KredEx Revolving Fund for energy efficiency in apartment buildings

The ‘KredEx Revolving Fund’, or ‘KredEx Fund’, a revolving energy efficiency fund founded in 2009, is part of the KredEx Foundation, a government owned non-profit provider of financial services established in 2001 by the Estonian Ministry of Economic Affairs and Communications (MoEAC). The revolving Fund’s funds have been provided by the European Regional Development Fund (ERDF), the Government of Estonia, the Council of Europe Development Bank (CEB) and by the KredEx Foundation.

The KredEx Fund aims at providing revolving project finance, under the “Apartment building renovation loan programme” to multi-family apartment building owners and housing associations in Estonia who wish to improve the energy performance and living conditions of their homes, achieve substantial energy savings and reduce their energy consumption. It also administers grants in the energy efficiency and housing sector on behalf of the Estonian national and local authorities.

The establishment of the KredEx Fund renovation loan scheme in 2009, whose conception goes back to dialogues and collaboration in 2007 between the MoEAC, KredEx Foundation and representatives from KfW Bankengruppe, the German development bank,  marked the switch of the Estonian government’s energy efficiency support strategy from a focus on a grant-only scheme –such as the one in place from 2003 through 2007-  to a more adequate support system based on a combination of loans, loan guarantees and grants.  This strategy responded to the Estonian government’s wish to align with the EU policies and directives set forth in the EU 2020 climate and energy package as laid down in the following plans and policies:

• the National Housing Development Policy adopted in 2008 with specific objective, among other things, to create a high-quality, energy efficient and sustainable residential building stock
• the Energy Conservation Target Plan for 2007-2013 specifically foreseeing the increase in energy efficiency in residential buildings
• and the National Development Plan for the Energy Sector until 2020.

This new strategy was also in full alignment with the European Commission’s wish to have an alternative use of the available ERDF (European Regional Development Fund) funds for sustainable urban development which were before mainly used as a grant instrument by the regions.

Setting up a support system for the renovation of the low quality and low energy efficient apartment buildings was a key measure of the Estonian Government in achieving its energy efficiency objectives. The rationale was to be found in the fact that, at that time, the Estonian building stock accounted for up to 50% of the total national final energy consumption, significantly above the average of 37.5% across all EU countries, that around 60% of the Estonians were living in apartment buildings built primarily between 1961 and 1990 (30% even before 1960) and that energy efficiency and indoor climate were especially in need of improvement.

KredEx Fund’s objective is to incentivise apartment building owners to reduce energy consumption and increase the energy efficiency of their homes by at least 20% and to use renewable energy by providing access to preferential loans and grants under certain conditions.

In 2009, its  ambition was to renovate at least 1,000 buildings by the end of 2013 and to target energy savings of at least 20% for buildings with a net area of less than 2000 m² and at least 30% for buildings with a net area of more than 2000 m².

Kredex Fund serves basically as a lending institution, through its financial intermediaries Swedbank and SEB, it provides financial products such as preferential loans and loan guarantees (for renovation of apartment buildings).

Through KredEx Foundation it has two additional roles: it acts as an intermediary for reconstruction grants and grants related to efficiency audits, expert evaluation and project design documents and as promotor or marketer of energy efficiency it has put considerable effort in promoting a more efficient use of energy resources and in raising energy efficiency awareness in Estonia.

KredEx Revolving Fund got funding for a total of 72M € to be allocated as renovation loans to multi-family apartment building owners and housing associations. The available grants for renovation are not paid from the KredEx Revolving Fund but from a separate budget coming from the ERDF (€ 3 M) and from the Green Investment Scheme, which is the sale of CO2 emission allowances by Estonia to Luxembourg and in the European trade market (about 40M €).

As of today the whole funding (72M €) has been exhausted. Notwithstanding its depletion the KredEx Fund is still taking applications in the hope that it can secure new funding. The loan scheme has been successful in promoting the take-up of innovative solutions to improve energy efficiency in buildings often by as much as 40%. The fund has not really yet begun its revolving potential as it is still reimbursing the obtained loans from some of its funders (CEB and Estonian Government).