It’s September, and 20 degrees Celsius outside, but residents of an old apartment building at 34 Mira Street in Sumy, a city 330 kilometers northeast of Kyiv, are taking measures to improve the heating of their homes.
They’re doing it with the help of Ukraine’s State Agency for Energy Efficiency, which has launched a lending program called “Warm Loans.” The International Finance Corporation (IFC) and the Swiss government, in turn, helped design the program.
Using loans from the program, residents are cutting bills and saving energy by installing individual boilers, upgrading electric wiring, buying low-energy lightbulbs, and heat-insulating the building walls.
“As an economist, I think it is a great program, because all of the state benefits go directly to the people for real improvements,” said Sophia Lynn, the operations officer at the IFC, which with the support of the Swiss government advised on the development of the “Warm loans” program.
As part of the third and final phase of IFC’s residential energy efficiency project in Ukraine, which started in 2010, the Swiss provided $1.8 million in June to IFC’s advisory services to strengthen legal reforms within the energy efficiency sector and to collaborate with Ukraine’s housing management companies and homeowners’ associations.
District heating
The apartment block in Sumy is a typical example of Soviet mass housing built in 1963 in the era of Nikita Khrushchev. Until two years ago, the residents of this building struggled to keep their flats warm in winter.
Although their apartment house was connected to the city’s heating system, temperatures inside the poorly insulated apartments were low, while their heating bills were high.
Around Ukraine there are tens of thousands of similarly aging multi-apartment buildings erected before the 1960s that cost the budget and citizens billions of dollars annually to heat.
Experts say domestic heating bills could be reduced by up to 60 percent, and the country could become less dependent on costly gas imports.
Households account for half of all natural gas consumption in Ukraine, using more gas than the country imports from Europe. About a third of this volume is used for heating.
After enjoying years of subsidized prices for their gas, consumers now pay closer to the real cost: utilities tariffs were raised in 2014 after the economic and political crisis hit Ukraine. For example, Ukrainians went from paying Hr 725 ($88 as per the 2013 exchange rate) for the first 2,500 cubic meters of gas in 2013, to Hr 7,188 ($268) in 2016.
Ukraine began raising its natural gas prices for households following demands of the International Monetary Fund and other international lenders. One of the main goals of the price increase is to reduce the multibillion-dollar corruption schemes involved in the resale of the subsidized gas for households.
In addition, in 2015 Ukraine gave up buying from its regular gas supplier, Russia’s Gazprom, in retaliation for the war waged by the Kremlin on Ukraine in the Donbas and Russia’s occupation of the Ukrainian territory of Crimea.
Instead, Ukraine started to buy gas from Slovakia, Poland, and Hungary. But because none of those countries produce gas of their own and import it from Russia, de-facto Ukraine is simply paying more for Russian-produced gas supplied in reverse flow from its western neighbors.
High utilities bills have forced some cities, like Uzhgorod, to phase out large, district-level central heating system as too expensive and shift to alternative heating options, such as individual electrical and gas-fired boilers. Apart from that, the government has had to subsidize low-income consumers who couldn’t afford high utilities bills.
But according to Oras Tynkkynen from the Finnish Innovation Fund Sitra, there’s nothing better than a well-functioning district-level heating system in high density urban areas in cold countries like Finland or Ukraine.
The problems are to make the old system efficient and reduce energy losses.
Warm loans
Since the winter of 2016, 84 percent of multi-apartment buildings in Ukraine have been equipped with heating meters, which allows households to pay bills based on actual consumption rather than by fixed tariffs.
But the real game changer is the renovation of old buildings with energy-saving solutions, and this is what homeowners have to do themselves, with some financial help from the Ukrainian government and international organizations.
A few years ago, Ukraine’s state agency for energy efficiency launched its “Warm Loans” program, under which it compensates for 30 to 70 percent of the cost of bank loans taken for energy-saving materials and equipment.
The association of homeowners in the multi-apartment building at 34 Mira Street in Sumy received its first “Warm Loan” of Hr 180,000 ($6,300) in mid‑2016.
The homeowners replaced windows and doors, fixed the building’s electrical wiring, switched to using low-power LED lamps, and installed an individual heating substation for the building, which helped to distribute heat evenly to all flats and keep the indoors temperature at 22 degrees Celsius even in the coldest months.
However, they weren’t saving as much on heating as they’d expected. Using a thermal viewing camera, they saw that the heat was leaking out of cracks in the building’s walls.
“We took another loan of Hr 1 million ($35,300) to insulate the walls this year,” said Serhiy Adamovych, the head of the homeowners’ association of house No. 34. “And this is only the beginning. We also need to mend the roof and fix leaky pipes.”
He added that they wouldn’t be able to afford the materials if a large portion of their loans weren’t covered by the state energy efficiency fund. “We couldn’t wait anymore. The building was crumbling. And tomorrow might be too late.”
Collective effort
As simple a solution as energy efficiency may seem, it requires a collective effort and a set of energy-saving measures to make a difference, Lynn of the IFC said. She said heating and electricity bills could be cut by 30 percent on average.
“Installing a patch of insulation on an individual apartment won’t work. The whole building has to be insulated. And any decision about a shared property has to be made by homeowners together.”
Since the Soviet era, most multi-apartment blocks in Ukraine have been serviced by municipal housing maintenance offices, which tend to be underfunded and understaffed. So the government has encouraged homeowners to band together and register associations to take charge of their buildings and to apply for “Warm Loans.”
“The hardest thing was persuading the neighbors,” said Adamovych. “Some people were scared of the unknown, of responsibility, but they quickly changed their minds when the first results became visible: clean stairwells, a new playground for the kids, LED lamps, and insulation.”
Two other buildings nearby decided to follow suit, he said.
According to the state energy efficiency agency’s director, Serhiy Savchuk, some 2,500 homeowners associations across Ukraine have used the “Warm Loans” since the program was launched in 2014.
But they have received only 10 percent of the total Hr 7 billion ($275 million) that the government has allocated to residential energy efficiency project. The rest went to individual homeowners and single-family houses.
“It is a drop in a bucket,” said Lynn of the IFC. “People need to get together as homeowners’ associations and make decision about their buildings. It is more difficult to do, and it takes time to catch on.”
