiency criteria Minimum 25% of project
                           struction finance targeting                          Simple payback 8-12 years
                           sustainable housing projects                Sustainability activities Window and door replace-
                           for low and middle-income                                              ments, heating improve-
                           families.                                                              ments, wall and roof
    Initial Portfolio Size US$20-30 million                                                       insulation, reconstruction of
                 Maturity 4-5 years after commitment                                              hot water systems
                           and 2-3 grace period
                Borrower Construction companies/
                           developers                               Who to Contact at IFC?
           Eligible Loans to eligible developers for max.
                                                                    Sustainable Energy          Eva Szalkai
                           tenor of 24 months and max
                           LTV of 60 percent to cover                                 
                           construction cost of building                                        T: + 1 202 473 0755
                           residential properties                   Housing Finance             Kenroy Dowers
        Debt repayment Energy savings, family income                                  
      Energy efficiency at least 25% of project cost                                            T: + 1 202 473 3586
            Sustainability Efficient lighting, solar energy
                activities features, water use efficiency
                           and community wastewater
                           treatment, landscaping,
                           sustainable and locally-
                           sourced building materials