Learning by Doing: What the Estonian retrofitting grant teaches us about energy vulnerability

By Marek Muiste, Tartu Regional Energy Agency 

Let’s start with a question. How can we improve the quality of housing in a country with rapidly aging post-communist era building stock in a community with the financial capacity well below the EU average?  

We should take into consideration that this country has an energy sector that relies heavily on carbon-based energy production and sustains one of Europe’s most energy-hungry economy2 in the background. Are we missing something? Yes, one more thing – we should also mention a cheap influx of European loan money, fresh from post-2008 printing press in Brussels and Frankfurt. Now the scene is set, and we can introduce our topic for today – Estonian national retrofitting grant, kick-started in 2010 and currently in its third iteration.  

It is not an energy poverty measure, at least not according to the current administration.  Indirectly it has been one the most influential tools a country has used for mitigating the long-term effects of energy poverty in Estonia. Analysing, learning from and improving the energy poverty dimension of the national retrofitting grant is the focus of ENPOR in Estonia.  

The Estonian national retrofitting grant was established in 2010 as a public initiative under the Estonian financial institution: KredEx. It was established as a temporary measure for supporting the ‘invisible hand’ of the liberal retrofitting economy of a fully privatised Estonian housing market. During the initial support period, the instrument was proven to be useful and it was prolonged in 2014. In 2019 some adjustments for its focus and its function were performed and it was prolonged for a second time. Within the first 10 years of its operation, the grant helped to renovate 1114 buildings that will reduce the emissions by 140 000 tons of CO2. It has been considered to be a good example as a public initiative on EU level. In the same time, this grant has important shortcomings that should (and partially have been) addressed for being a well-balanced public policy.

These shortcomings can be divided into three categories:  

  1. Financial shortcomings, such as heavy reliance on the financial capacity of the building associations and by this, the owners, 
  2. Administrative shortcomings, such as the lack of stability,  
  3. and Technical shortcomings, such as the support of only partial renovations with limited effect on efficiency.  

Furthermore, we suggest that redesigning the retrofitting policy to better mitigate the risks of energy poverty will hopefully help to avoid or reduce these shortcomings in the future. 

The fiscal challenge of deep retrofitting is maintaining the balance between the living costs before and after the retrofitting. With the help of cheap EU housing loans, the balance has been set just about right with compensating some increase on the total housing costs with significant upgrade on the indoor quality and comfort level (not to mention the increased real-estate value). However, the grant relies on the financial capacity of the building owners (about 60%) and this capacity is not always there. The initial design, based on the cheap house loans offered by several banks, has its own weaknesses. Banks are superimposing their own set of conditions with specific criteria for the loan applications and thus create a barrier for the buildings in the areas that do not witness the increase of real-estate value as an outcome of the retrofitting. With no way to meet the loan criteria, these municipalities are locked out of using the public grant and – because of this – are becoming the retrofitting dead-zones, further amplifying the regional inequity in living conditions and energy improvements. 

These underdeveloped regions are an unfortunate side-effect of the energy transition that the European energy policy is trying to avoid and they go against the fair transition concept emphasized in the European Green Deal and its Clean Planet vision COM(2018)773: “It seeks to ensure that this transition is socially fair – not leaving any EU citizens or regions behind – and enhances the competitiveness of EU economy and industry on global markets, securing high quality jobs and sustainable growth in Europe, while providing synergies with other environmental challenges, such as air quality or biodiversity loss.”  

Re-designing the grant to reduce the regional inequalities could help to make the energy transition of Estonian housing market fairer and more equal.  

Since 2019, the Estonian retrofitting grant has been redesigned to include the regional differences in real estate prizes. The next years will hopefully show the full impact of these new set of conditions. In the near future the housing market will see the increase of retrofitting levels all over the Europe and in this context, the Estonian national retrofitting grant may become an international success story about creating a fiscal balance between the costs and investments in the renovation process, balancing out the private and public interests. With the help of the ENPOR project, the grant can be re-designed to be more inclusive for economically vulnerable citizens, providing another good practice for this type of measures.  

Credits: Photo by Etienne Girardet via unsplash