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Case Study: Slovakian subsidies for residential energy efficiency

Written by Zita Kakalejcikova, Advocacy Assistant, Habitat for Humanity Europe, Middle East and Africa

Upon the request of Habitat for Humanity International, Metropolitan Research Institute (MRI) has completed an in-depth research of energy efficiency renovation subsidy schemes in Central European countries (Hungary, Poland, Romania, and Slovakia) and assessed the potential of Bosnia & Herzegovina and Armenia for introduction of similar programs. The study was done within the framework of USAID project Residential Energy Efficiency for Low Income Households (REELIH) in order to strengthen the research potential of the project. This article is a summary of the case study of Slovakia.

Slovakia is very often taken as THE “best practice” when it comes to the large scale refurbishments of the multi-apartment residential buildings. In line with the research for REELIH project of USAID and Habitat for Humanity we wanted to discover why.

Slovakia underwent the transition from a socialist regime to a market based economy pretty much at the same time as the rest of Central Europe and entered the European Union in 2004 together with seven other countries of the former socialist bloc. The ownership structure in Slovakia is very similar to other Central European Countries where more than 90% of housing stock is owner occupied.

According to the official state statistics a bit more than 50% of housing units are in multi-family buildings and 85% of these units are built with industrialized technology.

The biggest housing estate in Central Europe is located in a district of the Slovak capital Bratislava, with approximately 133 000 inhabitants living in these types of residential buildings. The same applies to other urban areas in Slovakia where prefabricated housing estates constitute two thirds of the total housing stock. This seems to be the main reason why the state of multi-family buildings became a crucial issue for the government in the 1990s.

Based on careful technical investigation of building stock in 1996-1998, the Ministry of Construction and Public Works of the Slovak Republic published a Building Renovation Concept. This document became the basis for all the future steps that the government took. The concept showed the bad state of the housing stock of pre-fabricated multi-family buildings and highlighted crucial problems, mainly systemic defects, which could be found in most of the buildings, as majority of them had been built with the same industrialized technology. Therefore, the main aim was first to repair the systemic defects (the number of defects was extended from originally proposed 6-11 in 2002, raising to 12 in 2006) and only then the energy issues were emphasized.

That is why today the Slovakian subsidy scheme is based on a dual system grant program from the Ministry of Transport, Construction and Regional Development for eliminating the most severe systemic defects of the buildings and the loan program from the State Housing Development Fund focusing on eliminating the rest of the systemic defects with the combination of energy efficient interventions.

Of course, both programs evolved through time, with the grant scheme now constituting 70% of the direct grant instead of the previous 30% and focusing on 6 instead of 12 systemic defects which is also a sign of improvement. The loan scheme eased the administrative barriers and became very popular, focusing much more on energy savings and quality of interventions than before, also thanks to the EU requirements.

Once the system had been established, commercial banks started to be involved as well. This happened mainly due to the fact that the new law on ownership of apartments and non-residential spaces (183/1993) obliged condominiums to have a fund for operations and maintenance that was to be kept in commercial banks. As a result, the banks could have a clear record of the condominiums’ cash flow and therefore were more willing to enter into collaterals with homeowners. Banks nowadays usually issue loans to co-finance state subsidies. However, homeowner associations started to take loans purely on the market basis as well in case they have been denied a state loan or a grant due to the lack of state funds. By now a substantial share of the housing stock in Slovakia has been renovated to some extent. The estimated share of multi-family buildings that carried out substantial renovation is about 50%, meaning approximately 500.000 dwellings out of which 300.000 were assisted by subsidies. This means that there was significant room for projects financed from homeowners’ private resources and/or the use of the EBRD or commercial loans.

To note, the Slovak scheme is largely based on the integrity and capability of homeowner associations that work on tendering documents, contract and pay for technical audits, contract out the construction and manage the whole process. Interestingly, the State Housing Development Fund pays directly the constructor and also takes part in the quality control process.

These high organizational demands coupled with relatively low subsidy share result in interventions only by the homeowner associations with the organizational and financial skills. In the long run this fact may become a serious barrier to including all buildings into the renovation schemes.

 

Zita Kakalejcikova has been with Habitat for Humanity area office for Europe, Middle East and Africa (EMEA) since 2014 working in the advocacy team that supports EMEA advocacy initiatives to change housing policies on the regional as well as national level. Zita works specifically on HFH and USAID project REELIH focusing on the regional level advocacy for residential energy efficiency. She holds a Master degree in International Relations and European studies from the Comenius University, Slovakia, having spent exchange semesters at Sciences Po Bordeaux, as well as at the Vienna University.

 

Written by Seda Arzumanyan, Habitat for Humanity Armenia

HFH Armenia is implementing Access to Renewable and Efficient Energy in Municipalities Vayk and Spitak (AREEM) project funded by the European Union. The project is implemented in consortium with Spitak and Vayk Municipalities for a period of four years from December 2014 to December 2018.

More than half of Armenians live in collective residential housing units (429,512 units).  Three out of four units were built in the period from 1951 to 1990. Residential heating accounts for more than 30 percent of energy usage in Armenia, as previous construction technologies and heating methods did not focus on energy efficient mechanisms. There is lack of access and knowledge in application of renewable energy sources.  It is important to address the problems of residential energy efficiency because it can help to move forward on the road to energy reforms and can limit energy waste, which will reduce air pollution and emissions and help cope with climate change. Usage of renewable energy will decrease CO2 emissions.

The overall objective of the project is to support Spitak and Vayk municipalities to develop and test replicable and efficient models of energy saving through use of efficient measures and renewable sources in residential and public buildings that are incorporated in their Sustainable Energy Action Plans aligned with the Covenant of Mayors requirements. By December 2018, HFH Armenia will have decreased/saved energy use by implementing energy saving measures in the selected residential and public buildings through public awareness and knowledge sharing initiatives in Spitak and Vayq municipalities and will have created access and increase the use of renewable energy sources for courtyards and entrances lighting, hot water for selected residential and public buildings in Spitak and Vayq towns.

Within the framework of the AREEM project energy saving and efficient measures will be implemented, such as upgrades and insulation of roofs, doors and windows and/or building enveloping in 45 residential buildings (27 in Spitak and 18 in Vayk) and Culture House in Vayk. 145 pieces of photovoltaic solar panels will be installed for addressing lighting system upgrades for entrances, staircases and courtyards of selected residential buildings. Hot water will be provided through installation of solar water heaters of 65m2 and photovoltaic solar panels of 160 m2 will be installed for generating energy and using hot water for heating the swimming pool for the kids in the Spitak kindergarten. Knowledge sharing community forums will be facilitated among Spitak and Vayk municipalities and tenants will periodically discuss energy saving and efficiency issues and find solutions to replicate within their individual housing units, buildings and communities.

The AREEM project is implemented in consortium with Vayk and Spitak municipalities. Both municipalities have signed the Covenant of Mayors in 2014 supported by European Union and have committed to the implementation of the Sustainable Energy Action Plans in their communities, thus reducing 20% of CO2 emissions by 2020.

Seda Arzumanyan, MA in Social Work joined Habitat for Humanity Armenia team in 2008. Currently she serves as Fundraising Consultant. She is responsible for Fundraising of the organization. Seda has 7 years of progressive management experience and repeated success in developing social project initiatives, directing project plans and achieving revenue performance targets, as well with more than 3 years of Fundraising, Marketing, Volunteer management and Communications successful experience. She has planned and successfully implemented more than major 5 events (Press Conferences; Conferences, Trainings, Volunteer builds; Armenian Diaspora Receptions, Presentation meetings, etc.) in the US and more than 50 Public, Fundraising and Media events in Armenia; hosted more than 20 international volunteer teams. She has gained “Advanced Proposal Writing” certificate by Education for Go institution.

Written by Éva Gerőházi and Hanna Szemző, Metropolitan Research Institute, Budapest

Upon the request of Habitat for Humanity International, Metropolitan Research Institute (MRI) has completed an in-depth research of energy efficiency renovation subsidy schemes in Central European countries (Hungary, Poland, Romania, and Slovakia) and assessed the potential of Bosnia & Herzegovina and Armenia for introduction of similar programs. The study was done within the framework of USAID project Residential Energy Efficiency for Low Income Households (REELIH) in order to strengthen the research potential of the project. This article is a summary of the case study of Romania.

Romania made its first attempt to introduce a subsidy system supporting energy efficient renovations in the beginning of the 2000s. Its structure very much resembled the Hungarian subsidy system in which the state provided one third of the renovation costs in case the local municipality also contributed one third of the expenses of the intervention. Very soon this subsidy scheme was declared unsuccessful because of the very low number of applications. The main reason behind the failure may have been the fact that complex renovation was required by the state. Unlike in the Hungarian subsidy scheme where technical requirements were not high at the beginning, the Romanian scheme required a whole renewal of the internal heating system in addition to the insulation of the envelope. This would result in relatively high upfront costs. Therefore even the one third of the total costs that Home Owners’ Associations (HOA) were required to pay under the scheme happened to be too high for most of them.

The failure of the first try resulted in reconsideration of the whole subsidy system and the increase of the subsidy intensity. The subsidy scheme (the National Program of Thermal Rehabilitation) that was relaunched in 2006-2007 and modified in 2009 provided 50% non-repayable grant by the state with an additional 30% grant from the local municipality. At the same time reaching at least 30% energy saving through the intervention was compulsory. Thus, the share of home owners was reduced to 20% half of which they could get covered as a loan from the municipality.

In 2007-2013 the European Structural Funds provided additional resources in addition to this national subsidy scheme. In December 2010 the Regional Operational Program (ROP) 2007-2013 was modified by introducing a new area of intervention ‘Supporting investments in energy efficiency of residential buildings’. Under this programme the state and the EU provided 60% of the cost of interventions, while 40% of total costs had to be paid by home owners and local authorities. Based on the income level of home owners local municipalities could cover up to 30% of the renovation costs. Later on it was decided to use a 20% flat rate in the 2014-2020 budgetary period instead of the individual investigation of income level that required a lot of effort.

Securing the HOAs’ share of the costs still remains a crucial issue, as there are no joint loans for HOAs. To be more precise, there are joint bank loans but only with individual liens, which is practically not an option, that is why – in the absence of bank loans - home owners’ share should either be already available at the HOA’s account or should be gathered by the owners individually.

In both subsidy schemes (the national one and the EU financed one) the role of the municipalities is quite substantial: local municipalities inform HOAs about the possibility of applications, they partially finance the interventions, carry out technical audits, help in preparing grant applications (that are afterwards sent to the Ministry), and carry out public procurement for construction works. One of the most controversial elements of the eligibility criteria for the subsidy scheme regards the spaces with non-residential use. The call for the subsidy scheme states that owners of spaces with non-residential use (shops, offices, etc.) have to cover the costs of energy efficient renovations entirely by themselves – without any subsidy. This creates a big impediment for applications and paralyzes the process in many buildings.

In spite of the difficulties both subsidy schemes (the national and the EU financed one) turned out to be popular, so now the demand exceeds the supply. Therefore the Romanian Government decided to continue with these schemes also in the 2014-2020 budgetary period without making any substantial modifications.

 

You can read the full study here.

eva-mri Éva Gerőházi (MSc in Economics) has twenty years of experience in research and consultancy in the field of regional and local economic development, housing policy and urban renewal. She has worked in several projects of the European Commission and has been assisting the Budapest Municipality and several Hungarian ministries and local governments in policy and program development. She researched and developed a programme for marginalised neighbourhoods and the use of European funds in these urban areas. She worked as a project manager of USAID financed condominium rehabilitation program in 1997-1999. She is also a co- founder of the Hungarian national subsidy scheme for complex renovation of multi-family buildings.
hanna-mri Dr Hanna Szemző has been working for MRI for 15 years. She has experience in research and consultancy in the fields of energy efficiency policy, urban renewal, city governance and real estate analysis and welfare policy. She has participated in numerous framework programs of the European Union, prepared strategic development concepts for local governments, and participated in the preparation of a study on the demographic future of European cities. Hanna worked on the health impact study of the energy efficient renewal program of the Hungarian housing estates. Lately, she has been working on the possible impact of collective self-organised housing on the European housing market. She has also focused on the possibilities of small business development in the areas of self-build and housing renewal and has been providing consultancy for Habitat for Humanity Europe, Middle East and Africa on the issue of energy efficiency in the framework of the REELIH project.

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