The heat is on

Warm and energy efficient homes for our future.

In April 2012, over 20 specialists on alternative heating systems, energy efficiency, housing and community development, financial services, and business development representing the private sector, banking, NGOs, government administration and UNDP (as the organizer of the event) discussed and developed technical solutions and commercially viable and replicable business models addressing rural residential heating. Considering that almost 50% of total building stock is used by residential single family houses, this is a vast but often overlooked market.

Taking Profitability into Consideration

Commercial viability and replicability implies that from each actor’s perspective, every investment and involvement must be profitable. Profitability calculations must take the planning horizon of the actors into consideration. In the countries of the former Soviet Union, households and small businesses usually expect a pay-back period of not more than one year, while larger businesses might cope with 3 years. Hence, any investment should accommodate these expected pay-back periods. Donor financing should be limited to start-up support of the approach, and potentially to some pre-transaction cost (e.g., awareness raising) for the replication of the model. The developed models must hence take a distinctive market oriented perspective, considering the profitability of each additional investment. In most cases, this also implies to “think small” and explicitly accept sub-optimal solutions, instead of aiming for optimal solutions from the environmental and/or social perspective: Only those environmental considerations are feasible that can be fully backed by economic considerations.

Participants came up with about 60 ideas on technical approaches and business models. A common view emerged on the following: Use very low cost solutions for energy efficiency improvements as entry point for households. They have a fast pay-off, and are within the budget of a household – no financing required. The payback period of the type of energy efficiency improvements usually recommended (such as insulations of the building envelope) is far beyond the planning horizon of the households. Credit is close to impossible to obtain by the target households, making subsidies a permanent requirement. Leave such investments as an option, but not a focus.

Multifunctional Systems as a Solution

An innovative approach discussed and endorsed by the workshop was to improve the profitability and reduce the payback period of heating investments by generating income streams also during non-heating periods. To achieve this, heating systems have to be designed in such a way that they are transportable and that they can also be used for other purposes than room heating. They would then be leased or rented to different users throughout the year, thus increasing their utilization and return on investment. Harnessing the vast potential of less-than-mainstream technologies to cheaply improve efficiency (heat pumps, solar heaters, Stirling engines, etc.) is a preferred option for this. An example can be a solar collector that heats a room in winter, a greenhouse in the transition period, and for drying of fruits and vegetables in summer.

UNDP is now developing a booklet “The Heat Is On” (to be published in autumn) which outlines different approaches to energy efficiency improvement and heating systems to demonstrate the possibilities. As this is rather generic, specialists will have to check and adapt the suggested solutions for each specific situation.

By Stephan Schmitt-Degenhardt,
Policy Specialist (Private Sector Development)
UNDP Europe and the CIS, Bratislava Regional Centre

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