Cities in need of renovation but lacking public funds can learn a lot from Croatia

Old, dilapidated buildings are an economic, social and environmental drag on cities that have serious impacts on the health, well-being and productivity of the tenants — and the climate. 

In Europe, the challenges and opportunities are huge. More than 75 percent of the continent’s buildings will still be in use in 2050. And if we look at them today they are already in poor shape: Only 3 percent meet the highest energy efficiency standards.

As the public sector owns and operates many of the non-residential buildings (hospitals, schools, office towers, etc.) and a large share of the residential property as well, acquiring the necessary public funding for the renovation job is often a challenge. 

The ESCO model in Croatia

By using Energy Performance Contracting  (EPC), a mechanism for organising the financing linked to guaranteed energy savings in a project, together with an Energy Service Company (ESCO) to manage the project, Croatia has succeeded in attracting private investment into the pool of funding for largescale renovations in many of its cities. 

The success of the model can be seen all over the country. Between 2014 and 2016, a €220m energy renovations programme benefitted more than 15,600 family homes, 2,300 multi-unit buildings, 80 commercial buildings and 262 public buildings. By 2020, the total investment in building renovations will reach €411m, much of it through ESCOs. 

One shining example of the value is Karlovac Hospital near Zagreb. Since renovation was finished on Karlovac in 2016 (60% private funds, 40% public), the hospital’s energy use and CO2 emissions have been cut by more than 50 percent. The annual financial savings for the hospital are roughly €540,000 per year, money that will finance the investment over a period of 14 years.

This short video shows the hospital’s transformation and the results. 

As Croatia has shown, the ESCO model can be an attractive option for organising the energy efficiency funding required for renovating some public buildings while ensuring the public sector benefit from the contract. 

Using ESCO contracts with clearly defined conditions and specifying high ambitions will help to free public money for projects, which have a higher return on social and environmental parameters. 

Large-scale renovation brings cities a package of economic, social and environmental benefits that far outweighs the investment costs. When budget limitations are the primarily roadblock, the ESCO model can, if well managed, offers a solution many cities will find attractive. 

ESCO contracts for renovation of public buildings: Learnings from Croatia

To reduce the perceived risk – it is important to have transparent rules and ensure a “fair” deal for the local or national authorities in the contract. The Government in Croatia has created a contract template, which clearly defines all obligations, risks and rights, to prevent disagreements during the contract period. This is very important for the accounting of public debt.

Croatia has demonstrated an interesting path for organising the energy efficiency funding for renovation of public buildings that ensures the public sector also benefits from the contract. We encourage more governments to follow Croatia’s lead and initiate more of this much-needed deep renovation across Europe.

Lessons learned and recommended actions

• Public buildings, like hospitals, which are in use 24 hours a day all year around have proven to be the most attractive investments for ESCO companies when there is a request for deep renovation
• ESCO contracts for public buildings in Croatia must guarantee at least 50% energy savings
• To maximize the total savings delivered in projects, the government can co-fund project
• Renovation of public buildings should always be evaluated on the “triple bottom-line” - environment, social and economic benefits - energy renovation will deliver a positive impact on all parameters. The economic benefit is the main parameter for ESCO companies where the public sector is expected also to deliver on the social and environmental agenda