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Hungarian CITYnvest Workshop

CITYnvest organised a national Hungarian workshop (12/05/2016) in order to bring stakeholders together to discuss how to trigger the market uptake for energy efficiency in buildings. Also a follow up session was organised in June 2017.

In each focus country, CITYnvest first investigates the characteristics of the energy efficiency market and which support local and regional authorities need to deploy their own long-term financing models. In this section, you can read a summary of the findings. This will be continuously updated, based on the feedback of municipalities who participated in the workshop. Read the preparatory report here

Current context and national recommendations

National policy developments

One of the priorities identified in Hungary’s ‘National Energy Strategy 2030’, adopted in 2011, is to increase energy efficiency by reducing the energy consumption of buildings (40 % of the total primary energy consumed in Hungary is used for supplying buildings with energy). However, this general strategy does not include specific tangible targets for 2030: overall, it has the purpose of reducing by 30% heating energy requirements of buildings by 2030. As the CITYnvest workshop made clear, accessing financing and the lack of coordination of financial instruments/support schemes can be seen as an important barrier to energy efficiency.

The Government approved and submitted a National Building Energy Strategy (NÉES); the Parliament has adopted the directive on energy efficiency; the 3rd National Energy Efficiency Action Plan (NEHCsT) is approved and submitted, but following elements could be improved:

  • The EE targets have not been built into the 2014–20 operational programmes of the European Structural and Investment Funds. Furthermore, EU funding programs for retail and SME energy efficiency are considerably delayed. Grant-based energy efficiency funds for the residential sector have been withdrawn by the Government via an official EEEOP modification, which has been indicated by the National Development Ministry. The government now intends to spend these funds on energy refurbishment of governmental buildings – despite the fact that dwellings are having much larger energy saving needs and potential.
  • The 2020 energy saving target communicated under the Energy Efficiency Target allows a substantial increase in energy consumption, which is contradictory to trends in recent years. The target therefore does not constitute an incentive to save energy.
  • The Government has increased the energy savings target (NRP) to 18%, but the Government assessment of the basis of the target was questioned by several actors in the field.
  • The National Energy Strategy (NES) lacks an integrated and holistic approach to mitigate climate change.

Focusing on the residential sector

Loans are available for the replacement of doors and windows as well as additional heat insulation and heating reconstruction, but there is strong distrust of loans. Funding from commercial banks for energy efficiency and renewable energy investments of citizens and SMEs is extremely difficult to obtain, due to a general lack of savings and credit. The investments scandals and the collapse of Swiss franc-based loans have created an uncertain atmosphere. Even if a project is found credit worthy, the required loan guarantees are disproportionately high. 

2014 saw the launch of the Home Warmth program (small family homes and condominiums are now also admitted), but its financial framework is very weak (based on the ETS quota revenues, HUF 9 billion/year, half of this amount is spent for e-mobility). There is a need for predictable long-term government programs incentivizing citizens and SMEs to invest into sustainable energy use.

Despite funding being in place for the construction of new residential buildings (called CSOK, supporting families in obtaining new homes), there is a lack of financing instruments in the residential sector for renovation of existing buildings.

There is hardly any government information as to the new building regulations on sustainable construction (nearly zero energy level) that are to come into force in 2019 and in 2021.  

Focusing on Public buildings

Nationalization has been completed for most types of schools and hospitals, whereas they were previously owned and operated by local and county governments. If the operation alone is transferred (as for most of the schools) to the state (a central institution), then the local government -as owner- loses interest in energy efficiency or RES investments, as the benefits accrue to the state. If both ownership and operation are transferred (as in the case of hospitals), even then interest in energy investment decreases, as the local driver almost disappears (the power of local constituency for local elections) – so, the driving forces then depends to a certain extent on the motivation, skills and initiative of the hospital management.

At present, there are no specific plans for innovative financing models or promoting public-private partnerships through for example, energy performance contracting.  The Government does not yet encourage this financing scheme. The municipalities are not yet familiar with EPC and therefore the market uptake is blocked as well by a higher risk perception.  

ESCO market

The once flourishing (1990– c. 2008) Hungarian ESCO market drastically declined into recession due to numerous factors. The possibilities narrowed, market volume shrank and the number of ESCO companies decreased from 20–30 to 6–8 by 2014. There are little prospects of ESCOs at local government level before 2017, until the TOP (Territorial and Settlement Operational Programme of the Structural and Investment Funds) grants have been distributed. Afterwards, more creative financing solutions will be a necessity. The remaining ESCO activities occur mainly in private companies. Examples of ESCO investments in private companies was presented during the CITYnvest workshop 12 May by Cothec.

The Energy Efficiency Directive creates some market potential for ESCOs: 1,600 large companies have to prepare energy audits. These audits provide a pool of potential energy efficiency projects – many of them likely to be ESCO-financed. The government had set up a public ESCO. The entrance of a public ESCO can either distort the competitive market or beneficial via enhancing knowledge and trust, this has to be evaluated still. Furthermore, a Green Bank was announced in early 2015, with functions including ESCO financing. Nevertheless, the Bank has not been set up yet in January 2016 and no updates communicated so far.

What are the main barriers to accelerate investments in energy efficiency projects in buildings?

The artificially low electricity prices for end-users do not motivate people to save energy or to switch to renewable energy sources. The return on investment periods for sustainable energy projects is expanded. Funding from commercial banks for energy efficiency and renewable energy investments of citizens and SMEs is extremely difficult to obtain, as explained above.

The focus needs to be given to the identification of appropriate aggregators on the market, able to bundle dispersed small-scale investments into larger scale packages and structure the financing vehicles enabling the combination of public and private funds, ideally combined with the provision of project development assistance to project promoters.

An estimated HUF 100 billion call for SME’s combining loans and grants should be announced soon as part of the Economic Development and Innovation OP. This financial scheme should have been introduced for the residential sector as well, but the government has withdrawn the support elements of this and moved it to the centrally owned public buildings. According to official plans (which we didn’t find updated information upon), only loans will be made available in the future.

A structural problem specific to Central-Eastern Europe is the high percentage of buildings in a dilapidated shape and of such low value that it does not make sense to renovate them. Due to the general impoverishment of the population, neither their own resources nor the support programmes are there to support effectively the replacement of these building (-elements) with new, more efficient ones. There is no help provided to households, who are reluctant to pay for the necessary certificate and expert, in drafting applications for support, especially as the calls are usually closed prematurely, because the available budget is rapidly depleted.

Missing a robust monitoring system for tracking of performance of energy efficiency investments leads to a low level of understanding of the business case behind these investments for potential financiers and investors. There is a lack of capacity of financial institutions as regards the accurate pricing of associated risks. Because of the higher risk perception and consequently higher transaction costs, financial institutions are less eager to engage in developing specific commercial financing products at attractive (long-term) terms, unless combined with public subsidies. One recommendation towards the national level could be to provide a state guarantee. Government backed loans (soft-loans, guarantees) should be able to build trust in the market at this stage and trigger commercial banks for being more involved in aiding households with loans. Also, technical assistance or loans given to pre-finance the investments would also help accelerating the investment rate.

Guidance material and reference projects

During the Hungarian workshop, a lot of questions addressed the existing European financial support for energy efficiency projects. To provide an overview, a 'Quick Reference Guide' for EU financing programmes for sustainable energy was developed with the support of the Covenant of Mayors for Climate and Energy. Find your way in the labyrinth of EU funds and financial instruments: Access the guide (March 2016). 

Sunshine project for multi-family apartments buildings

Case Study and presentation during the CITYnvest workshop.

Under the Sunshine scheme, a private ESCO, called RenEsco, has renovated, over the last 5 years, 15 typical soviet era apartment buildings using Energy Performance Contracting. These buildings are very old, overcrowded and of poor quality. They are typically heated through district heating. The focus of the investment is building envelope, heat distribution pipes, heat control and energy management. Projects are eligible for ERDF (European Regional Development Fund) support of 40% which gives a simple payback time of 9 – 10 years.

RenEsco’s business model uses EPC as a tool for renovating the buildings, in combination with on-bill financing (i.e. the homeowner continues to pay the same amount, while the ESCO recovers the amount saved through the House Maintenance Company). EPC contracts are typically signed for 20 years. The homeowners get a modernized apartment, with an increased value by about 20% – 30% right after renovation and an extended life time of the building by 30 years.

Faluhàz Example

The municipality of Óbuda undertook a modernisation involving 800 to 900 apartments within the project, therefore after winning the tender the district had to find the right building or buildings. The local government decided on the Faluház, partly because of its enormous size, and because of its central location as it stands at the gate of Óbuda so that people arriving to the area see the Faluház first. (More information in English and in Hungarian language).

Learn from the KfW Energy Efficiency Programme 

Their programme on ‘Housing, home modernisation and energy conservation’ targets private buyers and homeowners, landlords and housing companies. KfW promotes the energy-efficient refurbishment of older residential buildings in particular with grants or loans at favourable conditions. they also support measures to improve the quality of life through the creation of barrier-free housing. Read more about the programme here.
Support programs specifically oriented towards SMEs can be explored here

Step-by-step approach

Follow the different steps to build your local financing model for energy efficiency! Overview.

Further national recommendations

One crucial element not yet mentioned in the points above is the importance of awareness raising and education at different levels:

Including decision makers & politicians – EE does not get enough credit worthiness and importance yet. In Hungary, creating new energy plants (i.e. the new nuclear power plant) is gaining much more attention than saving energy. There are estimations of the potentials of energy efficiency measures, however the decision makers underestimate these potential and the benefits of energy efficiency.

Recommended further reading and communication materials:

Capturing the multiple benefits of energy efficiency (IEA Report, 2014)
Use the infographics developed by Renovate Europe for the variety of benefits the renovation of buildings brings to your territories.
Awareness-raising leaflets for Managing Authorities on how to use Structural Funds for Energy Efficiency (downloadable from Renovate Europe here).
Practical guidance on how to design a ‘ Multi-fund Operational Programme for the Energy Efficient Renovation of the Building Stock’ (downloadable from Renovate Europe here)

Several projects are focusing on assessing the multiple socio-economic benefits of energy efficiency in buildings. Examples are:

  • COMBI-Project: Calculating and operationalizing the multiple benefits of energy efficiency
  • IN-BEE: Assessing the intangibles: the socio-economic benefits of energy efficiency

 

Implications of the European Energy Efficiency Package on the Hungarian Context (expected 30/11/2016), but it already known that the European Performance of Buildings directive demands profound changes in the building stock (by 2018 and 2021), even though there is too few awareness around this.

Feedback on the Hungarian implementation of the Energy Efficiency Directive from the EE WATCH project can be found here. The project aims to activate, consult and interface core networks (including parliamentarians, local and regional levels, business stakeholders and experts), do surveys, questionnaires and NEEAPs screening and analyse broad stakeholders input.

Any questions?

Please get in touch with info@citynvest.eu!

CITYnvest wants to thank MEHI and Climate Alliance Hungary/Reflex for its successful collaboration on developing the activities in Hungary.