Business aspects of energy-efficient renovations of Soviet-era residential districts: A case study from Moscow

The majority of Russian housing stock was built after World War II and needs modernization. About 60% of the Russian multi-family apartment buildings are in need of capital repairs. When attaching energy-efficiency improvements to the mandatory repairs, implementing these is cheaper than taking separate measures. District heating is mainly used for space heating in Russian apartment buildings. Due to the technical structure of the district heating used in Russia, energy renovations of single buildings seldom lead to reduced energy production. Energy production demands are reduced only if the residential districts and their various utilities and networks are renovated holistically. This publication examines the business aspects for energy-efficient renovations of Russian residential districts. One Moscow district is used in part as a case example. In a previous study, alternative energy renovation concepts, called Basic, Improved and Advanced, reducing the environmental impacts of the residential apartment buildings in the Moscow case district were developed and analyzed. In this study, the different renovation concepts were analyzed from an economic point of view. At the building level, the costs of different renovation packages varied between 125/m2 and 200/m2 depending on the extent of the selected renovation package. All the building level packages covered improvements of external walls, windows and doors, upper ceiling, basement, ventilation, heating system, water and wastewater, electricity, gas, metering, and other improvements and costs but the selected products and solutions varied from basic through improved to advanced ones. The district renovation concepts were aligned with the building renovation packages, and the costs of building renovations were included in the costs of improving district energy and water infrastructure in the pilot Moscow district. At the district level, the cost analyses covered district heating distribution and main pipe replacements, district heating substations, water distribution and main pipes, sewage water distribution and main pipes, electricity and main grid renewals and transformer substations. In addition, light bulbs for street lighting were included in all the packages except the basic one. Also, some renewable heating production alternatives were included in the two most advanced packages, and then district heating solutions were excluded from the calculations. At the district level, the costs per inhabitant varied between 3,360, 4,090 and 5,200 for the Basic, Improved and Advanced renovation packages, respectively. The costs of the additional alternatives per inhabitant were over 6,090. In addition to the costs, the net present values for different building and district level renovation packages for a 20-year period were also calculated using different interest rates and annual energy price growth rates. Both at the individual building level and the district level with most combinations of the interest rate and annual energy price growth rate the Improved renovation package turned out to be the most profitable. At the building level, the Advanced renovation package was the most profitable with low interest rates and high annual energy price growth rates, and the Basic package with high interest rates and lower annual energy price growth rates. At the district level, the Basic renovation package is the most profitable only with low interest rates and low annual energy price growth rates. At the district level, the Advanced renovation package is the most profitable even with low annual energy price growth rates and moderate interest rates. The most advanced packages including renewable energy production solutions are profitable only with low interest rates and high annual energy price growth rates. Financing renovations is often a major barrier in any country. This topic is also addressed in this publication. Most of the housing units in apartment buildings are privately owned due to the free privatization after the Soviet collapse. However, no sustainable form of self-financing apartment renovations has existed, and former lessors of residential units still have the obligation to carry out capital repairs. Existing and new financing mechanisms, including public-private-partnership (PPP), are introduced in the publication. Regional and local budgets are still the main financing mechanisms for capital repairs in Russia. This publication also examines possible business models for energy-efficient renovations of residential districts in Russia. An important part of this is the stakeholder analysis carried out by the relevant actors involved in district renovations in Russia. None of the business models analyzed as such suit holistic district renovations. Perhaps, even a completely new actor is needed to take over. Because of their complexity and scope, district renovations require cooperation of a wide range of stakeholders.