The financial hole in energy efficiency - to take money out of our pocket for remediation

At least three reasons to become investors in the renovation of your own home

Energy / Analysis / Interview , Bulgaria
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Photo: 3eNews/Raya Lecheva

Raya Lecheva

BGN 300-400 million are needed annually for investments in energy efficiency in our homes. These funds cannot be provided only through programs that open for a certain time and provide 100% grant aid. Over 60,000 multi-family residential buildings and nearly 1.2 million single-family buildings in Bulgaria need renovation. The lack of funds is 65% of the planned investment volume by 2030, but this percentage will only increase. This was commented by Marko Markov from Econoler Bulgaria at a round table "National Decarbonization Fund: structuring, operational management, market development" organized by EnEfect. Markov is the head of the European Investment Bank's team for the structuring of the National Decarbonization Fund.

Therefore, the state must have a clear plan on how the renovation will happen, but also offer alternative ways of financing, and also take advantage of all the tools that the EU offers. At the moment, admission is underway for the first stage of the rehabilitation measure in the multi-family residential buildings under the Recovery and Sustainability Plan. Admission to it will be until the end of May. According to Dobromir Vasilev, director of the "Housing Policy" Directorate at the Ministry of Finance, the interest will exceed at least 5-6 times the estimated resource of nearly BGN 1.2 billion. From June, admission will also start under the pilot rehabilitation scheme, where the grant will be 80% and people will have to find an additional 20%. Each block will have to decide whether it will still implement its idea, because it has already paid for an energy survey, which usually lasts for 3-4 years, or to give up, commented Tsveta Nanova, vice-president of the Bulgarian Facility Management Association.

Moreover, if the state will finance a smaller and smaller share of the renovation, as is currently envisaged with the reduction of the grant to 80%, it is critical to determine which people will not be able to allocate between BGN 3,000 and BGN 5,000 from their own savings for rehabilitation so that the state can help them with an additional grant or interest-free loan. That is why it is so important to determine which are the energy poor households in our country. According to experts, this will be nearly 2 million Bulgarians. This truth means that the state will still have to find quite a bit of money to help renovate the homes of the most needy households. This column does not include the thousands of illegal dwellings in our country.

At the moment real funding, nothing to help us renovate our homes.

In fact, the first reason to start investing in energy efficiency is to save on your energy bills. It's an investment that pays off over the years. Why aren't we seeing this drastic change now? One reason is that the prices for us as consumers are regulated. There is no way people will feel the need to save energy in a fully regulated market, comments Ivan Krofrak from the World Bank. With regulated energy prices of 21 st/kw, in an environment where you are not responsible for the full consumption of energy, it is difficult to assert the importance of energy efficiency and investments in such measures, according to the consultants. However, this will change with the liberalization of the electricity market for domestic consumers, probably from 2026.

The second reason is that the state cannot bear the costs of everyone, it cannot bear all the costs. We recommend that the government sends a clear signal to the market that support levels must fall. This advises in its final report on challenges and solutions in the energy efficiency market by the World Bank.

If the trend of 100% free financing continues, the success of financial instruments will suffer directly and you are dooming them to failure, emphasized Ivan Krofak.

The report's recommendations are related to providing technical assistance for technical inspection and preparation of energy passports. Someone has to go through this whole procedure with the homeowners, whether the state or consultants, but the owners should be dealt with directly, the consultants advise. Homeowners today not only need to know what documents they need, get them, but also choose the right contractors to prepare the documentation. All buildings built after 2007 should have energy passports. The energy passport is prepared once. When applying, you must also present an energy efficiency certificate, which is part of the energy passport. And the energy survey takes a snapshot of the building and its energy consumption, as well as what measures should be taken to increase energy efficiency and its energy class.

At the same time, the state and business must invest in training in the construction sector.

Financing programs have a clear beginning and end, which leads to saturation of the market in a certain period, and this is not sustainable, the consultant pointed out.

With financial instruments, we will quickly pay off the investment. The examples…..

The third reason to invest in renovation is that if there are financial instruments, we will quickly pay off the investment made. At this point, you hardly have to come out of your own pocket to pay for the remediation. And what are the alternatives? Resources to provide funding are actually there, but the state must be active enough to take advantage and make these funds available to the people.

These are, for example, the REPowerEU mechanism for reducing dependence on fossil fuels, and we can benefit up to 500 million euros additionally for RES and energy efficiency. We can ask for cheap loans from MVU, which we have not done so far. We continue to lose funds under the Just Transition Fund for coal regions, where the regions of Stara Zagora, Kyustendil and Pernik can benefit from funds for energy renovation and renewable energy sources. Another source of funding could be the Emissions Trading Scheme Modernization Fund. For that, it is necessary to submit specific projects, which, instead of being for energy efficiency and RES, once again provide for the financing of mega-projects. The EU multiannual financial framework or operational programs also plan significant funding for energy efficiency and RES. The social climate fund of the EU will support the most vulnerable and poor households with similar measures. There is so much funding lying on the ground, and we are not using it, commented Nanova.

And here comes the question of who will manage all these funds. The decision is delayed. Bulgaria must construct its National Fund for decarbonization. At the moment, it is envisaged that this will be an existing structure - the Fund for Energy Efficiency and Renewable Energy. According to Robert Pernetta of the European Investment Bank, this is a very small-scale structure, it would be difficult to coordinate the whole process and meet the market demand, and there are many financial instruments with experience that could also help, commented Pernetta. According to the EIB, the National Decarbonization Fund is best to be a unit that coordinates already existing structures, explained Perneta. Financial capitalization can be distributed among all financial instruments, Marko Markov specified.

In fact, the programs are structured in the ministries and only then the finished products are offered by financial institutions such as the FLAG Fund, the Fund of Funds, the National Trust Ecofund in cooperation with commercial banks - especially when the products are aimed at end users.

At the moment, people have to come up with money from their own pockets to co-finance energy efficiency projects, first in the pilot scheme with an 80% grant, and then with an even larger percentage of funds that they will have to find in subsequent programs. And the goal is for people to take this money not from their own savings, but from various financial sources, under attractive conditions, Dragomir Tsanev, executive director of the Center for Energy Efficiency "EnEfect", commented to 3eNews. In fact, there are several very clear approaches for the state to use. One is to co-finance a certain percentage of the investment and be a loan guarantor for the remaining funds. Financial instruments can offer such financing that a person recovers his investment with savings on his energy bills on the principle of contracts with a guaranteed result.

In many countries, the system also works for the state to assume the interest on loans to commercial banks or other sources, as well as to provide guarantees for the loans themselves through the specialized institutions, which also relieves the owners and encourages them to take advantage of such loans.

According to EIB consultants, it is quite possible to create an instrument for 10% own contribution and 45% recoverable own financing. And the rest should be a grant. For public buildings and for single-family homes, 50% grant funding is quite acceptable, experts say.

Which institutions in our country finance the remediation, alternative financial instruments

There will be no competition between us as financing institutions, as well as with commercial banks, because the demand is very high and one structure cannot absorb the financing needs that have to be covered. Our competition is with grants, commented Nadya Dankinova from the FLAG Fund.

Only we, through our tools, can attract 100 million BGN with 30 million BGN available funds. Imagine if every financial intermediary managed to attract that much, or if it had funds from the state and all the already listed European funds, she further explained. Therefore, according to her, the National Fund for decarbonization should be formed as soon as possible, so that the state can start managing and distributing this resource, which financial intermediaries like us can give to clients, Dankinova also said. The FLAG Fund works very well with municipalities, and there is no municipality that does not have an energy efficiency project that is financially supported by FLAG. So this is the credit instrument that municipalities know best.

Very soon we will be able to finance renovation of the single-family buildings, of the houses that are outside the cities, commented Dochka Vasileva from the Fund of Funds. At the beginning, the program got off to a false start, because it only planned to include houses within the borders of the settlements, and they were much less than the others. Another obstacle was the lack of a grant for energy surveys and audits, because the requirement is to have an initial and final audit that proves a 30% saving, she recalled. But he assured that more attractive financial instruments are being made with less burden on applicants. The costs of energy audits are to be covered. The Fund of Funds can successfully offer the implementation of individual projects. The fund is about to introduce the innovative capital discount method, which will be an incentive to achieve higher results. Thus, a loan can be transformed into a grant for lower energy consumption, for example when achieving class A. We will make a combination of a financial instrument and a grant in one operation, emphasized Vasileva. The grant will be able to cover energy audits, technical passports and 100% financing for energy poor households. The grant in the entire instrument will be up to 40%, with 30% financing from the banks, she added. This new initiative will start with a resource of BGN 38 million.

But financial intermediaries need additional capitalization to lend and attract even greater investment in the sector.

All these credit instruments are called revolving funds. They have initial capital, which is given as loans, and the money is returned. Grant money is 100% lost if given as revolving fund loans, money is used multiple times and used by more users.

Kamelia Georgieva from the National Trust Ecofund emphasized that their grants are decreasing, as they started 10 years ago with 19% and are now less and there is still demand from the municipalities. A national trust eco-fund under contract with the Ministry of Energy and Climate in Germany is starting a small scheme for energy efficiency in schools in the municipalities, and 15 sites will be able to be financed. It provides extremely important reporting based on a new model developed by "EnEffect", with which up-to-date information on energy consumption, energy saving and reduction of greenhouse gases is available and the real effect of the projects can be checked

We cannot wait until 2025 for the structuring of the National Decarbonization Fund, but the funds are extremely necessary to achieve the goals of the national renewal strategy until 2030, commented Dankinova. We have sufficient national capacity of people who are good at preparing financial instruments that do not rely on a decarbonisation fund. But there is a need for a coordinating unit to recapitalize them, according to financial intermediaries.

The critical problem is not the financial resources, but the time, which we constantly waste, we have already lost for 2 years, stressed Dankinova.

Due to the presence of grants, the market for financial instruments practically does not exist, therefore there are no attractive proposals for lending in the field of energy efficiency. Because we all as consumers expect someone else to pick up the tab. This can happen, but with new financial mechanisms that we know little about, but are very important to make progress. Thus, in practice, we will only win because our investment will be recouped.



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