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.
The research conducted in Armenia and Bosnia & Herzegovina (BiH) proved that the launch of a residential efficiency subsidy system will not be easy. Both countries have their strengths and weaknesses that significantly influence their chances for success.
- Although still far from perfect, the current legal framework in Armenia enables Home Owners’ Associations (HOAs) to operate and renovate residential buildings;
- The banking sector is well developed and there are a lot of different green funds available;
- The Municipality of Yerevan already has some experience in subsidizing renovation of multi-unit buildings.
- The legal framework for HOAs should be fine-tuned in order to establish a more transparent decision making process in larger HOAs;
- The physical state of the multi-family buildings is generally very poor due to the permanent lack of maintenance over decades, making energy efficient interventions less of a priority behind some physical ones;
- Relatively low energy prices account for quite long pay-off periods for energy efficiency interventions, thus making homeowners less motivated to invest in such renovations;
- High interest rates and general problems of the Armenian economy result in expensive commercial loans.
Bosnia & Herzegovina’s strengths:
- Energy efficient renovation of the residential building stock has already been launched, although in a somewhat sporadic way;
- BiH has a stable banking system that mostly relies on international actors. The country has been enjoying low inflation and relatively low interest rate levels;
- There are examples of local subsidy schemes for renovation of residential buildings (for example, in the Tuzla Canton);
- Geographical proximity and considerable political and economic influence of the EU on BiH – exercised mainly through funds and subsidies – makes energy efficiency interventions a relatively high priority for the country.
Bosnia & Herzegovina’s weaknesses:
- The HOA legislation (set on cantonal level) is not designed for appropriate decision making on major energy efficiency interventions. It also creates impediments to commercial lending to HOAs;
- Relatively low energy prices account for quite long pay-off periods of energy efficiency interventions. This pay-off period is doubled in case of district heated units due to the high rate of fixed costs in the fee structure.
- Most of the buildings are not metered individually, which means the energy savings resulting from interventions are not reflected on the financial savings.
The experience of Central and Eastern Europe where subsidy schemes for energy efficiency renovations were introduced at the end of the 1990s shows that a certain level of economic development was necessary. Thus, prerequisites to start an extensive renovation process included greater financial capacity of the public sphere, crystallised legal regulations in the housing sphere, developed banking system, and sufficient surplus income at the household level.
Research by MRI concluded that in both Armenia and BiH, the involvement of the public sector is essential to provide HOAs with the access to financial subsidies, financial guarantees, technical assistance and information to start energy efficiency renovations. However, the problem lies in identifying the most effective way of subsidizing the refurbishment process, whether it should be general or targeted to the lowest income families. Based on the field research conducted by MRI, it is probable that individual targeting would result in significantly higher transaction costs than benefits in countries with a high rate of overall vulnerability and high share of informal employment. Rather, it has been recommended to concentrate on the run-down part of the multi-unit housing stock with a big need of refurbishment and evade household targeting for a more efficiently working system. This strategy would also serve the sustainability of the program, as it also includes households with higher income levels.
Besides strengthening public involvement in the renovation process, it is important to encourage market actors such as banks and management companies. They are often reluctant to provide their services to the renovation projects run by HOAs due to the legal framework that does not entirely comply with the market requirements. However, there is still room for manoeuvring. Market actors could be involved in the renovation process with the help of public guarantees for HOAs to get joint loans or through the implementation of Energy Service Companies (ESCO) solutions for smaller scale interventions. In addition, it is fundamental to strengthen the legal framework of renovation. In some years’ time, HOAs should be considered as “adults” that are able to decide on renovation by a reasonable majority, have their separate bank account and a capacity to obtain joint loans and initiate and control the renovation processes.
Residential Energy Efficiency for Low-income Households project is one of the many assistance projects supported by the American people through the United States Agency for International Development (USAID). Since 1992, the American people through USAID have provided a broad range of development programs in Armenia and Bosnia and Herzegovina, shifting from an initial humanitarian emphasis to assistance for economic, political and social transition.