Offer for an individual investor
In 2010 the National Fund initiated the nation-wide programme of subsidies to loans for purchase and installation of solar collectors by individual investors, natural persons and housing associations. In 2011, the offer for individual investors (through local government units) has been expanded to include grants and loans for home sewage treatment plants and connecting buildings to the cumulative drainage system.
Solar collectors by individual investors
Background: Reasons for the project idea.
Meeting EU obligations
In line with the ‘climate and energy package’, passed in 2009, Member States are required to reduce their CO2 emissions below 1990 levels by 20%, reduce primary energy use compared to projected levels by 20%, and meet a target of 20% contribution of renewable energy to total energy consumption by 2020.
At present, energy demand is sourced nearly entirely from fossil fuels, in particular from coal. With economic growth projections indicating energy demand will grow by 45% from 2006 to 2030, stabilization of CO2 concentrations will require an almost complete dismantling of existing energy systems and tremendous growth of new technological systems.
In order to meet EU obligations, the expansion of renewable energy has placed high on the public agenda. Renewable energy can improve energy security by decreasing dependence on imported fossil fuels and diversifying energy supplies. Indeed, renewable energy is generated domestically and the economy would be less exposed to supply disruption and price shocks that might result from the concentration of supply in a limited number of countries. In addition, by shifting reliance from fossil fuels, renewable energy should lead to absolute emission reductions and is therefore central to the fight against climate change.
At present, Polish energy regulation established the requirement for Certificates of Origin to guarantee energy comes from renewable sources and established a quota system for renewable energy. This financial support scheme, while offering a cost-effective means of introducing renewable energy sources into the electricity sector, has favored big renewable energy projects, and has resulted in little to non locally owned renewable energy generation. This is concerning for the following two reasons. First, analysis of final energy use trends shows that households comprise 30% of demand for electricity. Second, local investment in renewable sources results in significantly more renewable energy capacity being deployed than would otherwise be the case, in particular because it stimulates support for the new technologies. Therefore, there has been a need for the Certificates of Origin scheme to be complemented with an initiative aimed at increasing local ownership and simultaneously aiming to sustain a variety of new technologies and reducing the risk of premature lock-in to a single renewable energy source.
Unleashing positive feedback mechanisms
Initial support for the purchase and installation of a technology usable by households will unleash a number of positive feedback mechanisms and support the transition to a more sustainable energy system.
The technology chosen was solar thermal collectors since: a) their efficiency is high enough to convert sun energy into solar thermal energy; b) manufacturing is based in Poland; c) there is a need to increase awareness of effectiveness and use of solar thermal collectors.
As an increasing amount of solar thermal collectors are purchased, a number of positive feedback mechanisms will decrease production costs. Manufacturing will be able to gain from economies of scale in production and learning. This will allow incremental product development and improve performance of collectors. Also, cumulative production will increase the skilled labor pool and market experience.
It is important to break away from the entrenched technologies. Subsidizing purchase of the new technology, solar thermal collectors, will result in increasing returns to adoption. It was important to unleash mechanisms that will decrease uncertainty of the merits of the technology, and attract more users, investors and producers to the industry. As user networks grow, knowledge and comfort with the new technology rises. Therefore, subsidizing demand allows achieving economies of scale in consumption.
Limited public resources demand a creative financing scheme
Due to the limited resources available to the National Fund for Environmental Protection and Water Management, the Fund has entered a public-private partnership with six banks. This has the following advantages:
- Banks have operations throughout Poland and allow the program to have a large reach.
- There is a need to increase access to loans for financing the purchase of environmental technologies by households, and such a partnership would facilitate this new form of financing.
- Partnership with banks means that few resources are required from the public administration to successfully implement the project, making this a cost-effective initiative. The Fund is therefore allowed to transfer it’s limited resources (people, time) to other programs while overlooking the successful implementation of the program by the banks.
Entering a partnership with 6 banks creates a competition among the banks to offer the most favorable lending scheme to customers.