Innovative new financial model to enable private apartment blocks to retrofit to net zero energy

Homeowners from a private apartment building in Assen have wanted to go to net zero energy (NZE) for three years now. Now that they have secured finance they are finally set to realise this goal. Their homeowner association is the first in the country to finance a NZE project with financing that is building-linked. These types of pilots are essential for developing a nationwide financial product for these projects. Such a financial product would represent a great step forward in realising energy transition goals, as it would enable more private apartment buildings to adopt net zero energy. And the good news is: building-linked finance has been included in the recent coalition agreement of the Dutch government.

How Assen got the ball rolling

Three years ago Assen Council put out a call. They were looking for pilot homeowner associations interested in renovating to net zero energy levels. The manager of Ellen’s homeowner association quickly registered their interest and this was the beginning of a long collaboration between Assen Council, Ellen’s homeowner association & its residents, Segon consultants, the Province of Drenthe, the Drenthe Energy Organisation, the Triodos Bank and builder Renolution.

Assen Council became inspired to pursue NZE after a housing corporation in Drenthe which was involved in the ‘deal Stroomversnelling’ took the initiative to go to NZE. The ‘deal Stroomversnelling’ was a deal made in 2013 between Dutch building contractors and housing associations to refurbish 111,000 homes to NZE.

These days the step to NZE is relatively easy for social housing associations in the Netherlands due to a new regulatory tool that allows landlords to charge extra service costs (an “energy plan”) to tenants for a Net Zero Energy building. A NZE renovation (or new build) is financed in two ways: through energy cost savings and by reduced maintenance and repairs costs. Both are part of the business case. The objective is that tenants have the same monthly expenses – they now simply pay the housing association an energy service fee instead of their former energy bill to an energy supplier. The housing association can now use this new income stream to pay a large part of the renovation.

Whilst the business case for NZE renovations is clear for social housing associations in the Netherlands, it is a different story for private homeowner associations and individuals. There were, and still are, no long term loans (>25 years) available to them to invest in NZE. Therefore, for a homeowner association, loan repayments would be significantly higher than residents’ current energy bills and the costs to residents would go up.

From financial stumbling block to solution

The key for Marco Attema, project leader from Assen Council, was to find a building-linked financial solution. Together with Joost Schretlen from the consultancy firm Segon he generated what at first glance seemed like a ‘simple solution’. Attema describes “I thought, why can’t we link the mortgage to an object instead of a person? In this way the financing becomes transferrable in the event of the sale of a home, and there would be no risk to investing in NZE. The basic thinking was: instead of the individual owner, the homeowner association takes a loan to retrofit the entire apartment complex as a whole. They then collect the loan repayments and interest via the service costs that residents pay to the association. In this way (just as in the case of social housing) the residents would trade their old energy bills for extra service costs. However, the problem was that homeowner associations could not secure loans as they had no collateral. The Province of Drenthe was very enthusiastic about exploring a guarantee fund as a possible solution and keen to work on it together.”

Net zero energy for net zero cost

Only SVn (a support fund for housing) and the National Energy Saving Fund have experience lending to homeowner associations in the Netherlands, and this is with a maximum 15 year term. Fortunately, the Triodos Bank was prepared to step in and provide long term finance for Ellen’s homeowner association. Attema: “For the banks, extending a loan to a homeowner association with a duration of 30 years is totally new. Many questions must be answered, such as: How do you determine the creditworthiness of a homeowner association? How do you determine the quality of the building product? How are the details arranged legally? What are the risks for homeowners? Everything needs to be doubly tested. We need to demonstrate that it is possible.”

Finally it proved achievable. Triodos Bank has provided a loan with a term of 30 years, with the Province of Drenthe providing the security. The intention is that this security will eventually be transferred to a yet to be established guarantee fund.”

The longer loan term brings the loan repayment costs down to a level comparable to the current energy bills for the residents. In this way the retrofit comes as close as possible to net zero cost for residents. Their 30 year maintenance contract is also worked into the costs, so it is nicely organised.

Moving forward

In the Netherlands there are currently multiple homeowner associations working towards achieving Net Zero Energy for their building complexes and they all experience the same financial stumbling block. Assen Council is now actively involved in seeking solutions to facilitate a broader rolling out of the Assen Service Cost Model, jointly financed by the Dutch Municipalities Association. A broad group of stakeholders, banks, advisors and governments have acknowledged the urgency of this issue and begun compiling a list of the points that are holding back progress to be forwarded to the Social and Economic Council. A Taskforce has been created within Stroomversnelling that is oriented towards finding uniform and scalable financial solutions that make Net Zero Energy renovations possible for homeowner associations throughout the Netherlands. The Assen Service Cost Model, including the idea of a guarantee fund, is forming a basis for this work. The Taskforce is also investigating the possibility of extending the current NEF-lending (a special loan for energy saving refurbishments) from a term of 15 years to a term of 30 years. One member of this Taskforce is Femke Adriaens, sustainable policy specialist at Assen Council and member of a Dutch investment agency. Adriaens explains “The beauty of NZE is that you can pay for it with your old energy bills, but guarantees must be given for this. We really need more experience, more pilots so that banks can learn from them and gain trust. In this way we can develop standardised financing. The guarantee fund of the Province of Drenthe could be the forerunner for a national guarantee fund so that banks could soon offer loans without risk nationwide.”

The Taskforce

Oliver Lauterslager has helped facilitate pilots with homeowner associations for three years now. “Ellen’s homeowner association is the first in the country to raise local financing for such an ambitious renovation. The role and contribution of the Province has been very important to this. Our Taskforce has taken the solution in Assen on board. We will investigate how this can be expanded and scaled up for other pilots and we are looking for national partners who want finance via the same model. Robust guarantees are necessary from municipal/provincial governments to achieve this. In the longer term we want to see a reduction in the size of governmental guarantees. However, the product needs to prove itself before such robust guarantees are no longer necessary. Therefore we need more experience from the pilots.”

Facts and figures

Homeowner association Ellen oversees 28 apartments within a building of five levels, of which four are for living. During the retrofit each whole flat is essentially encased in a new facade, with balconies and walkways becoming interior. The old balconies are converted to French balconies with double doors and the walkways get a special glass system that is self opening if the interior gets to warm (24 degrees) or in the event of smoke. This new facade offers a 95% saving on heating requirements. The necessary energy is generated by solar panels on the roof and all residents get their own ventilation system in the ceiling with a spiral heating system behind it. The new facade is ‘factory made’ and affixed to the flats on site. Building company Renolution (also a member of the Stroomversnelling) renovates one residence per day and handles communication with the residents themselves. The residents have been enthusiastic from the start and Renolution talked with each household about the possibilities for personalised extras.

Supporting homeowner associations to net zero energy

The innovation programme VvE’s naar nul-op-de-meter (Homeowner associations to net zero energy) has been running since 2015 and originated from the since completed Energiesprong programme. The pilots supported through the programme have provided a platform to experiment with systemic changes within the sector. Facilitation of this vital task is shared by Platform 31, supporting the pilots, and Stroomversnelling, working on the necessary regulatory changes and supporting innovation (partly financed by the Interreg NWE programme E=0).