Extremadura is one of Spain’s largest regions, and has a high proportion of old and inefficient building stock, built before 1980. Whilst the region has high potential to save energy through renovation of buildings, comprehensive rehabilitation rates remain low.

'We detected that there were important barriers, since the housing stock was old and energy inefficient. And, we asked ourselves what we could do to remedy this, seeing that there was a potential savings of up to 40% in the energy consumption of our buildings', explains Cosme Segador, Director of Extremadura Energy Agency (AGENEX).

Recognising the need to mobilise investment, the region wished to establish financial instruments to encourage investment in more projects, whilst also providing more advantageous financial parameters for borrowers, including subsidised interest rates.

Financial instruments such as guarantees and subsidised loans can be set up with the European Structural and Investment Funds (ESIFs) and local and national banks. AGENEX therefore set about to convince the region’s Managing Authority to change their Operational Programme for the European Regional Development Fund (ERDF) to enable financial instruments to be created. They also recognised the need to learn more about setting up such instruments and developing skills for managing financial instruments in both public authorities and financial institutions.

Changing the operational programme

Looking to overcome its regional challenges, AGENEX drew support from three European programmes – Interreg Europe (FINERPOL project), Interreg South West/SUDOE (REHABILITE project), and Horizon 2020 (HousEEnvest and Innovate) – to define a new policy instrument for financing wide-scale building renovation. 

The  AGENEX co-ordinated project FINERPOL ('Financial Instruments for Energy Renovation Policies'), brings together partners from seven European regions to share good practices and support regional capacity building, with each region seeking to improve their policy frameworks.

It supported the implementation of an ex-ante assessment in each of its regions to identify market failures and funding gaps. In Extremadura, the assessment found a lack of specific financial products available for comprehensive refurbishment of buildings, low demand for refurbishment works as a result of low-awareness, and significant costs of managing refurbishment projects.

As a first step in securing ERDF funding for a new financial instrument, AGENEX sought to raise political awareness of the opportunities provided by financial instruments and the need to modify the Operational Programme (OP). After securing support via FINERPOL stakeholder meetings and awareness raising activities, AGENEX presented and defended the proposed change to the Monitoring Committee of the OP.

AGENEX then prepared the required documents to amend the OP, with the support of the Extremadura Regional Government. The amendment was approved by the European Commission in December 2018, paving the way for the region to use ERDF funding to establish a financial instrument.

Setting up the financial instrument

Drawing from the good practices of other regions – including KredEx (Estonia) and the Urban Development Fund in Pomorskie (Poland) – Extremadura is now establishing a portfolio guarantee fund. The instrument draws together funds from the European Regional Development Fund and regional financial institutions.

A portfolio guarantee aims to provide better access to finance for targeted final recipients, by providing credit risk coverage to financial intermediaries (banks) on loans. In this way, it provides security to a bank to encourage it to invest in energy renovation, where it may otherwise be reluctant to do so. 

The fund will mobilise 30M EUR with a guarantee of 5M EUR from the ERDF. It will be managed by the regional Government (Junta de Extremadura) and AGENEX will provide the technical assistance for the studies. It is foreseen that 300 technical and financial studies and 100 integral renovations will be done before the end of 2021.  

As well as the guarantee fund, the region will also create a one-stop-shop, the OSIR (Office of Integral Services for Rehabilitation), which is one of the main products developed by the INNOVATE project. The OSIR will give home owners a single contact point for gaining advice on renovations, support on access to finance, and management of the overall renovation project, starting in March 2020.

'The technical assistance provided by the Agency responds to the need to offer an independent and expert accompaniment in integral rehabilitation projects that guarantees users a quality technical study, far from economic interests, and also provide the banks with confidence on the experience and development that AGENEX can guarantee. These two aspects will boost the market for achieving a comprehensive rehabilitation of buildings higher rates', says Daniel Encinas, AGENEX Technical Co-ordinator.

Find out more information at the FINERPOL Action Plan for Extremadura, or discover good practices and support in the Policy Learning Platform Policy Brief on Funding Energy Efficiency through Financial Instruments, and the Policy Brief on Supporting energy renovation of private households through One-Stop-Shops.

Image credit: Photo by Burak K from Pexels