What if you could opt out of higher energy bills and help quell the climate crisis without spending a cent? In Valladolid, that’s already the reality for a growing number of local people, and Valencia looks set to continue the trend.
And they aren’t breaking their budgets in the process – instead, innovative financial agreements, like energy performance contracts, are helping them share the costs with other organisations, including energy companies.
What is an energy performance contract? The company pays for a big chunk of renovating homes to make them more energy efficient, and then recoups the investment and makes a profit from the energy savings that result. The concept is simple, but the reality is complex.
The company probably thought I was crazy
Building credibility
“The company probably thought I was crazy when I approached them at the beginning,” says Miguel Ángel García Fuentes, Head of Strategy and Business Development at CARTIF, a research centre that supports the work of the City of Valladolid. “Even the people living in the homes were sceptical because the city offered them so much for free.”
According to García Fuentes, building bridges of trust, pointing to successful precedents, and having the backing of the European Commission were all factors in gaining credibility, both with the companies and the local people. The plan didn’t go off without any hitches – there were plenty of hurdles and things to learn from along the way.
However, in the end, it worked so well that the city has been confident enough to mentor other cities through Eurocities’ EU-funded Prospect project to teach them how to do the same. Cities wishing to learn how to develop these and other financial skills that will help them boost their budget by attracting investment can still apply for the programme until 7 October.
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The first trap that Valladolid ran into, says García Fuentes, was not understanding the residents they were reaching out to well enough. “We started by using social media and creating a web portal for people to get information and share their questions or raise issues,” he remembers.
The city couldn’t understand why no one was reacting online. After further investigation, however, everything became clear: “They had an average age of around 65 or 70; they were not using social media at all and were barely online.”
Valencia has a really interesting approach
Switching to physical meetings and inviting people by more traditional channels solved that issue, but a lot of time was eaten up by having to reorganise the outreach strategy. One city that has a strong approach to engaging local people is Valencia.
“Valencia has a really interesting approach, using an energy renovation office where they are already creating connections with interested residents,” García Fuentes remarks.
Despite the fact that Valladolid was mentoring Valencia, alongside other cities through Prospect, says García Fuentes, “it was also a really interesting learning process for me.”
“Our approach to engagement all started with our experience in the Energy Office,” explains Alejandro Gómez Gil, from Valencia City Council’s Climate and Energy Office, “there we engage people, guide and support them to upgrade the energy performance of their homes and cut their bills.”
Be part of the community
This doesn’t just mean waiting for people to come to them – when the city wants to get the ball rolling on larger renovation projects, it sends out the Climate and Energy Office to meet the residents and create links with neighbourhood associations and trusted local people.
They came back with boxes of sweets for the office, because they were so grateful
Very early on in its existence, the Energy Office started getting signs that they were doing something right. “In the first months,” Gómez Gil remembers, “there were people whom we helped to reduce their bills, and they came back with boxes of sweets for the office because they were so grateful.”
However, when it comes to energy performance contracting, engaging the local people is only half of the equation. Now Valencia is looking to find companies that are willing to put their own neck on the line by investing capital into the promise of energy savings. Happily, this is a point on which Valladolid was able to share a few tips with them.
How it works
The scheme that Valladolid shared in Prospect works like this: Some of the funding for energy renovations comes from the European Commission. A further 25% of the costs are split between a low-interest loan from a bank and an investment from the energy company that is doing the renovation.
The energy cost goes down in the building, but the residents keep paying the same fee that they used to, around €80 per month. The difference between the new, lower cost of the energy and the unchanged bills that residents pay goes towards paying off the bank and the energy company, as well as providing some profits for both over the course of about 20 years.
Renovations include things like changing fuel from gas to biomass, adding insulation and renewable energy sources like solar panels. It also updates the distribution system to a district network, which is more efficient than each resident having their own system.
Residents who can afford it can file the initial investment themselves, around €3,000, in which case the savings go to them immediately, rather than to the bank or energy company.
It was really difficult.
Attracting investment
The investment for the energy company is low risk, but the returns are long term. It can be hard to attract energy companies into this kind of agreement. “It was really difficult,” García Fuentes says bluntly.
“First, we had to design and propose an appropriate business model for them, making a clear case for how they could afford the renovation without receiving any initial investment. Also, we had to support them in understanding all the legal and technical requirements.”
To achieve this, CARTIF created a technical office that could liaise with businesses directly, offering them information, holding meetings and answering their doubts. The same office fielded questions from building owners and other organisations involved in the project. It was also important that the city council and the local councillors clearly signalled their support for the scheme.
The city also has to design financial systems for residents, writing a call for people to apply for grants that aren’t too technical and off-putting. Understanding residents’ concerns led to further work on the structure of grants.
For example, splitting the payment over two different years, so that receiving the grant didn’t push less wealthy residents into higher tax-brackets that would put their financial stability at risk. “That lesson came almost at the end,” García Fuentes recalls, “which meant redesigning the call at a late stage.”
That was a lesson that came almost at the end.
Will it fly in Valencia?
Much of the legwork for putting a similar scheme in place in Valencia has already been done. The city has chosen apartment buildings needing renovation in socio-economically vulnerable neighbourhoods.
The city now wants to combine public subsidies from the regional level that are available for fixing structural issues with buildings together with a system similar to that in Valladolid, which could extend the renovations to include adding solar panels or new heating and cooling systems.
With the help of European funding through a project called Ebento, the city will trial energy performance contracting for the first time. “It’s going to be difficult,” Gómez Gil admits. “We know of some private companies that are starting to discuss these services. But it’s not like we already have 5 or 10 companies in mind that would be willing to do so. I think the local private sector is still immature in this field.”
I think the local private sector is still immature in this field
However, the visits and training during Prospect have assured Valencia that this approach can be successful – there is proven precedent – and it’s already prepared to leap over the pitfalls that Valladolid was able to warn other cities against.
As for CARTIF and Valladolid, García Fuentes is just glad to be part of the learning community for all it was able to give and take. “I think it’s really gratifying to be part of the Prospect project,” he says, “to be able to have some of these experiences together and learn about these different cities and contexts.”
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To discover more about Prospect, and, if you work in a city, to sign up, just fill out this simple form before 7 October.
