The residential sector is the biggest consumer of gas in Ukraine – about 50 percent of the total. But, about 60 percent of 18 billion cubic meters, burnt to heat homes, is wasted because of inefficient boilers, heat tracing and extremely poor thermal insulation of buildings.
In order to resolve this problem, the first state-driven program of co-financing of energy efficiency measures for households has been launched – namely, the “warm loans” program. The program has become so popular that demand for loans has exceeded the amount of provided funding by 30 times during the second half of 2016 in average.
However, as of the beginning of November. the state budget for 2017 does not include the funds for its continuation. So, the program is in jeopardy of discontinuation, and therefore – there might a collapse in confidence of the population in one of the few successful support programs which demonstrate real mechanisms for energy modernization of the residential sector.
‘Warm loans’
The government program “warm loans” is the first state co-financing program of energy efficiency measures for households. It was launched in October 2014 by the State Agency on Energy Efficiency and Energy Saving of Ukraine.
The program provides for a co-financing mechanism for households as targeted loans for the energy efficient materials and equipment purchase in one of three state-owned banks: Oschadbank, Ukrgasbank or Ukreximbank. The program also includes reimbursement of the loan by the state – on average from 20 percent to 40 percent. It depends on the type of a borrower – individuals or legal entities, such as condominiums or housing cooperatives. The type of investments is also taken into consideration, for instance, gas boilers in the private sector can be replaced exclusively for the alternative ones which do not use gas or electricity as an energy source.
An important step was the involvement of local authorities in reduction of the loans’ value due to additional compensation of interest / the primary loan at the expense of local budgets. State Agency on Energy Efficiency and Energy Saving of Ukraine has signed 200 programs like those. As a result, about 100 municipalities have already started to fund the additional reimbursement of the loans’ value. By the way, interest on the loan as of today is 20 percent – 25 percent per annum for the different categories of borrowers.
Because of simple loan arrangements and attractive values for consumers, this program quickly became popular among people, especially among the owners of private residences. For all the time of the program’s operation, from October 2014 to October 2016, State Agency on Energy Efficiency and Energy Saving of Ukraine provided 170,000 “warm loans” to Ukrainian households about Hr 2.5 billion worth and paid compensation of more than Hr 1 billion.
One of the drawbacks of the program is a fairly low activity of “collective” borrowers, such as condominiums and housing cooperatives. Despite the higher percentage of compensation for the “warm loan” for this category of borrowers – from 40 percent to 70 percent – compared with individuals, only 452 condominiums participated in the program having attracted Hr 57.3 million only (or 2.6 percent of the total) at the end of October.
Although condominiums became more active since August, having increased their participation by 50 percent compared to previous periods, it has become clear that the collective associations of cohabitants are reluctant to participate in loan programs because of resistance of the residents to take these loans and general weak development of condominiums in the country. According to the sampling analysis of condominiums, conducted by the State Agency on Energy Efficiency and Energy Saving of Ukraine, involvement of apartment buildings in the “heating loans” program makes it possible for their residents to reduce the amount of payment documents for housing services almost by twice, get more comfortable living conditions, and increase the cost of apartments on the market.
The lack of funding
The growing demand for “warm loans” has led to the traditional problem of most government initiatives – the lack of funding.
Thuswise, according to the State Agency on Energy Efficiency and Energy Saving of Ukraine, the State Budget for 2016 includes compensations for the “warm” loans accounting to only Hr 893.8 million – that is three times more than in 2015. Unfortunately, that is not enough to finance large-scale activities like energy efficiency lending in the country of 15 million households.
As a result, on July 6, the program ran out of funds for compensation to individuals who took loans for house insulation and gas boilers replacement. Therefore, the agency was forced to stop granting new loans. Additional funding was never allocated by the state even after three months of bureaucratic hurdles. There was only a redistribution of existing funds from the condominium / housing cooperatives (which were not used in full) to individual borrowers. This has made it possible to briefly reactivate the program for the latter ones in October.
However, as soon as next year the “warm” loans program is at risk of being left without funding – the State Budget for 2017 initially foresaw zero funds for this program – now the finding has been increased to Hr 400 million with a promise to increase it if the energy efficiency fund will not be launched in April 2017 as scheduled. That will obviously not be enough to cover growing demand for “warm loans” in the next year.
According to the State Agency on Energy Efficiency and Energy Saving of Ukraine, we will need Hr 1.9 billion to finance the “warm” loans next year in a full scale. However, the Ministry of Finance has drained the financing of these costs with a position that in terms of energy efficiency they have a finance priority of Hr 800 million state contribution to create the Energy Efficiency Fund. But the Energy Efficiency Fund still has to make the long way from voting for the bill in the parliament (which was presented to the public on Oct. 18) to the granting of the first credit. While the funding for the “warm” loans will be cut off at the beginning of this year, putting this small, but really effective program in jeopardy.
Therefore, the state should make a decision on the launch date of the Energy Efficiency Fund within the shortest possible time and provide adequate funding for the current “warm” loans program at least from the beginning of the year till the launch of the fund. Otherwise, people might lose their already shaky credibility to any attempt of the state to implement energy efficiency support programs in the residential sector in Ukraine.
Dmytro Naumenko is a senior analyst of the Ukrainian Center for European Policy.
