On the fourth meeting of the Slovak Round Table, which took place on 8 December 2022 in Bratislava, 11 measures got endorsed in the areas of support instruments for building renovation, transposition of the recommendations of the Energy Efficiency Financial Institutions Group (EEFIG) and the construction and value chain.

Measure 1: One-stop-shop support for building renovation

Establish and operate regional/national contact points/centres to accelerate the wave of renovation in the private (houses, apartment blocks, commercial buildings, industrial buildings, etc.) and public sectors (e.g. office buildings, social housing, schools, leisure facilities, etc.), offering a comprehensive service from technical, financial to legal advice, procurement and quality assurance of works.

These contact points should offer a comprehensive package of services including:

  • In the field of renovation of public buildings:
    • Techniques to reduce complexity and simplify decision-making for public authorities to stimulate demand for building renovation and energy efficiency improvements;
    • Techniques to proactively identify and mobilize public buildings for comprehensive energy retrofits;
    • Promoting the use of cost-effective deep renovation of buildings with highly ambitious energy savings in line with the European decarbonisation target;
    • Legal aid to facilitate and prioritise the aggregation of building renovation projects (belonging to one or more public entities) in order to increase the level of overall renovation and attract private investors;
    • Developing efficient procurement processes to ensure that refurbishment projects are carried out at a rapid pace, allowing refurbishment projects to be bundled together and ensure high quality refurbishment works (including ambitious energy savings);
    • Promoting financial engineering to facilitate the use of financial instruments and market-based instruments such as guaranteed energy service contracts, refinancing models, green/white certificates, mandatory energy performance schemes and to increase the mix of public and private financing and the use of EU funding sources such as InvestEU, the Recovery and Resilience Facility and the European Structural and Investment Funds, including REACT-EU and the Fair Transition Mechanism;
    • Strategies for engaging relevant actors in the value chain, e.g. construction companies, architects, engineers, urban planners, financiers, etc;
  • In the field of renovation of privately owned buildings:
    • Reducing complexity, simplifying decision-making for homeowners to stimulate demand for building renovation and energy efficiency improvements;
    • Coordination and/or optimisation of services required in energy performance investment processes for buildings;
    • Linking all relevant actors in the value chain (e.g. construction companies, architects, engineers, urban planners, financiers, etc.);
    • Streamlining access to different support measures, especially where there is support for specific target groups (e.g. energy-poor households);
    • Improve awareness and trust in such integrated services through clear accountability, quality assurance and dedicated consumer protection policies.

These contact points/centres will be tasked with:

  • Creating a self-sustaining business model:
    • Integration of services through dedicated operators (new public or public/private entity or mandated private operators) and/or through improved coordination between existing local actors;
    • Which will be prospectively economically viable and aimed at self-sufficiency in the medium to long term, i.e. ultimately to operate without subsidies to cover operating costs;
  • Providing methods and support:
    • To develop the expertise and organizational innovation needed to develop projects;
    • To reduce cost and time to renewal through standardised approaches (e.g. optimised business processes, standardised contractual arrangements, promotion of proposed services through the use of brand names, etc.);
    • To ensure cost-effectiveness and price transparency of services provided to owners of flats, houses and other buildings mentioned above;
    • To streamline standards and procedures into consistent and transparent processes that investors can rely on and improve overall funding conditions;
  • Promoting the results, in particular:
    • Mainstream innovative technical and organisational solutions adapted to local contexts;
    • In helping to improve the legal and regulatory environment.

Measure 2: Development of financial innovations to secure the necessary investments in building renovation

The EU and Member States should “join the wave of renovation of public and private buildings”. We are facing a climate emergency that requires achieving a significant level of renovation of the building stock to the level of zero-emission buildings and active energy hubs (i.e., buildings that have a positive energy balance and are capable of storing and supplying electricity to the grid). Investing in a clean energy building stock can support the transition to a low-carbon economy in Slovakia and move the decarbonisation of the economy to the desired levels by 2050.

To achieve these goals, it is essential to increase funding for sustainable energy investments in public buildings such as hospitals, schools and offices, but also in privately owned buildings. However, as shown, among other things, by the ECB’s 2022 stress test, banks in the region have not yet achieved the necessary level of revenues from climate-neutral or low-carbon sectors, and are not yet able to define and implement strategies to manage climate risks. This is largely due to the lack of banking products offered in the retail and corporate banking market and almost no innovative activity by banks to bring products to this market that address the decarbonisation needs of buildings and address the barriers to financing their energy renovation.

Therefore, there is a need for the development and implementation of financial innovations for financing the renovation of buildings, which will complement the existing consumer loans (purpose and non-purpose) and construction loans tied to building savings, which are the only, or mostly available forms of financing in Slovakia. It is also highly advisable to replicate successful approaches to financing building renovation from other EU Member States, such as Belgium, France, the Netherlands, Germany and Italy.

In particular, the development of financial instruments should focus, for example, on the following financing instruments:

  • Financing instruments:
    • Financial forfeiting – the transfer of obligations, e.g. arising from guaranteed energy service contracts, to a financial intermediary;
    • A structured PPP programme for guaranteed energy services;
    • Public-Private Debt Fund (PPDF);
    • One-stop-financing;
    • Soft Loans;
    • Participatory financing: crowdfunding loans, crowdfunding equity, community energy projects;
    • Mezzanine financing;
    • On-bill financing using green bonds;
    • Green mortgages;
  • Tax instruments:
    • Transferable tax breaks (Super Ecobonus);
    • On-tax financing.

Changes in legislation are also needed to enable the implementation of these financial innovations, e.g.:

  • PPP in building renovation;
  • PPP in the field of guaranteed energy services;
  • Tax financing instruments;
  • Transferring the burden of the deep renovation loan from the owner to the property (addresses the financeability of deep renovation of homes owned by low-income, energy-poor and elderly persons).

Measure 3: Implementation of individual building renovation plans

To implement individual renovation plans for buildings that will use public funds for partial renovation and energy efficiency improvements to ensure efficient use of public funds for optimal progress in building renovation towards a minimum level of zero energy building.

These individual plans should also take into account private financing options that can complement public funding for the gradual renovation of buildings, as the efficiency of investments in the energy renovation of buildings is a necessity to attract private investment in renovation.

The implementation of individual renovation plans should be linked to the implementation of digital building passports, which will increase transparency in the implementation of renovation as well as in the use of public and private funds provided for renovation.

Measure 4: Implementation of digital building passport

In order to meet the goals towards climate neutrality, there is a need to move away from Energy Performance Certificates (EPCs) towards a holistic approach of the building passport concept. Providing accessible and quality information will enable optimised maintenance, renovation and general maintenance planning. It will reduce energy and material flows, extend the life of the building and promote circular economy principles.

To accelerate the decarbonisation of the building stock, the carbon footprint as a ‘hidden’ characteristic of buildings needs to be appropriately reflected in stakeholders’ decision-making and their exchange of data and information with others. This is where the ‘digital building passport’ has an important role to play: a large-scale, continuously updated repository of property information that accompanies the entire life cycle of a building and allows data and information to be shared with stakeholders along the value chain.

As part of a digital building passport, energy consumption and other primary data can be collected, evaluated and analysed to determine actual greenhouse gas emissions and other pollutants during operation. An inventory of materials and energy equipment will support a life cycle approach. Also, life-cycle based LCA results can be “stored” in the building passport and updated during/after renovation.

The Digital Building Passport acts as a one-stop-shop data and information hub that supports building owners and their service providers in the use and management of the building by facilitating the recording, linking, transferring and sharing of building data and information between stakeholders across life cycle phases. This not only contributes to a better understanding of the design, composition, management, operation and end-of-life of buildings, but also increases transparency and trust, improves political and financial decision-making and enables optimal use of resources.

Stakeholders that benefit include, but are not limited to: building owners, construction environment professionals, investors and financial institutions, energy service providers, certifiers, material suppliers and public authorities. Therefore, the Roundtable recommends the implementation of digital passports, and as a priority for buildings without a digital twin (in which case the digital passport is already part of the building information system).

The Building Passport is a secure tool that should allow building owners to retain control over the data and who has access to it, while some data may need to be kept secret. The data may be stored in the Building Passport and/or may be located in another location to which the Building Passport is linked.

Currently, most digital building passports are voluntary. Some are market-driven, others are government-driven. The current revision of the EU legislation (EPBD) introduces the obligation to implement digital building passports. The European approach clearly ensures implementation and creates a harmonised approach. As a first step, governments should lead by example by making it mandatory for public buildings to have a digital building passport and then roll it out to other building typologies and market segments.

Digital building passports will play an important role in connecting buildings to energy networks, such as smart grids, and will complement the “smart” readiness of buildings to connect them. They will also be a digital marker for registering existing buildings that will supply surplus energy to the trading system. From this perspective, it is important that the emerging digital passports also ensure interoperability at the information level.

Measure 5: Participation of Slovak investors in building renovation and other sustainable energy investments on the DEEP (De-risking Energy Efficiency Platform)

To support the De-risking Energy Efficiency Platform (DEEP), an initiative of the European Commission and EEFIG, by sharing available data and track records on energy efficiency achievements. DEEP is the largest pan-European database based on the open-source principle, i.e. free access to information resources, containing detailed information on the technical and financial performance of more than 15,000 energy efficiency related projects in industry and building renovation. It includes records of uploaded results and helps developers, financiers and investors to better assess the risks and benefits of energy efficiency investments across Europe.

Measure 6: Implementation of the EEFIG Underwriting Toolkit

Implementation of the EEFIG Underwriting Toolkit, developed in cooperation with the European Commission, to correctly label investments in building renovation and other sustainable energy investments and, in synergy with other instruments (e.g. DEEP), to reduce the level of risk of these investments.

While the focus is on value and risk assessment, it also includes additional material on the size of the potential market, financing methods, and the project life cycle to provide a more complete picture and build capacity within financial institutions. In addition, parts of this EEFIG toolkit have been designed with a number of specific target groups in mind:

  • Senior Management;
  • Decision making managers;
  • Project teams;
  • Project developers;
  • Risk management teams.

Measure 7: Improving the flow of information on the energy performance of buildings aimed at more efficient pricing of building renovation financing products

EEFIG has proposed to the European Commission to change the EU regulatory framework to ensure that lenders identify, record and maintain the actual energy performance of their buildings’ collateral, including the assessment of energy efficiency as a risk factor in their IRB PD and LGD models. The availability and, in the Slovak reality, the existence of data on the energy performance of collateral is one of the main factors determining the scope of the analysis that financial institutions and stakeholders, including EEFIG, can perform. Analyses based on improved collection data by financial institutions will facilitate a better understanding of risks in financial institutions.

To accomplish all of the above, the Roundtable recommends supporting and funding the creation and increased availability of standardized thermal performance information for both residential and commercial buildings so that their banks can better understand all of these relationships. Easy access to national energy certificate/digital building passport data is essential, and an interoperable interface with national energy certificate/digital building passport repositories would be beneficial for accessing information from these sources.

Development and pricing of specialised products based on the identified relationship between credit risk and energy efficiency (a relationship that has been demonstrated by EEFIG analyses). Lenders, and mortgage lenders in particular, should consider collecting data on energy performance certificates/digital building passports and other relevant energy performance metrics. This will support the development of specialised products as well as the adoption of energy efficiency in IRB models, which will influence the calibration of appropriate pricing for such products.

Measure 8: Replication of successful market development practices for sustainable energy investments in building renovation to achieve critical mass to meet Fit-for-55 and 2050 targets

Replicating the most successful programmes developed over the last 5 years in Europe, which have built on existing mortgage schemes and combined them with either strong tax incentives (as in Italy) or grants (as in Germany) to improve energy efficiency (green mortgages) that would not otherwise have materialised. These programmes have guided and encouraged spending by building owners to include energy efficiency improvements.

It is recommended to explore the possibility of applying the Mortgage Portfolio Standard for retail mortgage lenders.

The emerging nature of the residential energy efficiency investment space means that there is still a lack of capacity in the financial sector to create, develop, price and finance residential renovation (other than through standard mortgages that do not take into account the value of energy efficiency improvements). To accelerate this, there is an opportunity for targeted public support for de-risking and technical assistance to help banks develop specialised green mortgages, credit lines and funds.

The UK has recently proposed regulation to increase energy efficiency in the mortgage guarantee portfolio and align retail lenders with the government’s ambitions for energy efficiency in buildings. Firstly, it proposes mandatory energy performance disclosure for all registered mortgage lenders on their websites and to the government on an annual basis.

Secondly, it is also possible to require them to voluntarily agree to set a mortgage portfolio standard in terms of the 2030 building performance targets (e.g. according to the outcome of the revision of the EU Energy Performance of Buildings Directive).

Measure 9: Implementation of Minimum Energy Performance Standards (MEPS) for building renovation

The creation of demand in the form of government-mandated minimum energy performance requirements for buildings by local authorities or requirements for buildings that are commercially rented is a highly effective means of increasing the rate of building renewal, as seen in the Netherlands, France and the UK. The refurbishment of public buildings has a good return of investment over time and both private and public resources are available, making it a viable requirement for local authorities. A large stock of public buildings can help to expand both the supply chain and the available finance.

In the private sector, it is recommended to combine minimum energy efficiency requirements with appropriate and clearly defined tax incentives, such as the Italian 110% tax reduction or the German KfW loan scheme. This will make the renovation of buildings easier to achieve, creates local jobs and stimulates local economies. Building renovation itself generates significant taxes through job creation and regional commercial growth. Modelling suggests that 110% of the actual cost of building renovation can be deducted and the government would still see a net increase in total tax revenue from the projects due to the significant increase in economic activity, spending and job creation. The same is true for supporting grant payments (which must be designed to be additive, not competitive with the private sector). Grant payments more than repay the tax revenues back to the government through increased tax revenues.

Measure 10: Promotion and monetisation of multiple benefits of building renovation

Implementation of multiple renovation benefits in building renovation contracts, including non-energy benefits (e.g. health benefits, mobility, etc.), which are one of the key aspects of demand creation. This applies to commercial, residential and public projects. Energy efficiency projects have been shown to have multiple benefits that often have real financial value and strategic value to the project owner. However, these have not been identified in the traditional development and evaluation of energy efficiency projects – rather, the focus has been on payback. A number of benefits of energy efficiency need to be highlighted, particularly those relating to health, education and social care, as well as productivity and how to achieve them. There is also a need for changes to energy auditing standards and energy management/engineering training. Multiple strategic benefits should be emphasised when communicating about energy efficiency. In addition, there is a clear link between multiple benefits and the motivation to invest in building renovation.

Multiple benefits occur at several levels including:

  • Consumer level: stimulating demand for building renovation can be supported by focusing on the priorities and needs of the occupants: to improve their comfort, the health of their families and to reduce costs. Communication and marketing are key to ensure the link between building energy renovation and comfort/health;
  • City/regional perspective: reducing energy poverty, job creation, CO2 reduction, social cohesion and urban renewal are some of the other benefits. One-stop-shops or centres are a practical solution to support decision-making, marketing and technical advice.
  • From an investor’s perspective, standardised methods of measuring and quantifying environmental, social and economic performance are the key.

Measure 11: Standardisation of processes for the approval of building renovation projects or a common methodology for the approval of project financing

Implementation of standardisation of project finance approval processes by financial institutions and financial intermediaries can reduce the transaction costs of financing energy efficiency in buildings and is also needed to increase securitisation of green mortgages and other energy efficiency assets. Standardisation can include labelling schemes, project evaluation methodologies and risk assessment tools, standardised legal and financial asset structures (loans, guarantees, energy performance contracts, etc.).

As investment funds gain more experience in energy efficiency markets, they are reducing minimum project size and encouraging aggregation of smaller projects with increased success as project developers understand what is required to meet the risk appetite and constraints of these financiers. If public funds were made available to support securitization instruments, this could also improve the criteria and allow aggregation with longer paybacks.

The process of learning from existing projects needs to be accelerated by making the data more based on the achieved performance of buildings and sharing it in the De-risking Energy Efficiency Platform (DEEP) database.