Technical Assistance Facility to Support the
Renovation Wave in EU Member States
Phase 2 Report: Bulgaria
Combining Financial Instruments and Grants for Renovation of
Multifamily Apartment Buildings
Prepared by
The World Bank
Under Agreement with
The European Commission
on Behalf of the European Union
May 2024
МИНИСТЕРСКИ СЪВЕТ
РЕПУБЛИКА БЪЛГАРИЯ
Disclaimer
This report was prepared within the framework of the Administration Agreement (EC Contract
No. 2021CE160AT108) between the European Commission on behalf of the European Union
and the International Bank for Reconstruction and Development concerning the Part II Europe
2020 Programmatic Single-Donor Trust Fund (No. TF073756).
The findings, interpretation, and conclusions expressed in this report do not necessarily reflect
the views of the Executive Directors of the World Bank or the governments they represent. The
World Bank does not guarantee the accuracy of the data included in this work.
This document does not necessarily represent the position of the European Union or the
Bulgarian Government.
Copyright Statement
The material in this publication is copyrighted. Copying and/or transmitting portions of this
work without permission may be a violation of applicable laws.
For permission to photocopy or reprint any part of this work, please send a request with the
complete information to the Directorate-General for Regional and Urban Policy (DG REGIO)
of the European Commission (CSM 1, Brussels, Belgium).
Page i
Acknowledgments
This report was funded by the European Union and prepared by a World Bank team. Mariano
Gonzalez Serrano (Senior Energy Specialist) was the Task Team Leader, Dilip R. Limaye
(senior energy efficiency consultant) was the lead consultant and principal author, with
substantial support and contributions from Viktoras Sirvydis (Senior Energy Efficiency
Consultant), Ivan Krofak (Energy Specialist), Kiril Velitchkov (Local Financial Instruments
Expert), and Kamen Simeonov (Local Technical Expert).
The team wishes to express its appreciation and gratitude to the teams from the Ministry of
Regional Development and Public Works, the Ministry of Energy, and the Sustainable Energy
Development Agency. The team was supported by Albena Samsonova and other members of
the World Bank operational team in Bulgaria.
The team would like to express its gratitude for the cooperation, guidance and feedback
provided by the representatives of the European Commission, in particular by Mathieu Fichter
of DG-REGIO.
Page ii
Contents
Abbreviations and Acronyms .............................................................................................................. 1
Section 1. Background and Objectives ................................................................................................ 3
1.1 EU Renovation Wave and Supporting World Bank TA Facility ............................................... 3
1.2 Diagnostic Assessment .............................................................................................................. 3
1.3 Stakeholder Consultations Related to Financial Instruments..................................................... 5
1.4 Building Renovation Programs in Bulgaria ............................................................................... 6
1.5 Limitations of 100% Grant Financing ....................................................................................... 7
1.6 EU Suggestions for Combining Grants with Financial Instruments .......................................... 7
1.7 Objectives of this Report ........................................................................................................... 7
Section 2. Estimating the Investment Gap .......................................................................................... 9
2.1 Market size ................................................................................................................................. 9
2.2 Renovation Programs for MABs in Bulgaria ........................................................................... 10
2.3 Potential Additional Funding for MAB Renovation from REPowerEU ................................. 11
2.4 Potential Additional Funds for Building Renovation .............................................................. 12
2.5 Estimation of Funds Required to Meet LTRS Targets ............................................................ 12
2.6 Investment Gap Relative to LTRS Goals................................................................................. 12
2.7 Summary .................................................................................................................................. 13
Section 3. Relevant EU Financial instruments to Supplement Grants ........................................ 15
3.1 The Need for Financial Instruments to Supplement Grants ..................................................... 15
3.2 EU Common Provisions Regulation ........................................................................................ 15
3.3 Combining Financial Instruments and Grants to Meet EU Policy Objectives ......................... 17
3.4 Examples from EU Member Countries.................................................................................... 18
3.5 Summary .................................................................................................................................. 19
Section 4. Mapping of Funding Sources and Financial Instruments Relevant to the Renovation
Wave ..................................................................................................................................................... 20
4.1 MRDPW Building Renovation Program under NRRP ............................................................ 20
4.2 Other Existing and Planned Funds for Building Renovation ................................................... 20
4.3 Observations Regarding Available Funds................................................................................ 29
4.4 Key Challenges Faced by Financial Intermediaries ................................................................. 29
Section 5. Proposed Structure for Combining Financial Instrument with Grants ....................... 31
5.1 Key Considerations in Designing a Combined Financial Instrument and Grant for MABs in
Bulgaria ............................................................................................................................................ 31
5.2 The Capital Rebate Model – Overview and Example.............................................................. 33
5.3 Summary of Lithuania Program............................................................................................... 34
5.4 Building Blocks of the Financial Mechanism .......................................................................... 37
Section 6. Proposed Institutional Structure for the Capital Rebate Program in Bulgaria .......... 42
6.1 Overview ................................................................................................................................. 42
6.2 Block 1 – Financial Instrument Design.................................................................................... 42
6.3 Block 2 – Delivery Mechanism ............................................................................................... 50
6.4 Block 3 – Final Beneficiaries ................................................................................................... 51
6.5 Technical Assistance and Capacity Building ........................................................................... 52
6.6 Meeting the Co-financing Needs of the Phase 2 NRRP Renovation Program ........................ 52
6.7 Extending the Capital Rebate Model to Single-Family Homes and Public Buildings............. 53
Section 7. Scaling Up the Renovation Wave Funding To Meet the LTRS Target ........................ 55
7.1 Funding Requirements ............................................................................................................. 55
7.2 The Benefits of Scaling up to Meet the LTRS Target ............................................................. 56
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7.3 Challenges to Meeting the LTRS Targets ................................................................................ 56
Section 8. Recommendations for Scaling Up Renovation Wave ..................................................... 60
8.1 Recommendations .................................................................................................................... 60
Annex A. The Renovation Process..................................................................................................... 63
A.1 Overall Renovation Process Steps ........................................................................................... 63
A.2 Step 1: Financial Instrument Design and Setup ....................................................................... 63
A.3 Step 2: Application and Selection Process ............................................................................... 64
A.4 Step 3: Implementation of Renovation Works ......................................................................... 65
A.5 Step 4: Monitoring and Quality Assurance .............................................................................. 67
A.6 Step 5: Financing and Repayments .......................................................................................... 68
A.7 Step 6: Evaluation and Feedback Loop.................................................................................... 69
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Abbreviations and Acronyms
BDB Bulgarian Development Bank
BEERSF Bulgarian Energy Efficiency and Renewable Sources Fund
BGN Bulgarian lev (currency)
BPIE Building Performance Institute Europe
COMA Condominium Ownership Management Act
CO2 carbon dioxide
CO2e carbon dioxide equivalent
CPR Common Provisions Regulation
DRP Development of the Regions Program
EBRD European Bank for Reconstruction and Development
EC European Commission
EE energy efficiency
EED Energy Efficiency Directive
EFSI European Fund for Strategic Investments
EIB European Investment Bank
EIF European Investment Fund
ELENA European Local Energy Assistance
EPBD Energy Performance of Buildings Directive
EPC energy performance certificate
ERDF European Regional Development Fund
ESCO energy service company
ESM energy saving measure
EU European Union
FI financial instrument
FInt financial intermediary
FMFIB Fund Manager of the Financial Instruments in Bulgaria
GHG greenhouse gas
GWh gigawatt-hour
HH household
HOA homeowners association
IFI international financial institution
II implementing intermediary
JESSICA Joint European Support for Sustainable Investment in City Areas
LTRS Long-Term Renovation Strategy
kW kilowatt
kWh kilowatt-hour
kWp peak kilowatt
m2 square meter
M&E monitoring and evaluation
M&V measurement and verification
MA Managing Authority
MAB multifamily apartment building
MoE Ministry of Energy
MoF Ministry of Finance
Page 1
MRDPW Ministry of Regional Development and Public Works
NDF National Decarbonization Fund
NEEAP National Energy Efficiency Action Plan
NECP National Energy and Climate Plan
NPEERMB National Program for Energy Efficiency in Residential Multi-family Buildings
NRRP National Recovery and Resilience Plan
OP operational program
OSS one-stop shop
PB public building
RE renewable energy
RES renewable energy system
RRF Recovery and Resilience Facility
SCF Social Climate Fund (EU)
SEDA Sustainable Energy Development Agency
SFH single-family home
TA technical assistance
UDF Urban Development Fund
WB World Bank
Page 2
Section 1. Background and Objectives
1.1 EU Renovation Wave and Supporting World Bank TA Facility
Building renovation is one of the sectors facing the largest investment gap in the European
Union (EU). The Renovation Wave initiative launched by the European Commission targets
the buildings sector, which is responsible for about 40% of the EU's energy consumption, and
36% of greenhouse gas (GHG) emissions from energy.1 It aims to improve the energy
performance of buildings by least doubling the renovation rates in the next 10 years and make
sure renovations lead to higher energy and resource efficiency. The Renovation Wave builds
on the national long-term building-renovation strategy, other aspects of the Directive on Energy
Performance of Buildings, and building-related aspects of each EU country's national energy
and climate plans.
In Bulgaria, buildings consume about 36.3% of Bulgaria’s energy. Bulgaria has developed an
Integrated National Energy and Climate Plan2 as well as a Long-term Renovation Strategy
(LTRS)3 that includes targets for building renovation and financing needs for residential,
commercial, and public buildings. Recognizing the need to convert these LTRS targets for
buildings into detailed implementation plans to mobilize EU funds, the European Commission
(EC) has invited the World Bank’s assistance, within the framework of the Part II Europe 2020
Programmatic Single-Donor Trust Fund, in furtherance of their common objectives.
The EC and the World Bank share common objectives of building competitive and sustainable
economies and reducing poverty and social exclusion – goals of the Europe 2020 Strategy,4
which is built on the three pillars of smart, sustainable, and inclusive growth. Consistent with
these objectives, the EC engaged the World Bank to provide technical assistance (TA) in the
framework of the Trust Fund with the specific objective of contributing to decarbonizing the
building stock by scaling up building renovations in Bulgaria through supporting capacity
building in the design and implementation of building renovation programs.5
1.2 Diagnostic Assessment
The initial effort of the TA focused on a Diagnostic Assessment that included (i) policy and
institutional analyses to identify critical gaps that have constrained the development and
implementation of an effective strategy (and related programs and action plans) to achieve the
long-term renovation of buildings; (ii) mapping of existing and planned building renovation
programs and funds; (iii) a building renovation market assessment; and (iv) development of a
road map to guide Bulgarian government authorities and public and private sector stakeholders
in evaluating, selecting, and prioritizing potential options and initiatives to overcome the gaps.
1
See https://energy.ec.europa.eu/topics/energy-efficiency/energy-efficient-buildings/renovation-wave_en.
2
Republic of Bulgaria, Integrated Energy and Climate Plan of the Republic of Bulgaria, 2021-2030 (Sofia,
Bulgaria: Ministry of Energy and Ministry of Environment and Water, 2020).
https://energy.ec.europa.eu/system/files/2020-06/bg_final_necp_main_en_0.pdf.
3
Bulgaria Ministry of Energy, Long-Term National Strategy to Support the Renovation of the National Building
Stock of Residential and Non-Residential Buildings by 2050 (Sofia, Bulgaria: Sustainable Energy Development
Agency, Ministry of Energy, n.d.). https://www.seea.government.bg/documents/bg_ltrs_2020_en_version.pdf
4
See https://ec.europa.eu/regional_policy/en/policy/what/glossary/e/europe-2020-strategy.
5
Administration Agreement between the European Commission on behalf of the European Union and the
International Bank for Reconstruction and Development concerning the Part II Europe 2020 Programmatic
Single-Donor Trust Fund - Trust Fund (No. TF073756); (EC Contract No. 2021CE160AT108).
Page 3
The assessment was conducted for four building sectors, each of which has certain unique
characteristics and associated gaps: (i) multi-family apartment buildings (MAB); (ii) single-
family homes (SFH); (iii) public buildings; and (iv) commercial and industrial buildings
(collectively referred to as “commercial buildings”). The various gaps were classified into four
types: (i) policy and regulatory gaps; (ii) institutional gaps; (iii) market gaps; and (iv) financing
gaps. Since some of the gaps were found to exist in all building types, another category used
was “common gaps for all building types.” Finally, the assessment presented a road map to
address the identified gaps.
The Bulgarian government has prepared a long-term renovation strategy (LTRS) that defines
the targets for building renovation for the years 2030, 2040 and 2050.6 One of the most
important findings of the Diagnostic Assessment was that the available public funds under the
100% grant financing for building renovation were insufficient and that there was a substantial
financing gap between the funds committed to renovation of buildings and the LTRS targets
for building renovation by 2030.
The Diagnostic Assessment recommended that the Bulgarian government should (i) develop
and communicate to all stakeholders a long-term plan to gradually decrease the grants share in
financing building renovations, while providing support to vulnerable or energy-poor
households; and (ii) broadly communicate that alternative implementing models and financing
mechanisms will be designed, including using public funding to leverage private capital.
The high-priority action areas recommended by the Diagnostic Assessment are summarized in
Figure 1.1.
Figure 1.1 – High-Priority Action Areas recommended by the Diagnostic Assessment
Source: World Bank Diagnostic Assessment
6
Bulgaria Ministry of Energy, Long-Term National Strategy to Support the Renovation of the National Building
Stock of Residential and Non-Residential Buildings by 2050 (i.e. “Long-Term Renovation Strategy” or LTRS)
(Sofia, Bulgaria: Sustainable Energy Development Agency, Ministry of Energy, n.d.).
https://www.seea.government.bg/documents/bg_ltrs_2020_en_version.pdf.
Page 4
The Results of the Diagnostic Assessment and the road map were presented to the Ministry of
Regional Development and Public Works (MRDPW), the Ministry of Energy (MoE), and the
Sustainable Energy Development Agency (SEDA). Copies of the report were also provided to
the major stakeholders in building renovation, and a set of consultations were conducted.7
Based on discussions and consultations with the government agencies and stakeholders, three
areas were identified for further work by the World Bank team:
• Development of financial instruments (FIs) designed to cover non-grant financing
needs of multi-family apartment buildings (MABs).
• Development of improved training materials and software for energy auditors.
• Development and implementation of a communication program and formal TA and
capacity building programs related to the FI for all stakeholders involved in building
renovation.
This report addresses the development of a financial instrument for covering the non-grant
financing needs of MABs in future renovation programs. The other two topics are being
addressed in separate reports.
1.3 Stakeholder Consultations Related to Financial Instruments
The key results of the stakeholder consultations are as follows:8
• One of the most important results of the stakeholder consultations was related to the
development of financial instruments to supplement grant funding. All stakeholders
agreed that available public funds for grant financing for building renovation from
Bulgaria’s National Recovery and Resilience Plan (NRRP)9 and EU Cohesion Policy-
related funds for the operational period 2021–2027 were likely to be insufficient to meet
the LTRS targets and that there was a substantial financing gap between the funds
committed to renovation of buildings and the targets.
• The consultations confirmed a general agreement among all stakeholders consulted that
there is a need to reduce the number and amount of grants for renovation of MABs and
to develop financial instruments to address the co-financing needs when the grant
portion of the renovation financing is reduced from 100%.
• The 100% grant financing has “distorted” the market by creating expectations of
continued grant funding, leading to very limited demand for financial instruments. As
a results, banks are reluctant to develop any financial instruments.
• Public banks and funds such as the Bulgarian Development Bank (BDB), the Fund for
local authorities and governments (FLAG),10 and the Urban Development Funds are
interested in providing financial instruments for renovation projects but are awaiting a
clear mandate and guidance from the government and evidence of market readiness
before they start of developing and offering specific financial instruments that may
include loans and guarantees.
• Stakeholders agreed that the possible combination of grant and financial instrument in
one operation would increase the attractiveness of the FIs and help to overcome the
7
The stakeholders included EnEffect, the Alliance for Energy Efficiency, the Chamber of Engineers, the Chamber
of Energy Auditors, the World Wildlife Fund, Habitat for Humanity, the SHEERenov Project, and the
Association for Construction Insulation.
8
World Bank, “Stakeholder Consultations Report”, unpublished.
9
Council of Ministers of the Republic of Bulgaria, National Recovery and Resilience Plan, n.d.
10
https://www.flag-bg.com/en.
Page 5
“100% grant syndrome”. However, the practical implementation details need to be
further elaborated and this appears to create some concerns for the banks.
• The Bulgarian Energy Efficiency and Renewable Sources Fund (BEERSF) has
successfully deployed financial instruments11 and is interested in financing the needed
amounts for building renovation, but its current capacity is limited by the available
resources. A cabinet decision was made in December 2022 to transform BEERSF into
the National Decarbonization fund (NDF)12, which may then provide additional
resources and capacity to BEERSF.
• An important issue that needs to be addressed is how to take care of low-income
households that may not be able to co-finance their share of the renovation costs. The
government has been working on the definition of “energy poverty” and mechanisms
to address the participation of energy-poor households in co-financing the renovation
programs. Funds may be available from the European Social Fund Plus (ESF+),13 but
mechanisms need to be developed to appropriately utilize this.
1.4 Building Renovation Programs in Bulgaria
The prior building renovation program during the period 2014–2020, the National Program for
Energy Efficiency in Multi-family Buildings (NPREEMB),14 utilized funds from the
Operational Program for the EU Cohesion Policy Funds and provided 100% grant financing
for renovation of multifamily apartment buildings (MABs).
In 2020, the EU launched the Next Generation EU program as an instrument to address health
and economic crises resulting from the COVID-19 pandemic while helping the economies of
Member countries adapt to the global challenges faced and achieve environmental and social
sustainability. A centerpiece of the program is the Recovery and Resilience Facility (RRF). The
Government of Bulgaria’s NRRP presents the views of the government and the society on how
structural problems in the economy should be addressed through a coherent and consistent
combination of reforms and investments. The building renovation activities under the NRRP
are managed by the MRDPW. In the first phase of the NRRP financing of MAB renovation,
MRDPW will provide 100% grant financing and has selected 756 MABs for renovation. The
next phase of the NRRP program, expected to start in 2024, will reduce the grants to 80% and
require 20% co-financing by the beneficiaries.
Under the current programming period (2021–2027) for the EU Cohesion Policy, many funds
and financing programs are likely to be available; a review of these is provided in Section 4 of
this report. The review indicates that, while some of the funds under this programming period
are likely to be available for building renovation, no specific estimates are currently available
regarding how much funding will be allocated for this purpose.
11
BEERSF designs and offers various types of financial products for the evolving EE market in Bulgaria and
effectively serves as a bank, a revolving fund, a credit-guarantee facility, and a technical advisory company. The
types of projects financed by the Fund include rehabilitation of buildings, including multi-family residential
buildings.
12
In December 2022, the Council of Ministers approved a decision to transform the BEERSF into the National
Decarbonization Fund.
13
The European Social Fund Plus (ESF+) is the EU’s main instrument for investing in people. It has a budget of
€142.7 billion for the period 2021 -2027. https://european-social-fund-plus.ec.europa.eu/en.
14
World Bank, National Program for Energy Efficiency in Residential Buildings: Program Design Report for the
Second Phase (Washington, DC: World Bank, 2019).
Page 6
1.5 Limitations of 100% Grant Financing
It has been recognized by the government of Bulgaria and the other major public and private
stakeholders that there are some significant issues with 100% grant financing. Perhaps the most
important is that there will not be sufficient funds available as grants to meet the needs of
financing building renovation to meet the LTRS target.
For example, with respect to MABs, the NPREEMB renovated 1,964 MABs with a budget of
about BGN 2.0 billion. The total floor area renovated in that program was 11.0 million m2.
Phase 1 of the NRRP renovation of MABs will renovate 756 buildings with a floor area of 4.0
million m2 with a budget of BGN 1,129 million. The expected result of Phase 2 of the NRRP
funding will be the renovation of about 236 MABs with a total floor area of about 1.25 million
m2. The total of these is 5.25 million m2. A comparison of this number with the LTRS target
for the period 2021 to 2030 of renovating 19.03 million m2 shows a gap of 13.78 million m2
and demonstrates the significant limitations of the existing programs relative to the LTRS
target. Section 2 of this report provides a more detailed and updated assessment of the related
“investment gap”.
Section 3 discusses the potential funds that may be available from EU Cohesion Policy
initiatives. As mentioned earlier, while some of these funds could be applied to building
renovation, it is quite unclear at this stage how much funding would be available from these
sources for building renovation and what portion of that, if any, would be grant funding.
1.6 EU Suggestions for Combining Grants with Financial Instruments
The EU’s Common Provisions Regulation (CPR) for the period 2021–2027 specifies that a
combination of financial instruments with grants under shared management can play an
important role in delivering EU policy objectives and addressing market imperfections.15
Specifically, Article 58(5) states that “Financial instruments may be combined with programme
support in the form of grants in a single financial instrument operation, within a single funding
agreement, where both distinct forms of support shall be provided by the body implementing
the financial instrument.”
With respect to financing energy efficiency, the EU has defined models for combining a
financial instrument (loan) and a grant managed by a financial intermediary on behalf of a
Managing Authority (MA), acting either directly or through a Holding Fund (HF).16 Section 3
of this report discusses EU guidelines that support the combination of a financial instrument
and a grant in a single operation. An example is the Capital Rebate Model successfully
deployed in Lithuania17 that provides a grant in combination with a loan (supported by a
guarantee) to fund technical support to building owners, and/or provide an interest rate subsidy
to reduce the cost of borrowing, and/or support a capital rebate that repays part of the loan on
achievement of specified energy efficiency outcomes. The Capital Rebate Model represents a
potential option for addressing the non-grant financing needs for MAB renovation in Bulgaria.
1.7 Objectives of this Report
This report addresses the structure of a proposed financial instrument consistent with EU
requirements and provisions for building renovation. Based on the priority expressed by
15
https://eur-lex.europa.eu/eli/reg/2021/1060/oj.
16
fi-compass, Combination of financial instruments and grants under shared management funds in the 2021-
2027 programming period, May 2021. https://www.fi-compass.eu/library/how-to/combination-financial-
instruments-and-grants-under-shared-management-funds-2021-2027.
17
The Capital Rebate Model in Lithuania is discussed in detail in Section 5 of this report.
Page 7
MRDPW, it focuses on a financial instrument combined with grants for renovation of MABs.
However, the mechanism defined in this report is also applicable to single-family homes.
The objectives of this report are to:
• Quantify the “investment gap” in order to meet the LTRS targets for MABs.
• Review EU guidelines regarding financial instruments to supplement grants for
renovation of MABs.
• Map the funding sources and financial instruments relevant to the Renovation Wave in
Bulgaria.
• Identify the key considerations in designing a financial instrument for MAB renovation
in Bulgaria.
• Define the structure of the Capital Rebate Model for combining grants and financial
instruments.
• Develop the institutional structure of the proposed financial instrument for MAB
renovation.
• Define the benefits of scaling up the Renovation Wave to meet the LTRS target and
outline the related challenges and issues and potential actions to address these.
• Provide recommendations and a “road map” for implementing the combination of
financial instruments and grants to scale up the Renovation Wave.
Page 8
Section 2. Estimating the Investment Gap
2.1 Market size
Table 2.1 shows the total number of residential buildings (by type) in Bulgaria and the
associated floor area.
Table 2.1 – Residential Building Stock in Bulgaria
Number of Total Floor Number of
Type of Building
Buildings Area (m2) Housing Units
Single-Family Homes 1,291,549 118,300,032 1,490,460
Multi-family
66,865 117,158,877 1,640,120
Apartment Buildings
Other 7,484 5,155,738 74,995
Total 1,365,898 240,614,647 3,205,575
Source: LTRS
The LTRS targets for MABs for the period 2021–2030 are summarized in Table 2.2.
Table 2.2 – LTRS Renovation Targets for the Period 2021–203018
Targets Units Amounts
Energy Savings GWh/year 2,477
Renovated Area Million m2 19.03
Emission Savings Thousand Tons 1,065
Source: LTRS
The LTRS estimated unit investments (in BGN/m2) needed for renovation of residential
buildings based on a detailed assessment of the packages of energy efficiency measures (ESM)
applicable to these buildings. Based on these unit investments and the targets for the floor area
to be renovated by 2030, LTRS estimated the total investment needed by 2030. These estimates
were for 2019. The European Investment Bank (EIB) Market Assessment Report for the
National Decarbonization Fund19 updated these unit investment estimates to the beginning of
2022 by increasing them by 28% to take into account the escalation in renovation construction
costs. EIB defined several scenarios for estimating the unit costs. The World Bank Diagnostic
Assessment had developed estimates of the financing gap under the “Low” scenario (based on
EIB Scenario A), and for the “High” scenario (based on EIB Scenario C)20. These have now
been updated using most recent information from Phase 1 MAB renovation under the National
Recovery and Resilience Program (NRRP).
18
The LTRS provides a total target for residential buildings and does not separately identify targets for MABs
and SFHs. This report assumes the entire target defined in LTRS for residential buildings is for MABs.
19
EIB, National Decarbonisation Fund, Deliverable 1: Market Assessment Report (Luxembourg: European
Investment Bank, 2022).
20
Scenario A of the EIB report is based on the LTRS assumptions with an inflation adjustment. Scenario C
includes the additional cost of non-energy saving measures and works.
Page 9
2.2 Renovation Programs for MABs in Bulgaria
2.2.1 Early Programs for Renovation of Bulgarian Buildings
A demonstration project for Renovation of Buildings was conducted as a joint initiative of the
United Nations Development Program (UNDP) and MRDPW. During the period of
implementation: 2007 – 2011. Under this effort 50 buildings were renovated in 13 cities with
a budget of €6 million.21
A follow-up project, Energy Efficiency Renovation of Bulgarian Homes, was funded using
financial support from the Operational Program for Regional Development implemented from
April 2012 to December 2015.22 Under this program 156 buildings were renovated in 32 cities.
The budget was €15 million, with 75% of the funding from the Operational Program and 25%
from the national budget. In both of these programs 100% of the funds for renovation were
provided as grants.
2.2.2 National Program for Energy Efficiency in Multi-Family Residential Buildings
(NPEEMRB)
The NPEEMRB, initiated by MRDPW in 2015 and expanded in 2017, focuses on the
renovation of multi-family apartment buildings (MAB).23 The program covered buildings in
all 265 municipalities in the country and provided 100% grant support to finance measures and
related services.24 The overall cost of the program was financed from the EU Operational
Program for the EU Cohesion Policy Funds. The program had a total budget of BGN 2 billion
with 100% grant financing provided to buildings.
A total of 1,964 buildings were renovated under this program utilizing a budget of BGN 2
billion.25 The total floor area renovated was 11.0 million m2.
2.2.3 MAB Renovation Under the NRRP
As mentioned earlier in Section 1.4, building renovation is an important element of the NRRP.
The NRRP established a target of renovating MABs with a total floor area of 3.6 million and
allocated a budget of BGN 1.739 billion.26 Under the NRRP, MRDPW is implementing
renovation of MABs in two phases.
In Phase 1, in which the grant percentage is 100%, MRDPW has approved 756 MABs to be
renovated, with an estimated total investment of BGN 1,129 million. The floor area to be
renovated in these MABs is 4.0 million m2, and the average unit investment cost is BGN
282.25/m2.27
21
MRDPW, “National Program for Energy Efficiency of Multifamily Residential Buildings in Bulgaria”,
presentation to the Energy Community, n.d.
22
Republic of Bulgaria, Energy Renovation of Bulgarian Homes. https://www.mrrb.bg/en/energy-
efficiency/energy-renovation-of-bulgarian-
homes/#:~:text=The%20Energy%20Renovation%20of%20Bulgarian,Programme%20Regional%20Developm
ent%202007%2D20
23
MRDPW, op cit.
24
This included the upfront energy and structural audits (including issuance of the technical passport), preparation
of technical designs and bills of quantities (BoQs), construction supervision and building performance
certification.
25
MRDPW, Progress Report for 2022, March 2023.
26
Source: Council of Ministers of the Republic of Bulgaria, National Recovery and Resilience Plan, n.d.
27
The energy efficiency measures included in these projects are insulation of walls, roof and the ceiling of the
basement, and windows replacement.
Page 10
MRDPW is currently accepting proposals for funding in Phase 2 in which the grants will be
reduced to 80% of the investment needs and beneficiaries will be required to co-finance 20%.
The estimated grant budget for Phase 2 is BGN 282.4 million; with the 20% co-financing from
beneficiaries, the total investment will be BGN 353.0 million. Assuming that the average unit
costs are the same as in Phase 1, the estimated number of buildings renovated will be about
236 and the total floor area renovated about 1.25 million m2. The total floor area renovated in
the two phases of NRRP will then be 5.25 million m2. Table 2.3 provides a summary of the
above programs.
Table 2.3 – MAB Renovation Programs in Bulgaria
Dates
Program Name Funding Funding Sources Type of No. of
Floor Area
Amount Funding Buildings
Renovated
Renovated
2007–2011 Demonstration BGN 12 million UNDP & 100% Grant 50 N/A
Program MRDPW
2012–2015 EE Renovation in BGN 30 million EU Operational 100% Grant 156 N/A
Bulgarian Homes Program for
Regional
Development
2015–2020 NPEERMB BGN 2,000 EU Cohesion 100% Grant 1,964 11.0 million m2
million Policy Funds
2021–2024 NRRP - Phase 1 BGN 1,129 NRRP 100% Grant 756 4.0 million m2
million
2024–2025* NRRP - Phase 2* BGN 353 NRRP 100% Grant 236* 1.25 million m2*
million* 20% co-
financing
* Estimate.
Source: Prepared by Authors
The total committed funds for MAB renovation, including the co-financing needed for the
NRRP Phase 2 projects for the period 2021–2030, are summarized in Table 2.4.
Table 2.4 – Committed Funds for MAB Renovation
Floor Area
Funding Source Grant Amount Co-Financing Total Funding
Renovated
Units Million BGN Million BGN Million BGN Million m2
Phase 1 RRP 1,129.0 0.0 1,129.0 4.00
Phase 2 RRP 282.4 70.6 353.0 1.25
Total Committed Funds 1,411.4 70.6 1,482.0 5.25
Source: Prepared by Authors
2.3 Potential Additional Funding for MAB Renovation from REPowerEU
The European Commission’s REPowerEU Plan, which is designed to reduce dependence on
Russian fossil fuels,28 relies on energy savings as one of its three pillars. One of the NRRP’s
main funding sources, REPowerEU has an overall budget for Bulgaria of €480 million.
Bulgaria’s Finance Minister, Asen Vasilev, has asked the Ministry of Energy to consider
28
European Commission, https://ec.europa.eu/commission/presscorner/detail/en/IP_22_3131
Page 11
whether some or all of the REPowerEU resources should be used to increase the funds for the
renovation program. However, as the details have not yet been announced, it is unclear what
amount of funding may be allocated from the REPowerEU budget to MAB renovation. It is
expected that any allocated funds from REPowerEU will cover only 80% of the project costs
with a 20% co-financing requirement.
2.4 Potential Additional Funds for Building Renovation
Section 3 of this report provides a mapping of potential funds and financial instruments for
building renovation. Although these have multiple objectives and are not 100% dedicated to
building renovation, some could provide grants, loans, credit lines, and/or guarantees for
renovation of MABs. However, while efforts are currently underway to define the potential
availability of financial instruments from these resources, no definitive estimates are available
at this time regarding specific allocations for MAB renovation.
2.5 Estimation of Funds Required to Meet LTRS Targets
The LTRS target for residential building renovation is 19.03 million m2. As shown in Table 2.4,
the committed funding (not including any REPowerEU funds) will lead to renovation of 5.25
million m2. To meet the LTRS target of 19.03 million m2, funding will be needed to renovate
additional floorspace of 13.78 million m2.
To estimate the funds needed to renovate 13.78 million m2 of MABs, it is necessary to take into
account two major factors:
• Escalation of construction costs over the period 2025 to 2030.
• Higher investment needs for “deep renovation” of some MABs.
The increase in average unit cost of renovation from 2019 (based on LTRS) was 208.3 BGN/m2.
The corresponding unit cost in 2024 (based on the results of Phase 1 RRP building renovation)
is 282.25 BGN/m2. The increase is 35.5% or an average of 6.3% annually. If we assume this
rate of increase for the 6 year period 2025 to 2030, the average unit cost during this period will
be about 332 BGN/m2. The investment requirements for renovating 13.78 million m2 are
estimated to be BGN 4,575 million.
It is likely that some of the MABs to be renovated will require “deep renovation.” While the
specific measures and related costs of deep renovation may vary across different buildings,
generally deep renovation will include structural improvements, heating system upgrades and
possible renewal energy deployment.29 The Building Performance Institute Europe (BPIE) has
conducted an assessment of the typical costs of deep renovation versus medium renovation and
has estimated that in countries in southeastern Europe the deep renovation costs are about 40%
higher.30 While it is not known exactly how many MABs will undergo deep renovation by
2030, this report has estimated the additional costs required if 30% of the MABs will deploy
deep renovation. With a 40% increase in deep renovation costs for 30% of the MABs, the
average unit costs will increase by 12% to BGN 371.8/m2.
2.6 Investment Gap Relative to LTRS Goals
Table 2.5 shows the estimated investment gap.
29
Singh, J., et al., Bulgaria - National Program for Energy Efficiency in Residential Buildings: Program Design
Report for the Second Phase (Washington, DC: World Bank, 2018).
30
BPIE, Investment Opportunities in Deep Renovation in Europe (Brussels: BPIE, 2020). The BPIE estimate of
“medium” renovation cost is €146/m2, which is quite consistent with the BGN 282/m2 from the Phase 1 RRP
results. Their estimate of “deep renovation” cost is €205/m2.
Page 12
Table 2.5 – Estimating the Investment Gap
Including Including Deep
Units Construction Cost Renovation for
Escalation 30% MABs
Total Floor Area to be Renovated - LTRS Target
Million m2 19.03 19.03
2021–2030
Floor Area to be Renovated with Committed
Million m2 5.25 5.25
Funds - NRRP
Million m2 13.78 13.78
Floor Area Gap
% 72.4% 72.4%
Estimated Average Unit Costs, 2025–2030* BGN/m2 332.0 371.8
Total Funds Committed for Renovation - NRRP
Million BGN 1,411 1,411
(excl co-financing)
Co-financing Needs - NRRP Million BGN 71 71
Funds Needed to Renovate 13.78 million m2 by
Million BGN 4,575 5,124
2030
Total Funds Needed to Meet LTRS 2030 Targets
Million BGN 6,057 6,606
including Committed Funds
Million BGN 4,646 5,195
Investment Gap
% 76.7% 78.6%
Source: Prepared by Authors
With respect to the LTRS target of 19.03 m2, the floor area “gap” is 13.78 million m2. With the
estimated escalation in construction costs, the investment gap will be BGN 4,646 million or
76.7%. If 30% of the MABs renovated in the period 2024–2030 undergo deep renovation, the
investment gap increases to BGN 5,195 million or 78.6%.
Even if the proposal of the Finance Minister (see Section 2.3 above) to allocate some or all of
the REPowerEU funding to MAB renovation with 80% grants, the floor space gap and
investment gap will continue to be very large.31
2.7 Summary
The analysis in this Section points out the large financing gap between the funds needed to
meet the LTRS targets and the funds currently committed to renovation of MABs. Also, it is
important to recognize that the current renovation programs (Phase 2 of the NRRP and potential
financing from REPowerEU) reduce the grant funding from 100% to 80%, thereby requiring
20% co-financing from the beneficiaries, and that future renovation programs are likely to
reduce the grant component to lower levels. The development of financial instruments to meet
the co-financing requirements of the non-grant portion of the renovation investment is therefore
an immediate need.
The large amount of financing needed to meet the investment gap further accentuates the need
for financial instruments that can leverage non-public financing sources. The financing
mechanism that combines financial instruments with grants should be consistent with the EU
Common Provisions Regulations and draw upon successful experience in EU countries. This
report describes the proposed combination of a financial instrument and grant, through a
Capital Rebate Program that can be implemented in Bulgaria to address the investment gap and
meet the targets defined in the LTRS.
31
If the entire REPowerEU funding of BGN 960 million is utilized for MAB renovation, the floor area gap will
be reduced to 9.53 million m2 resulting in a floor space gap of 50%. The corresponding investment gap will be
between BGN 3,686 million (60.5%) and 4,235 million (63.8%).
Page 13
The proposed combined financial instrument and grant in the proposed Capital Rebate Program
is designed to be deployed for the financing requirements for potential future renovation
programs in the period 2025–2030 to meet the 2030 LTRS target. However, as discussed later
in this report, the Capital Rebate Program could also be applicable to the 20% co-financing
requirements of the phase 2 NRRP program.
Page 14
Section 3. Relevant EU Financial instruments to Supplement Grants
This section provides an overview of the landscape of financing mechanisms available within
the EU that complement traditional grants. Given the dynamic economic and social shifts
across the EU, there is a pressing need for a more diversified funding approach. This necessity
is particularly important in Bulgaria, where energy efficiency and sustainable renovation
projects demand substantial and sustained investment. Drawing on insights from consultations
held in July 2023, this section highlights the rationale behind the deployment of financial
instruments (FIs) and their relevance in the Bulgarian context.
3.1 The Need for Financial Instruments to Supplement Grants
The EU funding landscape has traditionally been dominated by grants, which play a crucial
role in supporting various initiatives and policies. However, the evolving economic and social
landscape of the EU calls for a more diversified approach to funding.
While grants are pivotal for providing non-repayable funds, they often target short-term
projects and lack the sustainability required for long-term investments, like those needed for
energy-efficient renovations in Bulgaria. Over-reliance on grants can also lead to a lack of
incentives for financial efficiency and sustainability, as they do not require repayment or
generate financial returns. This limitation becomes increasingly apparent in projects needing
substantial and sustained funding.
Financial instruments, such as loans, guarantees, concessional interest rates, equity
investments, and bonds, offer a complementary solution. They provide a sustainable funding
mechanism by facilitating repayments, recycling funds, and attracting private sector
investments. These instruments can effectively bridge the gap between the immediate impact
of grants and the long-term sustainability and scalability needed for building renovation
projects. Some of these instruments are particularly relevant to Bulgaria's need for renovation
of MABs, facilitating larger investments in energy efficiency and attracting private sector
capital. The EU Renovation Wave strategy underscores the importance of these financial tools
in achieving energy and climate goals through building renovations.
3.2 EU Common Provisions Regulation
3.2.1 Overview
The Common Provisions Regulation (CPR)32 represents a cornerstone in the EU’s framework
for regional development and cohesion policy. This regulation is pivotal in governing the
administration and implementation of key EU funds, ensuring their alignment with the broader
objectives of the EU. The following discussion provides an overview of the CPR, highlighting
its objectives, scope, and impact on EU policies.
The CPR serves as a unifying regulatory framework for several EU structural and investment
funds. It establishes a set of common rules for these funds, which are instrumental in driving
regional development, social inclusion, and economic growth within the EU. The regulation
governs eight major EU funds, accounting for a substantial portion of the EU budget. These
funds are primarily focused on areas such as regional development, social inclusion, and
environmental sustainability.
32
Common Provisions Regulation, https://commission.europa.eu/funding-tenders/find-funding/funding-
management-mode/common-provisions-regulation_en.
Page 15
The CPR is structured around five key policy objectives, reflecting the EU's strategic priorities.
These include (i) fostering a more competitive and smarter Europe; (ii) promoting a greener
and low-carbon economy; (iii) enhancing connectivity across Europe; (iv) supporting social
inclusion and implementation of the European Pillar of Social Rights; and (v) bringing Europe
closer to its citizens by fostering sustainable development across various territories.
3.2.2 Funds Covered Under the CPR
The regulation covers a diverse array of eight funds, each with its specific focus and objectives:
• European Regional Development Fund (ERDF)
• European Social Fund Plus (ESF+)
• Cohesion Fund (CF)
• Just Transition Fund (JTF)
• European Maritime, Fisheries and Aquaculture Fund (EMFAF)
• Asylum, Migration and Integration Fund (AMIF)
• Internal Security Fund (ISF)
• Border Management and Visa Instrument (BMVI).
This wide range of funds ensures that the CPR addresses a broad spectrum of challenges and
opportunities across the EU. The ERDF and the JTF are particularly relevant to energy-
efficiency renovations in buildings due to their direct focus on sustainability and energy
efficiency. The ERDF offers comprehensive support for a wide range of energy efficiency
measures, making it a versatile and impactful fund for such projects. The JTF is especially
suitable for regions undergoing significant economic transitions, providing targeted support to
integrate energy efficiency as part of broader environmental and economic strategies. The CF
and ESF+, while not directly focused on energy efficiency, offer complementary benefits that
can enhance the impact and sustainability of energy efficiency projects. These include
environmental improvements and workforce development, respectively.
3.2.3 Impact on EU Policies and Member States
The CPR plays a crucial role in shaping how EU funds are utilized to meet the EU policy
objectives. It sets out eligibility criteria, funding mechanisms, and implementation guidelines,
ensuring that the funds are used effectively and efficiently. The regulation’s emphasis on
simplification, transparency, and flexibility aids in streamlining the funding process, making it
more accessible and impactful for member states and regions.
The CPR is a fundamental element in the EU’s financial architecture, guiding the effective and
efficient use of significant EU funds. By providing a harmonized set of rules and objectives,
the CPR ensures that EU funding is aligned with the union’s broader strategic goals, fostering
cohesion, growth, and sustainable development across its member states.
The EU Renovation Wave initiative, with its focus on increasing the rate of building renovation
to improve energy efficiency, is directly supported by the strategic use of EU funding
mechanisms. For Bulgaria, this means leveraging grants and financial instruments to address
the substantial funding needs for renovation of its building stock, thereby contributing to the
country’s and the EU’s broader energy and climate targets. The effective use of these financial
tools, guided by the CPR, is essential for accelerating the transition to a more energy-efficient
and sustainable building sector in Bulgaria and across the EU.
Page 16
3.3 Combining Financial Instruments and Grants to Meet EU Policy Objectives
3.3.1 General Approach
The combination of financial instruments and grants is driven by the need to address specific
market imperfections and to incentivize investment in areas critical to EU policy objectives.
While grants provide direct, non-repayable support, financial instruments like loans and equity
investments offer sustainability and the potential for capital recycling. This blend enables a
more efficient allocation of resources, facilitating larger-scale and longer-term investments that
might not be feasible with grants alone.33
Under this approach, financial instruments are often paired with grants to reduce investment
risks and enhance the attractiveness of projects to private investors. For instance, a grant might
be used to cover initial project costs, making it more viable for additional financing through
loans or equity.34 This combination allows for a broader range of funding options, making it
easier to tailor financial solutions to specific project needs. The CPR has streamlined this
process, providing a legal framework for effectively combining these funding types.
Several EU initiatives exemplify the successful combination of financial instruments and
grants. For example, in projects focusing on regional development and innovation, the use of
grants to fund initial research and development stages, followed by loans or equity investments
for commercialization and expansion, has proven effective. These combinations have been
instrumental in sectors like renewable energy, where upfront costs are high and long-term
sustainability is crucial. One exemplary domain of this approach’s application is in the
renovation of buildings for energy efficiency, where the EU has deployed combined funding
mechanisms to catalyze investment. Initiatives in member states like Estonia, Latvia, and
Lithuania illustrate the practical application of blending grants with financial instruments for
building renovations, showcasing successful models of financing energy efficiency
improvements.35
In each of these Baltic countries, the building renovation program has been scaled up by
combining EU grants with loans, guarantees, and/or national funds and private investment to
finance the comprehensive renovation of residential buildings, aiming to enhance energy
efficiency and reduce energy consumption. This approach has not only improved living
conditions but also contributed to the countries’ energy independence and climate change goals.
3.3.2 Challenges and Solutions
One of the main challenges in this approach is ensuring that the combination of grants and
financial instruments (FIs) is optimally structured to meet specific project requirements without
causing market distortions. It requires careful planning and assessment to determine the right
balance between grant funding and repayable financial instruments. The EU’s regulatory
framework, including the CPR, provides guidelines and flexibility to address these challenges,
ensuring that the combined use of these financial tools aligns with the EU’s policy goals and
principles of financial prudence.
Other key challenges include ensuring the grant component is directly linked and necessary for
the FI, managing state aid compliance, designing funding agreements with clear and simple
criteria, and addressing the complexities of cash flow management. Solutions implemented
33
See https://www.fi-compass.eu/f/fi-compass-news-autumn-2021/common-provisions-regulation-whats-new.
34
fi-compass, Model for a financial instrument with a grant component to support energy efficiency – a fi-
compass model (EIB/EC/EU, 2022). https://www.fi-compass.eu/sites/default/files/publications/energy-
efficiency-model_0.pdf.
35
fi-compass, “Financial instruments combined with grants for energy efficiency and renewable energy:
Experiences in the Baltic States”, Conference Proceedings, 2023.
Page 17
include conducting thorough ex-ante assessments, early engagement with potential bodies
implementing FIs to design easy-to-implement combinations, and clear reporting and
monitoring requirements to ensure transparency and compliance. Additionally, there is a need
for flexibility in the design and implementation of the combined FI and grant operations so
they can adapt to market conditions and the specific needs of final recipients.36
Through such targeted initiatives, the EU demonstrates the potential of combined financing
mechanisms to drive progress toward its policy objectives, particularly in the realm of
sustainable development and energy efficiency in buildings. The examples from Lithuania and
Poland underscore the efficacy of this approach, providing a blueprint respectively of MABs
and SFBs renovation financing for other member states to follow in leveraging EU funding to
achieve ambitious environmental and economic goals.
3.4 Examples from EU Member Countries
There have been successful implementations of financial instruments alongside grants within
the EU. Initiatives combining grants with loans or guarantees have shown increased
effectiveness in leveraging private capital, ensuring project sustainability, and achieving
broader policy objectives. This section provides examples from Lithuania, Poland, and the
Slovak Republic of financial instruments and good practices for building renovation and multi-
sector financing through a holding fund.
3.4.1 Lithuania
The Lithuanian combination of the Joint European Support for Sustainable Investment in City
Areas (JESSICA) II fund of funds37 and the Lithuanian Leveraged Fund as a financial
instrument demonstrates how private investment can be facilitated in residential energy
efficiency renovations. This initiative successfully leveraged nearly €1 billion, combining €250
million from the European Regional Development Fund (ERDF) and up to €705 million from
financial intermediaries and third-party investors. It introduced a revolving element through
the use of loan and guarantee instruments, enabling the funds to be reused for future projects,
thereby multiplying the impact of the initial investment. The leverage effect was significant,
attracting substantial private sector finance by offering low-cost, long-term loans with no
requirement for a deposit or collateral. This strategy not only improved energy efficiency in the
housing sector but also enhanced living standards for residents.38
3.4.2 Poland
The Clean Air program in Poland serves as an exemplary case of how financial instruments can
attract private investments, create leverage effects, and implement a revolving element to
sustain investments in environmental projects. Launched in response to Poland’s significant air
quality challenges, the program aimed to modernize heating systems and improve home
insulation to reduce emissions, a critical step given that Poland has some of Europe’s most
polluted cities. The program, backed by substantial financial commitment, has been
instrumental in leveraging private sector engagement through several key features:
• Financial incentives: Grants of up to 32,000 PLN were made available for individuals
in tougher financial situations, with an additional 5,000 PLN for photovoltaic
installations. This tiered support structure aimed to make the program accessible to a
36
fi-compass, “Implementation of grants and financial instruments combined in a single operation ”, fact sheet (fi-
compass, 2023). https://www.fi-compass.eu/library/how-to/implementation-grants-and-financial-instruments-
combined-single-operation.
37
The “JESSICA II” fund was an EIB mandate for 2014-2020 that succeeded the 2007-2013 JESSICA I fund.
38
https://www.fi-compass.eu/library/case-studies/residential-energy-efficiency-financial-instruments-lithuania
Page 18
broader section of the population, encouraging investments in cleaner heating and
energy sources.
• Simplification of procedures: By reducing bureaucratic hurdles and simplifying
application processes, the program enhanced its attractiveness to potential beneficiaries
and investors. For instance, the process for awarding grants was streamlined,
significantly reducing the time from application to receipt of support.
• Inclusion of municipalities and banks: By involving local government units and the
banking sector, the program expanded its reach and efficiency. Municipalities played a
crucial role in identifying eligible beneficiaries and facilitating the application process,
while banks provided complementary financing options, further multiplying the
available funds.
• Online applications: The shift towards online applications made it easier for
homeowners to apply for support, broadening the program’s accessibility and
efficiency.
The integration of financial instruments with policy goals in the Clean Air program
demonstrates a successful leverage effect, where public funds have attracted additional private
investment to multiply the impact of the original funding. This approach not only facilitates the
renovation of heating systems and home insulation at a larger scale, but also sets a precedent
for how environmental programs can be designed to ensure sustainability and broad
participation.39
3.4.3 Slovak Republic
In the Slovak Republic, the government created Slovak Investment Holding (SIH) in 2014 to
manage the holding fund of EU shared management financial instruments. SIH utilized
financial instruments to attract private investment, create leverage effects, and implement a
revolving element to sustain investments. SIH managed over €1 billion through the National
Development Fund II, focusing on loans, guarantees, equity, and quasi-equity financial
instruments across various sectors including SME support, energy efficiency, and social
economy. The revolving fund mechanism allowed for the reuse of funds as initial investments
were repaid, thus multiplying the financial resources available for ongoing and new projects,
enhancing the sustainability and impact of investments in key areas of the Slovak economy.40
3.5 Summary
The integration of financial instruments with grants represents a significant stride towards a
more dynamic and resilient financial framework within the EU. This approach not only
amplifies the impact of EU funding but also encourages a more responsible and sustainable use
of financial resources. By leveraging the strengths of both grants and repayable financial
instruments, the EU can more effectively address its diverse array of policy objectives,
fostering long-term growth and stability.
39
For detailed information on the Clean Air program ’s implementation and impact, please refer to the sources
from the World Bank blog (https://blogs.worldbank.org), the Poland Ministry of Climate and Environment
(https://www.gov.pl/web/climate), and CEENERGYNEWS (https://ceenergynews.com).
40
See https://www.fi-compass.eu/library/case-studies/slovak-investment-holding-multi-sector-financial-
instruments-slovakia.
Page 19
Section 4. Mapping of Funding Sources and Financial Instruments
Relevant to the Renovation Wave
Renovation of MABs over the next several years is being implemented by MRDPW primarily
using NRRP funds.41 After the NRRP funding for building renovation is exhausted (by June
30, 2026), additional funding is likely to be available. This section summarizes the available
information on the NRRP funds and some of the other existing and planned funding sources
and financial instruments shown in Table 4.1.
4.1 MRDPW Building Renovation Program under NRRP
MRDPW is implementing the building renovation program for MABs under the NRRP in two
phases. The first phase of this program provides 100% grant financing. Applications for Phase
1 funding were received in 2023 from 3,068 MABs in 152 municipalities. Of these, 756 projects
were selected in 102 municipalities in December 2023. The estimated floor area to be renovated
is 4.0 million m2, and the total budget of Phase 1 is BGN 1,129 million. The deadline for project
completion by June 30, 2026.
Phase 2 of the program under NRRP had an application closing date of February 29, 2024, and
a project implementation deadline of June 30, 2026. In that phase, the grant funding will be
reduced to 80%, and there will be a requirement for 20% co-financing by the beneficiaries. The
grant budget for this phase is BGN 282.4 million. With 20% co-financing, the total budget for
renovation will be BGN 353 million. Despite the reduced grant amounts, interest in
participation in the program remains high, but there appears to be limited readiness of the
commercial banks to provide the necessary 20% co-financing. It is possible that the co-
financing may be provided by some municipalities.
A proposal to the National Assembly was submitted on February 19, 2024, that MRDPW
should prepare, within 3 months after the Parliament approves the decision, a mid-term
program with secured funding to ensure the implementation of all evaluated project proposals
that were not selected for Phase 1 funding and that such a program should be approved by
Council of Ministers by June 30, 2024.42
4.2 Other Existing and Planned Funds for Building Renovation
As shown in Figure 4.1 and discussed in this section, many funding sources (grants and
financial instruments) exist that could potentially address some of Bulgaria’s building
renovation needs. Most offer credit guarantees through commercial banks. The currently
committed EU grant sources for renovation of MABs in Bulgaria are limited in terms of budget
and time of their availability. Additional financing from EU Cohesion Policy Funds and other
EU resources may become available, but the sources and amounts of such funding for building
renovation are not yet confirmed.
41
The selection of only 25% of the applications was based on the limited funds available for this phase.
42
https://www.parliament.bg/bg/ns_acts/ID/165375
Page 20
Figure 4.1 – Mapping of Funding Sources & Financial Instruments Relevant to the Renovation Wave
2023 2024 2025 2026 2027
Social Climate Fund
Modernisation Fund
Funding
sources
Just Transition Fund
EU Emissions Trading System revenues To be determined
Energy Efficiency Obligation Scheme
ESIF/RRF
National Decarbonisation Fund
To be merged with BERSF – Details being developed
MoE – RES for private individuals Phase I Contracting / Implementation
EU grants
programs
application
MRDPW – Building renovation NRRP Phase2 application Selection / Contracting / Implementation
Possible Limited
EU grants for MAB
MRDPW – Building renovation NRRP Phase I application Contracting / Implementation
UDFs 3rdGen
FMFIB Inclusion Period
Forthcoming?
FI for Building renovation
FMFIB Inclusion Period
FI for Building renovation
BDB Inclusion Period
BEERSF Expected continued operations
RES for private individuals
BDB Inclusion Period
ongoing selection
InvestEU - Green uncapped portfolio guarantee
Running /
EBRD Inclusion Period
RRF Sustainability
EIF Inclusion Period
InvestEU Sustainability
EIF Inclusion Period
UDFs Gen
2nd Inclusion Period
FMFIB
Source: Prepared by Authors
Page 21
4.2.1 BDB and FMFIB
Both the BDB and the Fund Manager of the Financial Instruments in Bulgaria (FMFIB) are
considering developing new specialized financial instruments (FIs) to address the co-financing
needs under Phase 2 of the NRRP. Additionally, FMFIB is considering another one for future
renovation programs beyond NRRP. However, the detailed structures of these instruments have
not yet been finalized or discussed with commercial banks.43
It is crucial that these FIs are appropriately structured to reflect the specific and rather new
procedures for the commercial banks to target MABs. Moreover, these FIs need to be effective
in the near term (preferably by mid-2024) in order to be available and useful for the MABs
selected for funding in Phase 2 of the NRRP program (RW2).
Usually, the structuring, application, contracting, and launch of a new type of FI on the market
takes at least 6-9 months. This could present some challenges with respect to the
implementation of the Phase 2 projects within the proposed time frame.
BDB, working with MRDPW, is currently developing a short-term solution to facilitate the
implementation of the projects that are facing challenges with the co-financing of the 20%
requirement in Phase 2 of the renovation program (RW2) under NRRP.
The option of having the BDB as a direct loan provider for the 20% co-financing requirements
remains a potential solution for the successful implementation of the RW2 projects.
BDB is also working on a portfolio credit guarantee with a cap, covering either only the 20%
own co-financing or more likely the 100% of the project costs (e.g. also including the
construction risk) to directly address the RW2 program needs. In a recent statement, the
Minister of Regional Development mentioned that BDB will be providing preferential loans
for the needed 20% co-financing for RW2 at 0% interest.44
FMFIB is considering the development of a product using recycled funds to facilitate the
implementation of the projects that are facing challenges with the co-financing of the 20%
requirement of RW2. In addition, the option for combining FIs and EU grants for future
building renovation programs (2025–2030) could be possible for the FMFIB using resources
from the European Fund for Strategic Investments (EFSI).
However, neither BDB nor FMFIB have formalized any FIs to address the renovation funding
needs for the period 2025–2030.
4.2.2 Sustainability Guarantees
Three currently operating guarantee programs – (i) the EIF InvestEU Sustainability Guarantee,
(ii) the EIF Recovery and Resilience Facility Sustainability Guarantee, and (iii) the EBRD
InvestEU Green Uncapped Portfolio Guarantee – may potentially address the co-financing
requirements of RW2 projects and subsequent co-financing of projects during the period 2025–
2030. These FIs are likely to be available to support projects of residential building renovation
leading to an improvement in the national Energy Performance Certification (EPC) level by at
least one class (in any case not below class level B), or where savings in primary energy
demand are at least 30% compared to pre-renovation baseline performance of the building (not
including reductions in net primary energy demand through renewable energy sources).
The co-financing required for EU-funded projects such as RW2 could be covered by a credit
guarantee under these FIs. However, the banks applying these instruments for private MABs
43
Personal communication with FMPFIB, February 2024.
44
https://www.mediapool.bg/bbr-shte-dava-bezlihveni-zaemi-za-saniraneto-s-20-samouchastie-
news355315.html, January 18, 2024.
Page 22
may need to undergo additional due diligence by the guarantee provider. After this, detailed
eligibility requirements shall be included in their contracts. Keeping in mind the specific
clauses in the contract, banks will then need to scrutinize the details of their contracts to
reconfirm the option of using these instruments for co-financing building renovation projects.
The EIF InvestEU Sustainability Guarantee is a centrally managed FI that has been signed
by United Bulgarian Bank (UBB), UBB Interlease, UniCredit Bulbank, and BDB. Its
characteristics are summarized in Box 4.1.
Box 4.1 – Characteristics of the EIF InvestEU Sustainability Guarantee Instrument
• Capped: The Guarantee shall cover default amounts incurred by the Financial Intermediary at
a Guarantee Rate subject to the Guarantee Cap. The default amounts, net of any recoveries,
covered by the Guarantee shall in aggregate not exceed the Cap Amount stipulated in the
Individual Guarantee Agreement.
• Uncapped: The Guarantee shall cover, at the Guarantee Rate, all default amounts incurred by
the Financial Intermediary with respect of each default.
• Guarantee rate – up to 80%
• Cap rate – up to 25%
• Guarantee fee for capped guarantee – 0.2% p.a. on the guarantee part of the loan
• Guarantee fee for uncapped guarantee – 0.75% p.a. on the guarantee part of the loan
• Eligible borrowers – natural persons, housing associations, SMEs and small/midcaps
• Max debt amount – €7.5 million for the private financial intermediary and €2 million where
the Financial (Sub-) Intermediary is a national promotional bank or institution as a direct lender
• Max debt maturity – minimum 1year – no maximum, but still limited to the guarantee
termination date
• Guarantee termination date – 12 years after the end of the Inclusion Period
• Inclusion period – 2 years
Inclusion of loans to the Credit Guarantee Portfolio is fully delegated to the commercial banks.
Source: Prepared by Authors
Figure 4.2 illustrates the structure of capped and uncapped guarantees.
Figure 4.2 – Capped and Uncapped Guarantees
Source: EIF Direct Guarantee Term Sheet (updated on 17 November 2023)
Page 23
Similarly, the EIF RRF Sustainability Guarantee offers up to 80% with the full delegation
model to the involved intermediaries, with an annual guarantee fee of 0.2% (for the capped)
and 0.75% (for the uncapped) on the guaranteed portion of the loan. Building renovation is
among the eligible activities. The structure of this guarantee instrument is similar to EIF’s
InvestEU Sustainability Guarantee, but with a longer inclusion period45 of 3 years (vs. 2 years).
Another difference, as of this writing, is the application of the “do no significant harm”
principle for EIF’s RFF Sustainability Guarantee. The overall budget of the Facility Guarantee
for Bulgaria is higher than the one of EIF InvestEU guarantee and reaching €2 billion.
The EIF RFF Sustainability Guarantee (sustainability and competitiveness components) was
signed by UBB, UniCredit, Procredit, and PostBank in January 2024 and has an overall budget
of €2 billion. No detailed budget allocations yet exist between the involved banks, however,
and neither of the two sub-products have been announced.
The EBRD’s InvestEU Green Uncapped Portfolio Guarantee is likely to be signed by
several financial intermediaries in Q2 2024. Similar to EIF’s Recovery and Resilience Facility,
it will have a 3-year inclusion period, but with a smaller overall volume. It is expected to be
80% uncapped portfolio guarantee with full implementation delegation and a 3-year allocation
period. The guarantee fee will apply over the guaranteed part of the loans. Eligible beneficiaries
will include housing associations or similar organizations, relevant service providers (including
energy service companies or ESCOs), companies which either invest in or construct buildings,
etc.), and public entities which own or manage buildings. The loan size is up to €2 million with
a tenor of 1 to 10 years.
While such credit guarantee support might not be a sufficient prerequisite, it may facilitate
loans from commercial banks to provide the co-financing requirements for future building
renovation programs.
4.2.3 Urban Development Funds
FMFIB manages a series of Urban Development Funds (UDFs), the 3rd generation of which
(€236.3 million) are in the process of being structured. They are likely to include risk-sharing
portfolio guarantees covering up to 80% and/or individual guarantees, TA, as well as grants
and FIs in a single operation, and are expected to also support building renovation projects
starting in 2025 with grants (up to 100% for energy-poor households). Public tender procedures
are expected to be announced in 2024, with the product launch expected in 2025. However, the
amount of financing and level of grants dedicated to building renovation has not been
announced.
According to an FMFIB market consultation report on future Urban Development Funds,46
allocating funding targeted at energy efficiency for the private building sector would be a
challenge due to (i) commercial banks’ limited experience in financing MABs and ESCOs for
the private building sector and (ii) the relatively limited funding available under the UDFs
versus the implementation efforts needed.
The report suggests that energy efficiency financing for public buildings should remain with
the UDFs, while the funding for MABs should be moved to a dedicated “Private Building
Energy Efficiency Fund.”
The report also underlined the importance of using an EU grant to cover TA for the project
proposal and energy efficiency audits. Participants underlined the relevance of one-stop shops
45
The inclusion period is the period during which the Financial Intermediary can include loans in the Guaranteed
Portfolio. It typically lasts 2 to 3 years (and may be extended from time to time).
46
Public Procurement Agency Register, https://app.eop.bg/today/332143
Page 24
when structuring a fund for MABs renovation.
It was also added that the suitable option is to grant a collective loan to the homeowner
association (HOA), with each homeowner being responsible for a repayment up to the amount
owed by the homeowner and not jointly for the entire loan. Owners who can finance the
measures themselves would not participate in the collective loan.
Another option discussed, for the RW2 projects, was collateral to be provided through a cash
contribution to an HOA account by each owner in the amount of 20% of the loan value,
calculated on the basis of ideal parts47 of the common areas of each dwelling (the collateral
should not be provided with the EU grant). Alternatively, in the first year before the repayment
of the loan begins (i.e. the grace period), funds can be collected from the owners in a joint
account. Even owners who do not use credit should participate in the collateral.
4.2.4 BEERSF
The BEERSF was originally set up as the Bulgarian Energy Efficiency Fund according to
Chapter 5 of the Energy Efficiency Act. The name and governance structure were modified
according to relevant provisions in the Energy from Renewable Sources Act in 2011. The
mission of BEERSF is to (i) facilitate EE investments; (ii) contribute to substantial GHG
emission reductions; and (iii) promote the development of an EE market.48
BEERSF has designed and offered various types of financial products for the evolving EE
market in Bulgaria and effectively serves as a bank, a credit-guarantee facility, and a technical
advisory company. The types of projects financed by the Fund include rehabilitation of buildings
in all sectors, including multi-family residential buildings. The Fund has established itself as a
provider of sustainable dedicated financial instruments structured based on a revolving
mechanism and providing financing to ESCOs and end users. BEERSF has provided EE loans
and partial credit guarantees to over 200 projects.
However, the current capacity of BEERSF is limited, and the government has announced
that BEERSF will be merged with the National Decarbonization Fund. 49
4.2.5 National Decarbonization Fund
The LTRS identified the main future financial scheme for scaling up building renovation: the
creation of a National Decarbonization Fund (NDF) financed by EU cohesion policy
instruments and other sources. It was proposed that the NDF should have a consolidated
structure and engage a wide range of stakeholders in order to (a) effectively address the need
for funding for a large group of beneficiaries and (b) maximize the achievement of the
renovation objectives.
In 2023, the EIB completed a project to define the proposed structure of the NDF.50 The project
confirmed that the NDF will be one of the main financial schemes supporting the LTRS and
will make an important contribution to achieving the national targets for decarbonizing the
economy in accordance with Bulgaria’s National Energy and Climate Plan. This NDF could
also be a key instrument to deliver the low-carbon priority of the NRRP, and also could be used
to channel current and future EU funding programs.
47
Ideal parts refers to the portion of the common parts owned by each property owner in a building.
48
https://www.bgeef.com/en/about-us/
49
Council of Ministers, The Minister of Energy is authorized to take action to transform the Fund for Energy
Efficiency and Renewable Sources into a National Decarbonization Fund, dated 14.12.22.
50
European Investment Bank, Bulgarian National Decarbonisation Fund: Final Completion Report (European
Union, 2023). https://reform-support.ec.europa.eu/system/files/2023-
10/21BG03%20Final%20report%20for%20publication.pdf.
Page 25
The NDF will manage funds provided for investment projects to increase energy efficiency and
for power generation projects from renewable sources, according to the priorities laid down in
the MoE’s draft “Strategy for Sustainable Energy Development”, the draft “National Energy
and Climate Plan” (NECP), and the LTRS. The fund is expected to enter into agreements with
financial intermediaries for joint development and implementation of financial instruments for
targeted financing of projects. The NDF will provide financial instruments, grants, and
technical assistance to the involved financial intermediaries and final recipients and is likely to
be of benefit to future programs for building renovation.
As mentioned above, the government has decided to merge the NDF with the BEERSF. The
details of such a merger and the resources and capacity of the merged organization have not
yet been defined.
4.2.6 Renewable Energy Financing by MoE
Bulgaria’s national scheme to support households for energy generation from renewable energy
systems (RESs) is funded by the NRRP and managed by the MoE. The overall budget is BGN
240 million. The first program, launched with an application deadline of November 2023, had
a budget of BGN 80 million. A total of 2001 project proposals were submitted and are being
reviewed. This scheme offers two types of grants:
• Component 1: A grant of up to 100% of the value of the installation but not more than
BGN 1,960 covering the purchase of solar installations used for domestic hot water
(DHW) supply. The hot water produced must be used to satisfy own consumption for
DHW supply.
• Component 2: A grant of up to 70% of the value of the system, but not more than BGN
15,000 for purchase and installation of photovoltaic systems up to 10 kilowatts-peak
(kWp), including electrical energy storage systems, used only for domestic needs.
The BDB, in support of this scheme, offers a portfolio guarantee supporting bridge financing
of investments of private individuals in RES, for projects approved for grant funding. The credit
guarantee rate is 70% with a cap up to 30%; the guarantee fee is a maximum of 1.13% per year
on the guaranteed amount and the guarantee period is up to 5 years.
The amount of the credit with the above credit guarantee is up to BGN 3,000 for investment in
installation of domestic hot water projects, and up to BGN 22,000 for investment in a
photovoltaic system. The loan period is up to 5 years (including а grace period up to 12
months).
4.2.7 REPowerEU
The European Commission’s REPowerEU Plan,51 which is a part of the RRF and designed to
reduce dependence on Russian fossil fuels, relies on energy savings as one of its three pillars.
REPowerEU expects to substantially reduce building energy consumption, help boost energy
security, and cut the demand for imported gas (without sacrificing comfort) while managing
energy poverty.
For Bulgaria, REPowerEU has an overall budget of €480 million. Bulgaria’s Finance Minister,
Asen Vasilev, during a recent hearing at the Parliament committee for control of EU Funds,
asked the MoE to consider whether these funds could be used to cover the high demand for the
51
European Commission, https://ec.europa.eu/commission/presscorner/detail/en/IP_22_3131
Page 26
Renovation Wave programme.52 The MoE has not yet announced whether they will accept this
suggestion.
4.2.8 Social Climate Fund
The Social Climate Fund (SCF) was created by EU to provide Member States with dedicated
funding so that the most affected vulnerable groups, such as households in energy poverty, are
directly supported, and not left behind during the green transition.53 Member States may use
the SCF to support structural measures and investments in energy efficiency and renovation of
buildings.
Bulgaria is eligible to receive €2.77 billion from this Fund in order to support vulnerable
citizens, including the energy-poor, but has not yet developed a program for accessing those
funds.
4.2.9 Modernization Fund
This Fund supports the modernization of energy systems and the improvement of energy
efficiency in 13 lower-income EU Member States.54 Established in 2018 for the 2021–2030
period, it aims to help the beneficiary Member States achieve their climate targets and the
objectives of the European Green Deal. The priority areas supported by the Fund include:
• The reduction of overall energy use through energy efficiency, including in industry,
transport, buildings, agriculture, and waste.
• Support for low-income households, including those in rural and remote areas, to
address energy poverty and to modernize their heating systems and infrastructure for
zero-emission mobility.
Bulgaria is eligible to receive funds and can submit investment proposals to the EIB and the
Investment Committee set up for the fund, and the EC.
4.2.10 Summary
Figure 4.3 summarizes the funds and financial instruments that may be relevant to the future
MAB renovation programs.
52
During a recent hearing at the Parliament committee for control of EU Funds on February 1, 2024, Minister of
Finance Assen Vassilev proposed that the REPowerEU funds should be invested in building renovation.
53
https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets/social-climate-fund_en.
54
https://climate.ec.europa.eu/eu-action/eu-funding-climate-action/modernisation-fund_en.
Page 27
Figure 4.3 – Availability of Funds and Financial Instruments for Building Renovation, 2025–2030
Social Climate Fund
While some funds from these sources may be available for building renovation, it is unclear at this
Funding
Modernisation Fund
sources
Just Transition Fund time what amounts could be available and when.
EU Emissions Trading System revenues
Energy Efficiency Obligation Scheme
ESIF/RRF
The funding amount and timeline for setting up the NDF have not been specified yet.
National Decarbonisation Fund
EU grants
programs
MoE – RES for private individuals Phase I The funding allocated by MRDPW for building renovation under NRRP is BGN 1,411 million. It is possible that
the experience gained from implementing this program could be useful for future building renovation programs.
MRDPW – Building renovation NRRP Phase2 Additionally, there has been a suggestion to redirect RePowerEU funds for NRRP Phase 2.
MRDPW – Building renovation NRRP Phase I
UDFs 3rd Gen
FMFIB
Forthcoming? UDFs - 3rd Gen funds may include some building renovation funds, but likely but at a limited scale.
UDFs 2nd Gen
FMFIB FMFIB and BDB as options for development of financing instruments for building renovation to cover the
FI for Building renovation co-financing needs of NRRP Phase 2 renovation.
FMFIB These financing instruments may apply to the renovation funding needs for 2025-2030. The total potential
FI for Building renovation funding amount from these financing instruments remains unclear.
BDB
BEERSF
• BEERSF - While the financing activities related to MABs have been limited, the additional resources and
RES for private individuals responsibilities from its merger with NDF could be relevant. BEERSF is currently undergoing a restructuring
ongoing selection
BDB process with a new management team, and it is unclear how much funding they will have between 2025 and
2030.
Running /
InvestEU - Green uncapped portfolio guarantee
EBRD • MoE RES – This FI is not directly addressing building renovation; its experience could be relevant.
• All the FI providers (FMFIB, EIF, EBRD, BDB) recognize the importance of Fis for building renovation, but the
RRF Sustainability actual volumes and the market buy-in are not clear yet. While there are significant volumes of FIs that also
EIF
include the option for building renovation (estimated €2.5B), it is not clear whether the involved banks will accept
InvestEU Sustainability these options nor what budgets will be available.
EIF • The success of these will be dependent on addressing the challenges –e.g. lack of experience with MABs,
UDFs 2nd Gen assuring collateral for loans, market expectations of 100% grants, high administrative burdens, etc.
FMFIB
Source: Prepared by Authors
Page 28
4.3 Observations Regarding Available Funds
Based on the above information, the following are important observations regarding the
available funds for building renovation:
• To supplement the reduced EU grants for MAB renovation in the future, financial
instruments are being developed by several organizations. The first group of them
(BDB, FMFIB) are directly addressing Phase II under NRRP and might be a short-
term solution for the 20% co-financing, while the second group (the EIF InvestEU
Sustainability Guarantee, the EIF RRF, and the EBRD’s InvestEU Green Uncapped
Portfolio Guarantee) have a much broader scope (including building renovation)
and may contribute to the reduction of the LTRS investment gap during 2025–2030.
• If FMFIB launches a tender for intermediaries for private buildings renovation
financial instrument (separated from the third generation of UDFs) it would be an
option for supporting future building renovation, but it might be limited in terms of
the available budget.
• The Bulgarian government has yet to clarify whether a direct BDB lending for
Renovation Wave Phase 2 could be expected in addition to commercial bank
financing. If such a decision is taken, this could be the solution for the timely launch
of the approved projects under Phase 2.
• The EIF InvestEU Sustainability Guarantee, EIF RRF Sustainability Guarantee, and
the EBRD’s InvestEU Green Uncapped Portfolio Guarantee may potentially
address the needs of co-financing requirements of projects under the building
renovation phase 2 and could be extended to addressing the FI needs for renovation
funding in the period 2025–2030. These guarantee programs may be launched in
2024 depending on the specific parameters developed by the involved banks and
their plans for launching such products. These FIs incorporate many other eligible
targets apart from building renovation, and it is not clear to what extend building
renovation will be prioritized.
• With respect to credit guarantees, there are other factors at play – such as the limited
experience with the specific target group of MABs and the relevant legislation
which may affect the willingness of commercial banks to enter this market in the
short-term.
• The third-generation UDFs (still in process of structuring) are expected to support
selected building renovation projects starting in 2025, offering a combination of
grants (up to 100% for energy-poor households) and FIs in a single operation.
• The timely availability of the needed funding sources for the new generation of
building renovation is of critical importance.
• The launch of the Social Climate Fund and the deployment of funds from this source
will be necessary for enabling vulnerable households to participate in renovation of
MABs.
4.4 Key Challenges Faced by Financial Intermediaries
Financial intermediaries, such as commercial banks, face many significant challenges in
designing and providing FIs to supplement grant funding of building renovation.55 A summary
of these challenges is provided in Table 4.1.
55
The information in this subsection is based on inputs provided by commercial banks during interviews
conducted by the project team.
Page 29
Table 4.1 – Key Challenges Faced by Financial Intermediaries – and Potential Solutions
Key challenges Possible Solutions
1. Working with MABs: • Learning from and implementing best
• Limited experience practices based on experience from EU
• No established credit risk and creditworthiness member countries
assessment procedures
• Potential necessity for adapting new credit policy
elements
• Insufficient loan performance data and credit
history of HOAs
• Potential need for new IT infrastructure
2. Collateral for loans to homeowners: • The Amended Condominium Act (November
• No assets to collateralize 2023) introduced professional management,
• Potential for changes of HOA management during payment of building expenses through bank
the loan period accounts, and lower majority thresholds
• Home sales during the loan period required for EE investment decision and
financing.
• Non-payment of installments by a single
homeowner • A special “Non-performance Fund” could be
structured to which all association members to
submit three “escrow” payments.
3. Market expectation of 100% grant availability: • Clear long-term commitment from the
• Experience with prior grant programs has created government that the provision of public
unrealistic expectations and reduced the demand support for EE will be done through
for and attractiveness of launching and using combining grants with FIs.
dedicated new FIs for building renovation. • Sending a strong message that 100% grants
will no longer be available.
• Providing clear estimates of financing needed
through FIs to supplement grants.
• Well-structured FIs (including guarantees)
may help address this issue by reducing risk.
4. Relatively low individual loan amounts and • Providing clear estimates of financing needed
limited FI scale and long-term horizon relative to through FIs to supplement grants.
the incremental internal development costs (system • Effective structuring of the FIs, including
developments, procedures, capacity building) and market consultations before their launch.
administrative burdens
5. High administrative burden for the application, • “Keeping it simple”, where possible, to avoid
management, reporting, and implementation of FIs – the requirements for ex-ante and ex-post
for both financial intermediaries and clients; delays external energy audits and replacing those
in the credit process especially for private with standardized web-based tools.
individuals, for whom the credit process is highly • Self-declarations by the customers could be
standardized and has very short through-put times; used as a way for simplified eligibility checks.
and slow selection procedures and limited FI • Simplification of FI reporting.
flexibility when public tender procedures are used
6. The FI structure does not correspond to the specific • The FI should offer a strong portfolio credit
target group of MABs. guarantee (e.g., 80%; sufficient cap of the
overall losses; regulatory capital relief).
• Market consultation to be properly conducted
before FI launch.
Source: Prepared by Authors
Page 30
Section 5. Proposed Structure for Combining Financial Instrument
with Grants
5.1 Key Considerations in Designing a Combined Financial Instrument and Grant
for MABs in Bulgaria
Table 2.5 identified the investment gap (BGN 4.6 to 5.2 billion) between the funds needed to
meet the LTRS target for renovation of MABs (BGN 6.1 to 6.6 billion) and the grant funds
currently committed to such renovation (BGN 1.4 billion).
Section 3 presented the available information on EU funds56 and financial instruments that may
be available in Bulgaria from the EU and other resources. Some of these funds may be available
for building renovation. However, as of the time of writing, it remains unclear how much
funding will be available and how sufficient funding can be mobilized from public and private
financing sources to meet the large investment gap. While it is possible that some grant funds
will be available during the period 2025 to 2030, it is unlikely that such grant funds would meet
the investment gap because the grants percentages offered in future financing programs are
likely to be substantially lower than the 80% grant financing in the second phase of the NRRP.
There is therefore a need to design a financing structure that employs financial instruments to
supplement available grant funding when grant funding is reduced in future renovation
programs after the NRRP funding has been exhausted. This section summarizes the major
considerations in designing the appropriate financial instruments to combine with grants. Such
a design that combines financial instruments with grants is referred to herein as a financing
mechanism. The questions that need to be addressed include:
• What would be the available public funds for MAB renovation during the period 2025
to 2030?
• What financing mechanisms can be developed to leverage private financing to
supplement the available public funds?
• What are the potential sources of private capital that can supplement public funds?
• Will guarantees be needed to leverage private financing from commercial banks?
• What is the possible structure of a financing mechanism that combines financial
instrument(s) with a grant?
• Can such a financial mechanism meet the long-term financing needs for meeting the
LTRS targets by 2030, but also be applicable in the near term for the co-financing needs
in the second phase of the NRRP financing?
• What will be the appropriate institutional setup and responsibilities for successfully
implementing the financing mechanism?
• How will the needs of the vulnerable households that may not be able to participate in
the financial instruments be addressed?
• What are the capacity-building needs of the various institutions that will be involved in
implementing the financing mechanism?
This section summarizes the structure of the Capital Rebate Program, a mechanism that
combines financial instruments (loan and guarantee) with grants and leverages private capital
to supplement available grant funding.
56
Including the funds covered by the EU Common Provisions Regulation listed in Section 3.
Page 31
5.1.1 Availability of EU and National Funds and Financial Instruments
Section 4 listed EU-supported funds as well as funds from other international financial
institutions (IFIs) and the national government available during the period 2025 to 2030 and
summarized the characteristics of these funds, the managing authorities for these funds, the
time frame for fund availability, the total amount of funding, the types of financial instruments,
and the targeted investments and beneficiaries (including funds available for building
renovation where specified). The structure of the financial instrument needs to take into account
the potential availability of funds and financial instruments for building renovation from these
sources.
5.1.2 Potential for Leveraging Private Capital
As pointed out in Section 4, many financial institutions are interested in and are designing
financial instruments such as loans and guarantees that could help leverage private financing
for MAB renovation. The design of the financing mechanism needs to facilitate the utilization
and leveraging of private financing sources and estimate the amount of funding that will be
needed from public and private funding sources. Ideally, the mechanism will meet both the
long-term needs for combining financial instruments with grants during the period 2025 to
2030 (to meet the LTRS targets) and the short-term needs for beneficiary co-financing of the
non-grant portion of the Phase 2 NRRP funding.
5.1.3 Sources of Private Capital to Supplement Public Funds
The primary source of private financing to supplement public funds for building renovation is
the commercial banks. Building-renovation financing offers banks a new business opportunity
that can contribute to their environmental, social, and governance (ESG) goals. However, since
banks have not been involved in financing renovation projects (because almost all building
renovations to date have been financed with 100% grants), the development of financing
products for the co-financing needed for future building-renovation projects will require
considerable time and effort. The commercial banks will therefore need to be assured that there
is likely to be a large, long-term market for such financing.
Also, the co-financing requirements for building renovation in the near term represent
relatively small projects for commercial banks, and the transaction costs for such financing
may entail high transaction costs. To encourage banks to develop financing products for the
renovation market, the government needs to give commercial banks some assurance that future
co-financing requirements are likely to be substantial and long-term.
5.1.4 Guarantees
Section 4 provided information on the potential availability of guarantees from several sources.
Such guarantees will be needed to reduce the risk for commercial banks to provide private
financing. Ideally the structure of the guarantee should provide a fair allocation of risk between
the guarantee provider and the source of commercial financing. A guarantee structure that
includes a “first loss” reserve and a sharing of subsequent losses on a 50-50 pari passu basis
would be attractive for the banks.
5.1.5 Structure of the Financial Instrument
Section 3 identified the approach suggested by the EU for combining financial instruments and
grants and summarized some of the models for mechanisms that implemented such
combinations. One mechanism that can meet the financing needs to bridge the gap for the
building renovation target for 2030 is the Capital Rebate Program. Such a program, discussed
Page 32
in detail in Section 6, has been implemented in EU countries57 and can meet the requirements
of providing (i) loans; (ii) rebates based on performance; (ii) interest rate subsidies; (iii)
guarantees; (iv) subsidies to vulnerable households; and (v) technical assistance grants.
5.1.6 Institutional Setup and Roles and Responsibilities
The institutional setup of the proposed financing mechanism will involve a large number of
organizations, including the holding fund, financial intermediaries, guarantee provider(s), and
implementation intermediaries. The financing mechanism design needs to identify these
organizations and define the roles and responsibilities of each organization.
5.1.7 Special Considerations for Vulnerable Households
In most MABs, there are vulnerable households (in the context of the financing renovation
program). These are typically households that may find it particularly challenging to afford or
access funds and repay loans for home improvements or renovations. This vulnerability can
stem from various factors, such as low-income households, elderly homeowners, people with
disabilities, and tenants in rented accommodations.
5.1.8 Capacity Building Needs
The successful implementation of a financial instrument will need to be supported by a capacity
building program for homeowners, HOAs, financial intermediaries, loan providers,
implementation intermediaries, and the staffs of the Managing Authority and the Holding Fund.
5.2 The Capital Rebate Model – Overview and Example
In view of the EU Common Provisions Regulation (CPR), the need to combine financial
instrument with grants, experience in some EU countries, and the key considerations identified
above, the proposed financial instrument is the Capital Rebate Program.
5.2.1 What is a Capital Rebate?
A capital rebate is essentially a performance-based grant that can be combined with a loan to
finance building renovation projects. The capital rebate converts a part of the loan provided for
the renovation (after the successful completion of a project) into a grant. The capital rebate
thereby reduces the outstanding loan obligation so that the borrower (beneficiary) needs to
repay only part of the loan after project completion. Capital rebates have been used in the Baltic
countries, Germany, and Poland.
5.2.2 How does the Capital Rebate work?
The capital rebate is implemented through a combined financing agreement between the
Managing Authority58 and a Financial Intermediary59 that includes a loan component and a
grant (capital rebate) component. Such an agreement is consistent with Article 58(2) of the
2021–2027 CPR. The agreement specifies the amount or percentage of the capital rebate to be
57
Examples include capital rebate programs in Croatia, Estonia, Germany, Greece, Lithuania, and Slovakia . See
Section 6 of this report.
58
A Managing Authority in the EU context refers to a public or semi-public institution at either the national or
regional level that is formally designated by a Member State to manage one or more Operational Programs (OP)
financed through EU Cohesion Policy funds.
59
A Financial Intermediary is an entity that manages the financial aspects of the renovation program and may be
a municipality, facility management company, bank or other organization selected by the final beneficiaries and
the managing Authority.
Page 33
provided. The level of the capital rebate may depend on the energy savings achieved, with a
higher percentage for deeper renovation.
The beneficiaries60 submit an application for financing to the financial intermediary (FInt).
Once this is reviewed and approved by the FInt, the beneficiaries (or an implementing
intermediary appointed by the beneficiaries) select the vendors and contractors for the energy
audit, preparation of an investment plan, technical design, construction, supervision, etc. The
selected contractors then execute the renovation plans according to the approved designs and
plans. The contractors are overseen by the beneficiaries (or the implementing intermediary) to
ensure the renovations adhere to the outlined specifications, timelines, and quality standards.
Upon completion of the construction and verification of the savings, the capital rebate is
activated and paid to the FInt, and the loan repayment obligations of the beneficiaries are
appropriately reduced.
Capital rebates may be combined with other types of grant support including grants for energy
audits, project preparation, project administration, and preparation of energy performance
certificates.
5.2.3 Examples of Capital Rebates
Examples of capital rebate programs in EU countries are shown in Table 5.1.
Table 5.1 – Examples of Capital Rebate Programs
EXAMPLES OF PROGRAMS COMBINING CAPITAL REBATE AND LOAN
COUNTRY PROGAM NAME CAPITAL REBATE LEVEL
ERDF co-financed financial instrument for energy 15-50% depending on the level
Croatia
efficiency in SMEs of savings
ERDF co-financed financial instrument for energy 25-35% depending on the level
Lithuania
efficiency in multi-apartment buildings. of energy savings
ERDF co-financed Renovation Loan financing for 15-35% depending on the level
Estonia
energy efficiency in multi-apartment buildings of energy savings
ERDF co-financed financial instrument for Energy 15-70% depending on the
Greece
Savings in Existing Housing income level of final beneficiary
EBRD, SlovSEFF program for SMEs 5-20% depending on level of
Slovakia
No EU Funds involved GHG reduction
KfW CO2 emission reduction loan programme 5-27.5% depending on the level
Germany
No EU Funds involved of energy savings
Source: fi-compass, Combination of financial instruments and grants, May 2021
5.3 Summary of Lithuania Program
5.3.1 Overview
In the ERDF 2014–2020 programming period, Lithuania established a fund of funds
(Investicijų ir verslo garantijos, or INVEGA), with the Ministry of Finance as the Managing
Authority and the Ministry of Environment as the implementation intermediary, to fund loans
supporting investment in energy efficiency in multifamily apartment buildings. This financial
60
The beneficiaries may be the homeowners of apartments in MABs, HOAs, or single-family homeowners.
Page 34
instrument in turn supported the development of a product for homeowners known as the
“Modernization Loan” program that forms the centerpiece of the Lithuanian government’s
program to improve energy efficiency in residential properties. This program is also supported
by financing of capital rebates and technical assistance grants and a “‘one stop shop” service
arrangement that has been key to the successful delivery of the financial instrument.61
The fund of funds, managed by the EIB, aims to mobilize through banks and IFIs more than
€700 million of private finance to invest in measures to improve the energy efficiency of
privately owned apartment blocks in the country. The financial instruments include low-interest
loans with a long duration to final recipients, without the need for collateral. An integrated
project delivery process has been established which allows residents of a single block (the final
recipients), working through their building administrators, to receive support from the Housing
and Energy Saving Agency (BETA) to prepare their renovation project. This leads in turn to
the works being delivered in a single package for the whole building, with the contractor
receiving payment directly from the financial intermediary on behalf of all final recipients.
5.3.2 Program Structure
The structure of this program is illustrated in Figure 5.1. The use of grants in combination with
the financial instruments has also made an important contribution to the success of the scheme.
ERDF grants have been made available through a separate operation implemented alongside
the financial instrument to support the preparation of the project, including technical advice
and energy audit work. A separately administered, non-ERDF grant program effectively
provides capital rebates to incentivize the delivery of projects which meet defined energy
performance targets. These grants are paid directly to the banks by BETA, so that they can be
applied as loan prepayments.
The capital rebates are 30% of the project cost, to enable early repayment of part of the loan in
cases where minimum energy performance standards are achieved. An additional 10% capital
rebate is provided if larger energy savings are achieved through deep renovation.
It should be noted that under the CPR 2014–2020, there was uncertainty as to whether EFSI
funds could be used for capital rebates in combination with other EFSI financial instruments.
As a result, the Managing Authority implemented a scheme using national resources that
provided capital rebates as a separate operation. This uncertainty has now been removed under
the CPR 2021–2027, which provides clarity (and increased flexibility) in permitting the use of
capital rebates in combination with financial instruments as part of a single operation.
61
fi-compass, Residential Energy Efficiency Financial Instruments in Lithuania (EIB, 2020), https://www.fi-
compass.eu/library/case-studies/residential-energy-efficiency-financial-instruments-lithuania.
Page 35
Figure 5.1 – Structure of the Lithuania Program
Financial Instruments Grants
MABs modernization fund (INVEGA)
Loans Grants for
Capital Rebate
Environmental
Financial Financial Project
intermediary intermediary Management
(INVEGA) (Šiaulių bankas) Agency (APVA)
Loans Loans
Project administrator
Grants for low-
income persons
Final recipient to repay loans
Municipality
Source: Prepared by authors based on fi-compass, Residential energy efficiency
financial instruments in Lithuania (EIB, 2020)
5.3.3 Summary of Results
The results of this program have been impressive:
• Total amount signed with final recipients: ~€435 million
• Total amount disbursed to final recipients: ~€390 million
• Number of loans provided for renovation of apartment block buildings: 1,456
• Number of apartments affected: ~50,000
• Total apartment block area renovated: ~2.4 million m2
• Average energy savings per building: 64.5% or ~72.2 kWh/m2
• Average amount of thermal energy saved: 410 GWh per annum
• Average reduction in carbon emissions: 95t of CO2 per annum
5.3.4 Lessons Learned
Perhaps the most important lesson learned from the implementation of this program is that a
combination of grants and financial instruments can be successfully integrated into a single
package of support to maximize the impact of the financing. Technical support grants have
been deployed to support project development, ensuring a robust pipeline of investment-ready,
eligible projects designed to meet the required standards of quality and energy performance.
This has been complemented by interest rate subsidies and capital rebates that reduce the cost
to final recipients and incentivize the design and delivery of high-energy-performance
measures.
Other lessons include the following:
• Strong and consistent political support was an important factor in the program’s
success.
Page 36
• An integrated project delivery approach was developed to overcome some of the
regulatory challenges.
• Municipalities played a significant role in assuring a smooth and efficient program
delivery.
• Financial instruments need to be designed and adapted to the changing market
conditions.
5.4 Building Blocks of the Financial Mechanism
The proposed financial instrument consists of three building blocks, as illustrated in Figure 5.2:
• Block 1 – Financial instrument design
• Block 2 – Delivery mechanism
• Block 3 – Final beneficiaries and renovation investments
Figure 5.2 – The Three Building Blocks of the Financing Mechanism
Combining Financial Instrument with Grant
Financial Final
Block 1
Block 3
Delivery
Block 2
instrument mechanism beneficiarie
design s&
renovation
investments
Source – Prepared by Authors
Each block represents a different stage of the process and includes specific tasks that need to
be accomplished. The remainder of this section provides an overview of each building block;
Section 6 will discuss the institutions that will have specific responsibilities for implementing
the capital rebate program and define the suggested structure of the program and the related
capacity building needs.
5.4.1 Block 1 – Financial Instrument Design
Block 1 entails the design of a financial instrument aimed at building renovation investments.
It focuses on two primary aspects: the institutional setup and the range of financial products
available. These elements are necessary for establishing the overall system for investments in
building renovations that contribute to energy efficiency, improved quality of life, and reduced
GHG emissions.
An overview of Block 1 is presented in Figure 5.3.
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Figure 5.3 – Block 1: Financial Instrument Design
Block 1
(MA) Holding fund (HF)
( could be several financial intermediaries selected)
Note: FInt = financial intermediary; FI = financial instrument
Source: Prepared by Authors
The proposed financial instrument utilizes the capital rebate model and combines the available
grant funding with a loan consistent with EU guidelines and practices.
The model has the following features:
• The capital rebate program will be implemented by the Managing Authority (MA).
• The building renovation project will receive up-front financing in the form of a loan to
cover the costs of implementing the renovation.
• The loan will be provided by the Holding Fund (organized by the MA) through a
financial intermediary selected by the beneficiary.
• Upon completion of implementation and achievement of the required energy
performance rating, a grant will be issued by the MA, thereby reducing the loan amount
to be repaid.
• Separate grants may be available to cover technical assistance costs such as energy
audits, project preparation, and administration/oversight of the implementation.
• Additional grants will be provided to vulnerable households to help them repay their
share of the loan.
• Grant funding may also be available to subsidize the interest rate on the loan.
• The MA may also provide for loan guarantees or other risk-sharing mechanisms to
incentivize the financial intermediary to provide financing for building renovation.
5.4.2 Block 2 – Delivery Mechanism
Block 2 focuses on the delivery mechanism and is illustrated in Figure 5.3.
Page 38
Figure 5.3 – Delivery Mechanism
Block 2
Authorization
Application based on owners'
HOA or
for financing decision
outsourced
Implementing
intermediary
Procurement of
services and
works
payment
s
Energy audit, Renovation
design services works
Source: Prepared by Authors
The delivery mechanism generally consists of the four stages illustrated in Table 5.2.
Table 5.2 Delivery Mechanism
Stage 1: Application • The building owners (or the HOA, or an authorized representative
Process selected by the homeowners) prepare and submit an application for
financing the renovation project to a financial intermediary. The
application typically includes details about the building, the
proposed renovation works, expected costs (based on an energy
audit), and information about the building owners.
• The financial intermediary reviews and assesses the application
based on the defined eligibility criteria and project feasibility. If the
project meets the eligibility criteria and is financially feasible, the
application is evaluated by the MA using the specified evaluation
criteria.
• If the project is approved, it moves to the next stage.
Stage 2: Selection of The beneficiary (building owners or HOA) or a designated
Vendors and implementing intermediary selected by the beneficiary selects the
Contractors vendors and contractors for:
• Energy audit / selection of renovation measures
• Investment plan
• Technical design
• Equipment procurement and construction
• Technical supervision
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Stage 3: • The implementation of the renovation projects is then conducted by
Implementation the selected construction or installation contractors.
• The implementing intermediary supervises the construction and
installation work.
• Upon satisfactory completion of the renovation, appropriate
payments are made.
Stage 4: Performance • The final step is the issuance of a certificate that the desired
Certification performance level has been achieved.
Source: Prepared by Authors
5.4.3 Block 3 – Final Beneficiaries and Renovation Investments and Repayments
The final beneficiaries of the renovation in MABs are the homeowners.
Figure 5.4 – Block 3 Overview
Block 3
Source: Prepared by Authors
These homeowners would be responsible repaying the loan provided by the financial
intermediary. Collection and repayment of the loan may be managed by the HOA or the
implementation intermediary selected by the homeowners.
The final beneficiaries (homeowners) need be creditworthy to undertake a renovation loan. For
non-creditworthy beneficiaries and low-income households (vulnerable households), financial
support would need to be provided through subsidies (see next section).
Beneficiaries need to be capable of managing the renovation project, which includes the ability
to select vendors and contractors, oversee the implementation of renovation works, and manage
payments and loan repayments. If the beneficiaries lack the capability to directly manage or
implement the project, it is advisable, as indicated above, to select and engage an
implementation intermediary for effective execution. Such implementation intermediaries may
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include municipalities (likely to be the preferred entities in early stages of Phase 2), one-stop
shops, facility management companies, construction companies, utilities, ESCOs, etc.
The renovation project design should have the following characteristics:
• It should have a clear investment plan with estimated savings, repayment of the loan
share for each apartment, and a process for applying for financing.
• The payback period of the loan amount that needs to be repaid after the capital rebate
should be shorter than the investment period so that the annual repayment obligations
are lower than the monetary savings achieved.
• There should be a standardized and simplified process for the selection of vendors and
contractors.
5.4.4 Loan Repayment
In order to repay the loan amount (after the capital rebate), a special account needs to be
established. The repayments from the individual homeowners may be collected by the HOA or
the implementation intermediary. Figure 5.5 illustrates this process.
Figure 5.5 – Loan Repayment Mechanism
Block 1
Block 2 Block 3
EPC rating B achieved
HOA or outsourced
Implementing
intermediary
loan repayments loan repayments
National
government
loan repayment for
vulnerable groups
Municipality social
support
identification
Source: Prepared by Authors
For beneficiaries who are low-income or vulnerable individuals, an additional subsidy could
be designed by the national government, based on the identified needs from the municipalities
where the buildings will be renovated. The national government would provide annual
allocations of targeted subsidies for renovation loan repayments.
The owners must repay the investment within the same legal framework that applies to utility
bill payments. If there is a delay or default in repayment, the same legal procedures that apply
to unpaid utility bills will be invoked.
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Section 6. Proposed Institutional Structure for the Capital Rebate
Program in Bulgaria
6.1 Overview
The design and implementation of a capital rebate program in Bulgaria will need to engage a
number of institutions in order to define the specific characteristics of the proposed Capital
Rebate Program. This section identifies the institutions that will have specific responsibilities
for implementing the program and defines the suggested structure of the program and the
related capacity building needs. The following topics are discussed:
• Block 1 – Financial Instrument Design
▪ Managing Authority
▪ Holding Fund
▪ Capital rebate design
▪ Structure of the financial instrument
▪ Financial Intermediaries
▪ Guarantees
▪ Grant financing of certain activities
• Block 2 – Delivery Mechanism
▪ Application process
▪ Implementation intermediaries
▪ Vendors and contractors
▪ Installation
▪ Performance certification
• Block 3 – Final Beneficiaries
▪ Homeowners
▪ Vulnerable households
▪ Collection of loan repayments
• Technical Assistance and Capacity Building
▪ This section defines the structure and characteristics of the design of the Capital
Rebate Program to be implemented in the 2025–2030 period, and the roles and
responsibilities of various institutions in implementing this program.
In addition, the section discusses:
• Meeting the co-financing needs of the Phase 2 NRRP program
• Extending the capital rebate model to single-family homes and public buildings
6.2 Block 1 – Financial Instrument Design
6.2.1 Managing Authority
A Managing Authority in the EU context refers to a public or semi-public institution at either
the national or regional level that is formally designated by the Member State to manage one
or more Operational Programs (OPs) financed through EU Cohesion Policy funds. It is
responsible for various aspects such as program management, financial administration, and
compliance with national and EU laws. Managing Authorities play a pivotal role in financing
Page 42
building renovations using EU Cohesion Policy Funds (and, where appropriate, funds from the
national budget).
In Bulgaria, the Ministry of Regional Development and Public Works (MRDPW), which
manages the Operational Program for Regional Development, is effectively the Managing
Authority for the Renovation Wave. MRDPW is currently managing NRRP funds for building
renovation in two phases; Phase I buildings have been selected, and applications for Phase 2
have been invited.
It seems therefore logical that MRDPW should be the MA for future funding of renovation
programs with EU Cohesion Policy funds or funds from other resources (such as some of those
identified in Section 4) that may be available for building renovation after the NRRP funds
have been fully utilized.
For socially vulnerable households, financial assistance may be available from EU Funds such
as the Social Climate Fund. The Managing Authority for this resource is likely to be the
Ministry of Environment and Water or another designated ministry (to be determined by the
government of Bulgaria). Financial assistance for vulnerable households would be provided by
the institution designated as the Holding Fund, if one is so designated (see next section).
6.2.2 Holding Fund
MRDPW may select an institution to be the Holding Fund (HF). The advantage of an HF is
that such an organization facilitates the management and allocation of financial resources from
EU funds, typically to specific Operational Programs or investment priorities. The Holding
Fund serves as an intermediate layer between the Managing Authority and financial
intermediaries and beneficiaries (homeowners or HOAs).
The major functions of the Holding Fund are:
• Fund pooling and leveraging additional funds: The HF consolidates financial
resources from different sources to be directed towards a common investment strategy
or objective. These may include EU Cohesion Policy funds, funds from other IFIs, and
any allocations from the national budget. By pooling resources and offering various
financial instruments, an HF can attract additional public or private sector investments
for building renovation.
• Resource allocation and risk mitigation: The HF allocates resources to various final
recipients through selected financial intermediaries or directly, depending on the
structure. It provides a layer of risk management by sharing the investment risks
between different parties and potentially attracting additional public or private
investments.
• Financial engineering: The HF designs and implements financial products like loans,
grants, and guarantees that that can be tailored to the needs of building renovation
projects and/or beneficiaries.
• Monitoring, control, and reporting: The HF oversees the performance of the financial
intermediaries and ensures that the funds are being utilized in accordance with EU and
national regulations. It regularly reports to the Managing Authority on the status of the
fund, its financial activities, and its performance against predetermined key
performance indicators (KPIs).
In Bulgaria, several options are available for establishment of the Holding Fund. These include:
• Bulgarian Development Bank (BDB)
• Fund of Funds (FMFIB)
Page 43
• Bulgarian Energy Efficiency and Renewable Sources Fund and its planned merger with
the National Decarbonization Fund (BEERSF/NDF)
• Merging of BEERSF/NDF with FMFIB
• Merging of BEERSF/NDF with BDB
A discussion of these options follows.
Bulgarian Development Bank
The Bulgarian Development Bank (BDB) has considerable experience with building
renovation in Bulgaria. During Phase I of Bulgaria’s National Program for Energy Efficiency
in Residential Multifamily Buildings (NPEERMB), the BDB was responsible for mobilizing
program financing and channeling the resources through payments to the contractors on the
basis of requests by municipalities acting on behalf of the HOAs (in accordance with the
contracts with the municipalities). BDB disbursed funds to cover the costs for all contractor
invoices once approved by the municipalities.
While the building renovations in that program were 100% grant-funded, it should be noted
that BDB does have substantial experience with financial instruments. BDB is responsible for
managing the renewable energy systems program for the Ministry of Energy and is currently
designing a mechanism for co-financing the non-grant portion of Renovation Wave funding
under the second phase of the NRRP.
The experience and capabilities of BDB lead to the BDB being a potential candidate for the
Holding Fund in the proposed Capital Rebate Program. The possible limitations of BDB are
that its broad economic development focus may need some adjustments to align its resources
and activities to meet the needs of building renovation. It is also possible that the specific needs
of co-financing the non-grant portion of the funding may pose some challenges in BDB’s
existing structure.
Fund of Funds (FMFIB)
As discussed in Section 4, the FMFIB has been managing several funds under several EU
operational programs. One of its main activities was the structuring and management of
financial instruments co-financed by the EFSI during the 2014–2020 programming period.
FMFIB, through its Urban Development Funds, will continue to be responsible for structuring
and managing financial instruments co-financed by the EFSI and investment funds during the
2021–2027 programming period.
FMFIB has essentially operated as a holding fund and its activities have included investment
support through loans, guarantees, or equity investments and design of financial instruments
that allow for the return (recycling) of funds. FMFIB also has experience in leveraging co-
financing from commercial banks. Therefore, FMFIB could be a good candidate for the
Holding Fund.
FMFIB’s possible limitations may include the need to adapt its approach and operations to
align with the requirements of building renovation and its limited experience with
implementation intermediaries such as ESCOs.
BEERSF/NDF
BEERSF has successfully deployed a range of financial instruments, engaging with ESCOs
and working with public buildings. BEERSF designs and offers various types of financial
products for the evolving EE market in Bulgaria and effectively serves as a bank, a credit-
guarantee facility, and a technical advisory company. The types of projects it finances include
rehabilitation of buildings in all sectors, such as industrial, commercial, multi-family
residential, single-family residential, and municipal buildings at all levels; healthcare facilities;
Page 44
schools; universities; and cultural facilities. The Fund has established itself as a sustainable,
dedicated financial instrument structured on the basis of a revolving mechanism and providing
financing to ESCOs and end users. From 2006 to 2020, it provided EE loans to a total of 212
projects, with total project investment reaching more than €50 million.
While the experience of BEERSF can lead to it being considered a candidate for the
Holding Fund, its primary experience has been in direct project financing and intermediary
functions, not as a holding fund. Also, a major limitation of BEERSF is its limited
resources and capacity.
The government of Bulgaria has decided to merge the proposed National Decarbonization
Fund (NDF) with BEERSF. If such a merger is accompanied by substantial additions of
resources and capacity, it would be possible for the combined BEERSF and NDF to be a
potential candidate for the Holding Fund.
The development of the NDF was one of the most crucial reforms in the National Recovery
and Sustainability Plan for Bulgaria as a key objective was to facilitate private investment
into the renovation of buildings. With the merging of BEERSF into NDF, the combined
organization is likely to have substantial capability and resources.
Merging of BEERSF/NDF with FMFIB
The option of merging the BEERSF/NDF with FMFIB (which has experience as a holding fund
for EU Cohesion Policy Funds) could provide the advantage of the diverse experience and
capabilities of the organizations in holding fund operations, direct financing, leveraging
commercial financing, and experience with ESCOs. The expanded resources and capabilities
of such a merged organization would give it the capacity as a Holding Fund to scale up the
combined grant and financial instrument for building renovation.
A potential limitation of this option is the uncertainty of the proposed structure and resource
allocation for the NDF. Also, there could be complexities in merging institutional cultures,
operational models, and strategic focuses of the three organizations.
Merging of BEERSF/NDF with BDB
Another option is the merging of BEERSF/NDF with BDB. Such a merger would combine the
capabilities and experience of BDB with MAB financing in the NPREEMB and its current
efforts to develop a co-financing mechanism with BEERSF experience with various project
financing schemes and work with ESCOs. The additional resources that may be available from
the NDF would enhance the capabilities of a merged organization.
The potential limitations of this option include the uncertainties related to NDF, a potential
conflict with the BDB’s economic development focus, and the limited experience as holding
fund.62
Comparison
Table 6.1 summarizes the relative strengths and limitations of these Holding Fund options.
62
There would likely be challenges to the merging of the BEERSF/NDF with FMFIB, as the two entities are
managed by different ministries and have different mandates, and their merging will require complex
government decisions, amendments of the relevant legislation, serious restructuring, and significant capacity
building. However, experience from Lithuania points out that it is feasible to consolidate national institutions
such that the result is the creation of a stronger, unified institution, in this case one based on INVEGA.
https://invega.lt/en/about-invega/national-promotional-institution-npi/276
Page 45
Table 6.1 – Summary of Strengths and Limitations of the Options for the Holding Fund
Source: Prepared by Authors
Page 46
6.2.3 Design of the Capital Rebate
The proposed Capital Rebate Program is designed to blend a financial instrument with available
grant funding to attract private financing to supplement grants and scale up the funding
available for MAB renovation in the period 2025–2030 in order to meet the LTRS target.
As described in Section 3, the combined grant and financial instrument will be administered
by the Holding Fund. The beneficiaries will select a financial intermediary who will initially
provide a loan for the total investment needed. Upon completion of project implementation and
confirmation of the achieved building energy performance, the Holding Fund will provide the
grant to the financial intermediary, thereby reducing the loan amount that will need to be repaid.
The beneficiaries will then be obligated to repay this reduced loan amount. An illustrative
calculation of the capital rebate needed in the future is shown in Table 6.2.
The grant portion (capital rebate amount) in the funding cycle for 2025-2030 should be
designed to encourage homeowners to participate in the financial instrument. This would
require that the net payback period after the capital rebate is such that the annual cost savings
exceed the annual loan repayment.
A typical renovation project for MABs requires an investment of about BGN 1.5 million (based
on the results of the renovation proposals of MABs approved for Phase 1 of NRRP). The
estimates in the LTRS indicated the energy cost savings were estimated (in 2019) to be about
BGN 70,000–100,000 per building. Escalating these to 2024 (by about 40%) provides savings
estimates of BGN 100,000–140,000. The corresponding simple payback63 is about 10.7 to 15
years if the entire renovation investment is funded through a loan and has to be repaid by the
beneficiaries. Such a long payback period would be financially unattractive to the beneficiaries,
and a grant will need to be provided to reduce the simple payback to a lower level. Assuming
that a simple payback of 5.0 to 7.5 years would be acceptable to the beneficiaries, Table 6.2
illustrates that the calculation of the capital rebate needed would be 33% to 50% of the
investment.
Table 6.2 – Illustrative Calculation of Capital Rebate
Before Capital After Capital
Savings, Rebate, and Payback Notes
Rebate Rebate
Initial Loan Amount (100% of Initial Loan from Financial
BGN 1,500,000
Investment Cost) Intermediary
Estimated Cost Savings from Based on LTRS with estimated
BGN 100,000–140,000
Renovation cost escalation 2019 to 2024
Capital Rebate Amount (33%) BGN 500,000
Loan Repayment Amount BGN 1,500,000 BGN 1,000,000 The Capital Rebate would be
Payback Period 10.7 to 15 years 7.1 to 10 years designed to structure the annual
Capital Rebate Amount (50%) BGN 750,000 loan repayments to be less than
Loan Repayment Amount BGN 1,500,000 BGN 750,000 the annual energy cost savings.
Payback Period 10.7 to 15 years 5.3 to 7.5 years
Source: Prepared by Authors
If some MABs need “deep renovation” (which may include structural improvements, heating
system upgrades, renewal energy deployment, etc.), the investment required per building will
be larger64 but the energy cost savings will be in the same range. For such buildings, the grant
63
Simple payback refers to the number of years after which an investment has paid for itself. It is calculated by
dividing the initial cost of the installation by the energy cost savings per year. Those projects with the shortest
payback periods are assumed to be the most cost effective.
64
As discussed in Section 2.5.
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percentage would have to be larger to assure that the loan repayments are less than the cost
savings.65
6.2.4 Structure and Characteristics of the Financial Instrument
The following summarizes the structure of the proposed financial instrument (a loan supported
by a guarantee) for MABs.
• The financial intermediary will provide a loan to the homeowners (also referred to as
beneficiaries) in combination with a grant (the capital rebate).
• The loan may be arranged or negotiated by the HOA or an agent designated by the
HOA. However, the loan documents will be executed by the individual homeowners.
• The typical investment needed for renovation is about BGN 1,500,000. This will be the
initial loan amount, with an agreement that the loan amount will be reduced upon
receipt of the capital rebate after the building energy performance improvement is
confirmed.
• The financial intermediary will receive a guarantee using an instrument provided or
arranged by the Holding Fund. The guarantee will be structured to facilitate the
financial intermediary’s provision of the loan at or below market interest rate.
• The loan will be provided at a market or below-market interest rate (depending on
whether the Holding Fund offers a subsidy to the financial intermediary) and the
repayment period will be structured such that the annual repayment amount for the
beneficiaries (after the capital rebate) will be lower than the monetary savings achieved
by the beneficiaries.
• The loan repayments could be linked to the property (apartment), which will allow
flexibility in terms of changing the ownership of the renovated building by
automatically transferring loan repayment obligations to the new owner after the sale
of the property.
6.2.5 Financial Intermediaries
The function of a financial intermediary is to combine the grant funding and financial
instrument into a single product. Its primary role is to facilitate the flow of funds from the
Holding Fund to the beneficiaries (homeowners in the case of MABs) undertaking the
renovation projects and may include credit assessment, financing arrangements, loan
origination, financial advice, and risk mitigation.
The financial intermediary functions in Bulgaria could be fulfilled by BDB, BEERSF/NDF,
FMFIB (through the Urban Development Funds), other financial institutions and funds,
commercial banks, etc. It is likely that multiple financial intermediaries will be available to
serve the MAB market. The applicant for the financing (HOA or a designated representative of
the homeowners) will select the financial intermediary from the available options. The financial
intermediary will receive compensation based on the total of the financial instrument and grant
amounts (estimated at about 3% of the total).
The engagement of financial intermediaries to provide private financing to supplement grants
faces some challenges, as discussed earlier in Section 5.1.3. As an example from other
countries, it should be noted that two commercial banks in Croatia, Erste Bank and Zagrebačka
Banka, have provided loans for building renovation utilizing a collective loan model, signing
65
If the deep renovation costs are 40% higher, the renovation investment will be BGN 2.1 million. With savings
of BGN 140,000, the grant percentage would need to be 67% to achieve a payback (after the Capital Rebate) of
5 years and 55% to achieve a payback of 7 years.
Page 48
a single loan agreement with the building manager. The bank assesses the creditworthiness of
a project not only based on the building manager’s credentials, but also by considering the
credit of individual homeowners based on historical records of their utility bill payments.66
The grant and the financial instrument should both be justified in the program design as well
as further analyzed and detailed in the subsequent ex-ante assessment.
The assessment and approval of eligible borrowers and investments needed will follow
appropriate rules and procedures defined for the financial instrument.
As discussed above, the grant element will be in the form of an ex-post capital rebate (after
certification of building energy performance) and will be defined as part of the overall financial
intermediary operation.
6.2.6 Guarantees
Guarantees need to be provided to the financial intermediaries to cover the risk of non-payment
by the loan recipients (beneficiaries) and the risk that the post-implementation energy
performance will not meet the expected target for receiving the capital rebate. The guarantee
will de-risk the loan providers and incentivize them to offer better financing terms. The
guarantee will either be provided by the Holding Fund or arranged by the Holding Fund through
another guarantee provider.
Examples of guarantee structures were provided in Section 4. It is desirable to develop the
guarantee structure at the national level and to include a first-loss guarantee on the loan
portfolio.67 The first-loss guarantee covers initial losses up to a fixed amount, reducing risk of
the financial intermediaries. After the first-loss coverage is exhausted, additional losses are
shared between guarantor and lender based on a percentage.68 Guarantees of this type are likely
to attract private capita for building renovation.
The guarantee provider will charge a fee to the financial intermediary. The fee should be
structured to be attractive to the financial intermediary and have a positive impact on the scaling
up of the loans. In general. The funding amount set aside for guarantees should be proportionate
to the expected losses, thereby providing meaningful risk mitigation.
6.2.7 Grant funding for Certain Project Activities
In addition to the capital rebate, separate grants should be provided for certain project costs to
lower the investment costs and risks to the homeowners. The following types of activities may
receive such grants:
• Energy audits
• Project preparation
• Technical supervision
• Project administration
• Technical assistance providers such as one-stop shops
• Preparation of the energy performance certificate (post-installation)
66
World Bank, Phase 2 report – Croatia, Combining Financial Instruments and Grants for Renovation of
Multifamily Apartment Buildings (Washington, DC: World Bank, 2024).
67
For example, full coverage of the first 25% of the default on renovation loan portfolio.
68
For example, 50%-50%.
Page 49
The Managing Authority or the Holding Fund may obtain funds from EU programs such as
European Local Energy Assistance (ELENA).69
6.3 Block 2 – Delivery Mechanism
The delivery mechanism in Bulgaria will follow the general description provided in Section 5
for a capital rebate program. More details are provided in the Annex.
6.3.1 Application Process
In Bulgaria, an application process has been established and utilized for grant funding
applications by MRDPW. The future application process for the combined FI and grant will
require the applications to be submitted to the financial intermediary and will utilize a similar
approach. The homeowners, HOA, or an authorized representative selected by the homeowners
(such as an implementation intermediary, as discussed below) will prepare and submit an
application for financing the renovation project to the financial intermediary. The application
will include a description of the scope of renovation works, anticipated costs, expected energy
savings, and improvements in energy efficiency.
6.3.2 Implementation Intermediaries
An implementation intermediary is an entity or organization that plays a role on behalf of the
HOA or the homeowners in the practical execution or implementation of the renovation project
in the MAB. Its role could involve coordinating various aspects of the renovation process, such
as application preparation, contractor and vendor selection, project management, construction
oversight, quality control, and ensuring that the renovation plans are executed according to
specifications. Such organizations can help to increase the uptake of renovation programs for
MABs.
Potential implementation intermediaries for the renovation programs in the period 2025–2030
include municipalities, one-stop shops, facility management companies, construction
companies, utilities, ESCOs, etc. For example, in Croatia, facility management companies
serve as intermediate intermediaries for many renovation projects.
One-stop shops (OSSs) could play an important role in helping MABs navigate the renovation
process. They would not only provide information and advisory services to homeowners or
their HOAs, but also assist in all phases of renovation – including preparing the application for
funding, designing the renovation project, selecting vendors and contractors, and collecting
loan repayments from homeowners. In Bulgaria, CITYnvest, using funding from the Horizon
2020 Program, established OSSs in six pioneering municipalities. In addition, an action plan70
was developed to:
• Present the current situation in Rhodope Region regarding sustainable energy potential,
focusing on building renovation and RES incorporation and street lighting;
• Define available financing models of relevance to local sustainable energy actions; and
• Outline the steps necessary to develop the infrastructure that would help municipalities
secure funding for renovation, while taking into account organizational, administrative,
legal, and financial aspects.
69
ELENA is a joint initiative of the European Commission and the EIB under the Horizon programme. It provides
technical assistance for energy efficiency and renewable energy investments targeting buildings and innovative
urban transport.
70
CITYNVEST Action Plan for Rhodope Region: http://citynvest.eu/sites/default/files/library-
documents/20160502_CITYnvest_Action_Plan_Rhodope_Region_final_public.PDF
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A study conducted by the EU’s Joint Research Centre identified six types of OSS: government-
driven (local or regional), industry-driven, ESCO-based, facilitator, cooperative, and store.
These OSS models vary in their approach and focus, but collectively contribute to the energy
renovations of buildings across the EU.
EU experience indicates that as of 2020, approximately two-thirds of EU Member States had
at least one OSS in their renovation markets, with an estimated activity level of around 100,000
projects per year. Successful examples include Germany, where 11,000 accredited energy
experts prepare renovation plans and co-sign loans. France, Italy, and the Netherlands provide
access to certified advisors and energy performance data to facilitate renovations. Lithuania
also utilizes “renovation administrators” who function as implementing intermediaries.
EU funding is likely to be available in Bulgaria for the establishment and financial support of
one-stop shops.
6.3.3 Assessment of the Application
The financial intermediaries will assess the applications in accordance with the defined
eligibility criteria, project feasibility, and expected energy savings. The financial intermediary
will also assess the creditworthiness of the applicants.
6.3.4 Vendors and Contractors
The vendors and contractors in Bulgaria are well-established and have been providing services
for energy auditing, selection of renovation measures, preparation of the investment plan,
technical design, equipment procurement and construction, and technical supervision.
6.3.5 Project Installation
In Bulgaria, there are many construction companies that have been responsible for the
installation of the renovation measures. These companies will provide the same functions as
renovation is scaled up in the 2025–2030 period.
6.3.6 Performance Certificates
In the final step of the delivery mechanism is the post-implementation certification of the
achieved energy performance.
6.4 Block 3 – Final Beneficiaries
6.4.1 Loan Recipients
The final beneficiaries are the homeowners who will be responsible for obtaining the
renovation loan and repaying the reduced loan after the capital rebate is received. The
homeowners need to be creditworthy to be approved for undertaking a renovation loan from
the financial intermediary. They should be either be capable of managing the renovation project
(which includes the ability to select vendors and contractors, oversee the implementation of
renovation works, and manage payments to service providers, and make loan repayments), or
should select and engage an implementation intermediary as mentioned above.
The beneficiaries are responsible for the repayment of the loans to the financial intermediary.
The repayments should follow a similar legal framework that applies to utility bill payments.
If there is a delay or default in repayment, the same legal procedures that apply to unpaid utility
bills could be invoked.
The loan is attached to the property (individual home or apartment). If a property is sold, the
new owner will have the obligation to continue the repayment until the loan is fully paid.
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6.4.2 Financing Assistance to Vulnerable Households
Some of the beneficiaries may not be deemed suitable by the financial intermediary to receive
a loan. These may include low-income households, individuals with disabilities, homeowners
with unacceptable credit, etc. For such “vulnerable households”, financial support should be
provided by the Holding Fund or by another agency of the national government arranged by
the Managing Authority.
It is anticipated that in Bulgaria the Social Climate Fund may be able to provide such financial
support to vulnerable households.
Options for providing assistance to vulnerable households include:
• Payments to the HOAs or implementation intermediaries for the loan repayments of the
vulnerable households
• Payments to the financial intermediaries to cover the loan repayments of the vulnerable
households
• A voucher program provided through municipalities
• Direct payments to the vulnerable households
The specific option needs to be determined by the ministry responsible for managing the Social
Climate Fund.
6.4.3 Loan Repayments
The HOA or the implementing intermediary (selected by the homeowners) participates in
collecting loan repayments from the individual owners via a special account, which can be set
up specifically for this purpose. The recent changes in the Condominium Ownership
Management Act71 allow HOAs to establish bank accounts which can be utilized for this
purpose.
6.5 Technical Assistance and Capacity Building
Technical assistance and capacity building will be needed for all participants in the building
renovation process to increase their skills, knowledge, and resources so they can effectively
implement and manage the renovation process. The targets of the TA and capacity building
include:
• Homeowners and HOAs
• Financial intermediaries
• Guarantee providers
• Intermediate intermediaries (including one-stop shops)
• Staff of the Holding Fund
Under an ongoing project, the World Bank is assessing the information needs of the various
stakeholders in order to develop a TA and capacity-building program.
6.6 Meeting the Co-financing Needs of the Phase 2 NRRP Renovation Program
As stated earlier, in the currently planned Phase 2 of the renovation program under NRRP, the
selected buildings will receive a grant of 80% of the renovation cost and will need to provide
20% co-financing. The Capital Rebate Program described in this report could be applicable to
this co-financing requirement.
71
Condominium Ownership Management Act, revised September 2023.
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However, since the Phase 2 activities are likely to be initiated by the end of 2024, utilizing a
capital rebate program will require establishing the institutional structure for such a program
within a short timeframe.
An alternative approach to meeting the near-term co-financing needs would be to implement a
“repayable grant” program as defined in the World Bank report on NPEERMB.72 This option
would not require HOAs to provide the needed 20% co-financing directly or through a
commercial bank loan. MRDPW would still offer a 100% upfront grant (as in Phase 1), which
would make it more appealing to the HOAs that are applying for the program. The 20% co-
financing would then be repaid over a 10-year proposed repayment period, thereby making the
repayable grant amount only about 2% of the total investment each year – which should be less
than the expected energy cost savings, thus making it affordable for most apartment owners.
These repayments would be managed by the municipalities or other implementation
intermediaries that are preparing the applications on behalf of the homeowners.
6.7 Extending the Capital Rebate Model to Single-Family Homes and Public
Buildings
This report has focused on the financial instrument for MABs. The Capital Rebate Model
discussed herein can also be applied, with some adjustments, to the renovation of single-family
homes (SFHs) and public buildings (PB).
With respect to SFHs, some additional funds may be available, such as the funding for
renewable energy systems (RESs) from the program being implemented by the MoE. For
public buildings, funds are likely to be available from REPowerEU. It is possible to include
these funding sources using the structure of the Capital Rebate Model, with MRDPW as the
Managing Authority and the merged FMFIB and BEERSF/NDF as the Holding Fund. Separate
financing “windows” may be organized by the Holding Fund, as illustrated in Figure 6.1.
72
World Bank, National Program for Energy Efficiency in Residential Buildings: Program Design Report for the
Second Phase (Washington, DC: World Bank, 2019).
Page 53
Figure 6.1 – Illustrative Structure of the Holding Fund, including Single-Family Homes and Public Buildings
Holding Fund - FMFIB with BEERSF/NDF
MABs financing SFBs financing PBs financing Other sectors
Other existing Other sectors
Other sectors
window window window financing
operations financing
financing
Guarantee Grant Guarantee Grant Guarantee Grant windows
windows
windows
Financial intermediaries Financial intermediaries Financial intermediaries
Soft loan Grant Soft loan Grant Soft loan Grant Soft loan Grant
Implementing
intermediaries (one- ESCO
stop-shops):
Municipalities or
others
Homeowners of PB PB
SFH owners
MAB owners owners
Note: ESCO = energy service company; MABs = multifamily apartment buildings; SFHs = single-family homes; PBs = public buildings
Source: Prepared by Authors
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Section 7. Scaling Up the Renovation Wave Funding To Meet the LTRS
Target
Previous sections of this report identified the significant investment gap relative to meeting the
2030 LTRS target for MAB renovation, then presented the structure of a proposed Capital Rebate
Program using combined financial instruments and grants to bridge this gap. This section estimates
the financial resources needed, outlines the benefits of scaling up to meet the LTRS target, defines
the challenges associated with implementing such a Capital Rebate Program, and suggests
potential ways to overcome these challenges.
7.1 Funding Requirements
As discussed in Section 6.4, if no grants are available for renovation of MABs after the currently
committed funds are exhausted, financing of renovation investments will be in the form of loans.
The payback periods for repayments of the loans on renovation investments are likely to be too
long to be financially attractive to the homeowners. Therefore, there will need to be some grant
financing available. Such grant financing can come from EU structural funds or the national budget
and can be provided as a capital rebate.
The calculation of the capital rebates required to assure that the annual loan repayments will be
less than the annual energy cost savings, as shown in Table 6.2, indicates that the capital rebate
amount (provided as a grant upon successful completion of the renovation project) should be
between 33% and 50% of the total investment needed. The remainder (50% to 67%) will need to
be provided as a loan. Table 7.1 shows the calculation of the capital rebates and loans needed to
bridge the investment gap.
Table 7.1 – Estimated Capital Rebates and Loans required to Meet LTRS Target for 2030
Including Estimated Including Estimated
Cost Escalation but Cost Escalation and
Units
Without Deep Deep Renovation of
Renovation 30% MABs
Total Funds Needed to Meet LTRS
Million
2030 Targets including Committed 6,087 6,636
BGN
Funds
Total Funds Committed for
Million
Renovation - NRRP Phase 1 and 2 1,441 1,441
BGN
(excl. co-financing)
Million
Investment Gap 6,086 6,635
BGN
Capital Rebate % 33% 50% 33% 50%
Million
Capital Rebate Amount 2,008 3,043 2,190 3,318
BGN
Million
Loan Amount 4,078 3,043 4,445 3,318
BGN
Source: Prepared by Authors
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The grant funding required will be between BGN 2.0 and 3.0 billion (depending on whether the
capital rebate is 33% or 50%) if no deep renovation is conducted in any of the MABs. With deep
renovation of 30% of the MABs, the capital rebate amounts increase to BGN 2.2 to 3.3 billion.
The corresponding loan amounts needed are shown in Table 7.1
7.2 The Benefits of Scaling up to Meet the LTRS Target
With the deployment of sufficient funding resources for renovation of MABs to meet the LTRS
targets for 2030, substantial benefits can be achieved with respect to energy savings and GHG
emission reductions. Table 7.2 shows these benefits based on energy savings per square meter
(0.13 MWh/m2) and GHG reductions per megawatt-hour (0.43 tonnes/MWh).
Table 7.2 – Benefits of Scaling Up MAB Renovation
Units Amounts
Additonal Floor Area Renovated to
Million m2 13.78
Meet LTRS 2030 Target
Additonal Energy Savings GWh/year 1,791
Additonal Reduction in GHG
Thousand Tonnes/year 770
Emissions
Source: Prepared by Authors
7.3 Challenges to Meeting the LTRS Targets
There are many challenges and issues related to meeting the funding requirements for the LTRS
target. These include:
• Lack of clarity regarding availability of needed grant and loan funds
• The need to provide guarantees to the loan providers
• Limited interest and motivation on the part of the beneficiaries in financial instruments
• Limited awareness of the opportunities and benefits of energy efficiency
• Limited experience of financial intermediaries with financial instruments for energy
efficiency
• Addressing the needs of vulnerable households
• Limited capacity of implementing organizations
• Institutional issues related to implementation.
7.3.1 Lack of Clarity Regarding Availability of Needed Grant and Loan Funds
While substantial grant funding has previously been available for MAB renovation from EU
Operational Programs and from NRRP funds, the existing funds and financial instruments that may
be available during the period 2025 to 2030 to provide grants, loans, or guarantees for building
renovation have not yet been finalized.
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To overcome this challenge, the Bulgarian government needs to work with the EU to confirm what
sources of funding will be available for building renovation and the related amounts and types of
funding.
7.3.2 The Need to Provide Guarantees to the Loan Providers
Section 4 listed a number of financing sources that may be available to leverage commercial
financing for building renovation. A key element of the Capital Rebate Program is guarantees to
the loan providers. While many potential sources for such guarantees have been identified and
some of their guarantee products defined, the specific structure of the guarantees that would be
available for building renovation loans has yet to be finalized.
To overcome this challenge, there needs to be a clear commitment by the Bulgarian government
to the implementation of a combined FI and grant in the form of a capital rebate, and detailed
definition and communication of the structure of this program.
7.3.3 Limited Interest and Motivation due to “Grant Culture”
The renovation programs in the previous programming period (2014–2020) and the first phase of
the current renovation program as part of the NRRP provided 100% grant financing to homeowners
for improving energy efficiency and reducing energy costs through renovation of their buildings.
This experience has led to an expectation that such grants will continue to be available in the future.
As a result, there exists a “grant culture” and homeowners have limited interest and motivation to
incur any loans to cover a part of the financing investment needs.
MRDPW has announced that the second phase of MAB renovation under the NRRP will reduce
the grants to 80% of the investment and will require 20% co-financing. Also, the number of MABs
that would be financed by MRDPW in Phase 2 is likely to be around 300. Nevertheless, there does
not appear to be much interest or activity on the part of homeowners and HOAs to identify
financing sources and financial instruments to cover the co-financing needs.
Scaling up renovation will require overcoming this lack of interest through communication and
information dissemination regarding the requirement for financial instruments and the proposed
structure of the Capital Rebate Program. The World Bank team, as part of the Phase 2 TA effort, is
conducting survey research to develop the communication and information strategy to address this
issue. A separate report is being prepared.
7.3.4 Limited awareness of the opportunities and benefits of energy efficiency
Improvement of energy efficiency through building renovation provides substantial benefits to the
beneficiaries (homeowners) in terms of reduced energy costs and improved comfort levels, in
addition to local and global environmental benefits. However, it appears that these benefits are not
widely understood and appreciated by the potential beneficiaries. In particular, the potential
beneficiaries need to be informed that if they participate in the combined loan and grant program,
the grant portion will be structured such that the obligation to repay the loan will be smaller (on a
monthly or annual basis) than the reduced energy costs.
The survey research mentioned above will gauge the degree to which the beneficiaries are
knowledgeable regarding the benefits and will recommend the approach that needs to be adopted
to communicate with and inform them to encourage them to participate in the renovation efforts.
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7.3.5 Limited Experience of Financial Intermediaries with Financial Instruments for Energy
Efficiency
Most financial intermediaries (banks and financial institutions) have limited experience with
financial instruments for energy efficiency because energy efficiency projects such as building
renovation have previously been financed with 100% grants. As the grant portion of building
renovation is reduced and there is a need for the beneficiaries to co-finance the non-grant portion
of the required investment, financial instruments need to be available to them.
7.3.6 Addressing the Needs of Vulnerable Households
To obtain sufficient participation in the renovation program, the proposed financial instrument
needs to address vulnerable households that have limited or no financial capability to repay loans.
The design of the proposed Capital Rebate Program includes a provision to finance the repayment
obligations of vulnerable households through subsidies. Options for structuring financial support
for vulnerable households were discussed in Section 6.
The sources of such subsidies need to be identified. It has been suggested in this report that funds
may be available from the Social Climate Fund to address this need. The government of Bulgaria
needs to decide which ministry will be in charge of the Fund and define the method for channeling
the funds for supporting vulnerable households to the appropriate implementation or financial
intermediaries.
7.3.7 Limited Capacity of Implementing Organizations
Experience with MAB renovation in prior programs has indicated that the implementation of
energy efficiency improvement projects in buildings entails many activities such as project design,
selection of service providers for audits, selection of vendors and contractors, equipment
procurement, construction, project supervision, post-installation energy performance certification,
etc. The beneficiaries (homeowners) and their HOAs have limited capacity to undertake these
activities. Implementing intermediaries (e.g., one-stop shops, facility management companies,
construction companies, ESCOs) may be engaged by the beneficiaries to perform these functions.
However, these organizations may not have sufficient capacity to meet the needs of a scaled-up
renovation program.
This limitation can be addressed with technical assistance and capacity building. A comprehensive
capacity-building programs for implementing organizations needs to be developed, including a
structured approach for training and support, focusing on project management, financial
administration, and technical skills. Such a program is being developed and will be discussed in a
separate report.
7.3.8 Institutional Issues
Implementation of the proposed Capital Rebate Program requires addressing the following
institutional issues:
• The proposed structure requires the establishment of a Holding Fund by the Managing
Authority (MRDPW) to manage the combined financial instrument and grant in a single
operation. The recommended holding fund would require the creation of a new, merged
organization (BEERSF/NDF with FMFIB) and definition of the appropriate governance
structure, resource requirements, and operational procedures.
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• A decision needs to be made regarding the NDF’s financial and human resources and
capacity building as well as the issues with respect to merging the NDF with the existing
BEERSF.
• Subsidies to vulnerable households are a major requirement for scaling up renovation
through a combined loan/grant program. Decisions need to be made on the designation of
the source of such subsidies (such as the Social Climate Fund), the amounts required, and
the procedures for channeling these subsidies to the implementing organizations.
• Many previous activities required under the NRRP – such as the definition of energy
poverty (or vulnerable households), modifications to the Condominium Ownership
Management Act, evaluating proposals, and selecting the MABs for Phase 1 grants – took
much more time than anticipated. To scale up MAB renovation to meet the LTRS targets,
these types of activities need to be streamlined.
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Section 8. Recommendations for Scaling Up Renovation Wave
8.1 Recommendations
The following recommendations are based on the assessment and findings in this effort.
MRDPW, as the Managing Authority for the future Renovation Wave program, should commit
to the Capital Rebate Program for the renovation of MABs during the period 2025–2030.
It is important that MRDPW announce this commitment and define the structure of the
combination of financial instruments and grants. In addition, MRDPW should estimate and
announce the amount of funding that could be deployed as grants, and the amount needed
as loans from commercial banks. The announcement should also include a description of
the guarantee instrument that will be implemented to de-risk the investment by commercial
banks in the financial instrument.
For the near-term needs of the 20% co-financing for the renovations under the NRRP Phase 2
funding, MRDPW should either adapt the Capital Rebate Program for the co-financing needs
or implement a Repayable Grant program.
The Capital Rebate Program could be a useful mechanism for the 20% co-financing
requirement, but the various elements of the program may not be in place by the time the
NRRP Phase 2 renovations are initiated. As an alternative, MRDPW should consider
implementing a Repayable Grant program with a 100% initial grant, 20% of which will be
repaid over a 10-year period by the beneficiaries.
MoE should consider evaluating the options for the potential merger of BEERSF and the NDF
and build the capacity and resources of the merged organization.
The merged BEERSF/NDF will be a key player in the renovation of MABs during the
period 2025–2030.
MRDPW should cooperate with MoE and the Ministry of Innovation and Growth to facilitate
the merger of BEERSF/NDF and FMFIB
Such a merged organization will have substantial capabilities and experience in financial
instrument design, direct financing of beneficiaries, and activities as a holding fund. The
governance structure, functions, resources, and capacity building needs of the merged
organization should be clearly defined.
MRDPW should appoint the merged entity of BEERSF/NDF and FMFIB as the Holding Fund
for the Renovation Wave 2025–2030
The assessment of options for organizations that could be appropriate for the Holding Fund
led to the conclusion that the merged BEERSF/NDF/FMFIB is the best option.
MRDPW should encourage commercial banks to develop the appropriate financial products for
leveraging private capital to meet the needs of the Renovation Wave.
The commercial banks will be engaged as financial intermediaries by the Holding Fund
and will be responsible for meeting the financial instrument needs. MRDPW will need to
assure them of the long-term renovation needs and the commitment to the capital rebate
structure.
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MRDPW, in cooperation with the management of the Holding Fund, should develop and
implement a guarantee instrument for providing risk-sharing support to the financial
intermediaries.
The guarantee instrument should be designed to provide partial coverage of the risk of non-
payment by the loan recipients (beneficiaries) and the risk that the post-implementation
energy performance will not meet the expected target for receiving the capital rebate. The
detailed structure of the guarantee instrument and the organization that will provide risk-
sharing guarantees should be finalized. The instrument should be a combination of a first-
loss guarantee on the loan portfolio with partial coverage beyond the first loss.
The government of Bulgaria should organize funding support from EU Cohesion Funds and/or
the national budget for certain supporting activities of the building renovation process.
Such activities may include audits, project preparation, technical supervision, post-
installation certification, etc. Potential funding sources include the EU ELENA facility.
MRDPW should establish one-stop shops to provide technical assistance and support to the
beneficiaries.
The one-stop shops will serve as implementation intermediaries to assist homeowners and
HOAs in performing many of the tasks and activities of the renovation process. MRDPW
should access available EU funds for helping to establish the one-stop stops.
As soon as possible, the government of Bulgaria should designate the ministry that will be
responsible for managing the Social Climate Fund.
The Social Climate Fund has resources for funding affected vulnerable groups, such as
households in energy poverty, and can provide the funding to cover the loan repayment
obligations of the vulnerable households in MABs.
MRDPW should collaborate with the ministry responsible for managing the Social Climate
Fund to define the funding requirements for supporting the vulnerable households participating
in the Renovation Wave Capital Rebate Program.
The two ministries should review the options for channeling funds to the implementing
organizations to facilitate payment of the loan repayment obligations of vulnerable
households and define the appropriate procedures for payments.
MRDPW should develop and implement a technical assistance and capacity building program
for the major participants in the implementation of the Capital Rebate Program.
These participants include: (i) homeowners and HOAs; (ii) financial intermediaries; (iii)
guarantee providers; (iv) intermediate intermediaries; and (v) staff of the Holding Fund.
MRDPW should design and implement a communication and information program to increase
the knowledge and awareness of the beneficiaries regarding the benefits of building renovation
and the structure of the Capital Rebate Program.
Such a program should clearly define: the commitment to reducing the grant percentages,
the need for financial instruments to supplement the reduced grants, the structure of the
capital rebate, the benefits to the participants, and a design that assures that loan
repayments are less than the cost savings form renovation.
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A monitoring and evaluation process should be developed and implemented.
Such a process will facilitate the assessment of the progress and effectiveness of the steps
taken by MRDPW to meet the LTRS target for MAB renovation.
When funds are available for renovation of single-family homes and public buildings, the
government should establish a capital rebate structure for financing renovation of these
buildings.
While the Holding Fund will initially be responsible for renovation of MABs, it can in the
future also establish windows for financing renovation of SFHs and PBs.
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Annex A. The Renovation Process
A.1 Overall Renovation Process Steps
Figure A.1 shows the steps in the renovation process for MABs.
Figure A.1 – MAB Renovation Process Steps
Step1.
Financial
instrument
design and Step 2.
setup Application
and Selection
Step 3.
Process
Implementa-
tion of
Step 4.
Renovation
Monitoring
Works
and Quality
Assurance Step 5.
Financing
and
Repayments Step 6.
Evaluation
and Feedback
Loop
Source: Prepared by Authors
A.2 Step 1: Financial Instrument Design and Setup
A.2.1 Institutional Setup
This step encompasses establishing a governance framework, identifying managing authorities,
holding fund and financial intermediaries, and defining their roles and responsibilities.
The institutional setup can follow the institutional options analysis performed in the EIB’s reports
(and expanded in the World Bank’s), which includes the establishment of a National
Decarbonization Fund as a holding fund of financial instrument. The holding fund will design
financial instruments and set parameters of financial products. It will also select financial
intermediaries which will provide prefinancing of the renovation project against the guarantee
issued by the holding fund. Prefinancing may cover 100% of investment, out of which 80% will
be compensated by the holding fund as a grant and the remaining 20% will stay as a loan to the
apartment owners, which will be repaid by owners through Implementing Intermediaries (IIs). As
the program evolves, the grant rate can be gradually reduced to 40% and the loan part increased,
to ensure higher sustainability and availability of financing resources.
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In Bulgaria, the establishment of IIs will be crucial for the execution of EE programs in residential
sectors, especially for MABs. The IIs will represent owners of the buildings in all steps of
renovation project implementation. These IIs could be formed from existing municipalities or
municipal entities, such as housing maintenance companies, utilities, or district heating companies,
which will be empowered and trained to manage energy efficiency projects. This training will
encompass project management, financial resource administration, and on-bill repayments,
ensuring these professionals are equipped with modern knowledge and skills for promoting and
implementing EE measures. The role of these IIs will include project aggregation, professional
management of renovations, and managing financial aspects, including on-bill payments. A fee for
these services, potentially covered by technical assistance grants, will ensure sustainable
management and execution of EE projects.
A.2.2 Financial Products Design.
Design financial products that serve the needs of building owners, including loans, grants,
guarantees, and combinations thereof.
The design should encourage energy efficiency and use of renewable energy sources in
renovations.
The proposed financial product for Bulgaria is guarantee instrument which will be set by the
holding fund. The holding fund will select financial intermediaries which will provide loan
prefinancing for renovation works in MABs. Upon received reporting on completed renovation
projects and achieved results, the holding fund will provide a grant to the financial intermediary.
For the Bulgarian context, the financial model for residential EE renovations will incorporate a
blend of commercial bank loan and grants, ensuring homeowners are not burdened with mortgage
requirements for their apartments, as the loan to the apartment owners will not be considered as
mortgage. It is important to note that the loan will be taken by the II on behalf and for the benefit
of apartment owners. The loan agreement can be signed between the Financial Intermediary (FInt)
and the II to minimize the administrative burden. However, the FInt issuing the loan will review
the creditworthiness of each apartment owner based on the historical records of utility payments.
Moreover, a financing option will be introduced where a loan is combined with a non-repayable
grant. An up-front loan will cover 100% of upfront costs without requiring upfront co-financing
from homeowners. After renovation, the energy savings achieved will lead to homeowners
repaying a portion of the investment over time through a special line on their utility bills. This
model will necessitate securing public financial resources at the municipal level or through IIs to
pre-finance these investments.
A.3 Step 2: Application and Selection Process
A.3.1 Application Submission
Building owners or their authorized representatives submit applications to access financial
instruments for renovation projects.
This includes detailing the renovation works, expected costs, and energy efficiency improvements.
The Bulgarian government announces the opening of applications for financial support under the
national program for the energy efficiency of MABs. Building owners or their authorized
representatives, including management bodies of apartment buildings, submit detailed applications
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to FInts. These applications should outline the scope of renovation works, anticipated costs,
expected energy savings, and improvements in energy efficiency.
Applicants can be IIs acting on behalf of apartment owners or HOAs representing apartment
owners, depending on the decision taken in the general meeting of apartment owners regarding
participation in the program. Applicants are encouraged to prepare comprehensive investment
plans (energy audits) with the help of IIs or outsourced consultants by HOA representatives. This
includes organizing meetings with apartment owners, decision-making on proposed energy
efficiency measures, and formalizing these decisions through model protocols.
Applicants must procure necessary services for obtaining energy efficiency certificates and
preparing investment plans (energy audits). This involves adhering to public procurement laws (if
necessary), ensuring the selection of competent service providers, and organizing public
discussions to refine the investment plan (energy audit) based on community feedback.
A renovation management information system will be developed to facilitate the renovation
applications process. This portal will provide access to submit applications as well as access to
data on typical renovation measures, costs, and an online tool for simulating EE investments.
Additionally, it will serve as a contact point for homeowners to connect with trained service
providers like energy managers and auditors. The development or integration of national life cycle
costing tools into this portal will help estimate renovation options efficiently.
A.3.2 Application Assessment
Financial Intermediaries assess applications based on eligibility criteria, project feasibility, and
expected energy savings.
This step ensures that the projects align with the goals of the renovation program. The assessment,
which should be coordinated with the holding fund, should include technical and eligibility checks
of the grant (this can be done in case the holding fund will incorporate BEERSF).
The FInts, potentially Bulgarian banks or dedicated financial institutions, assess the loan
applications to decide eligibility to issue loans. The evaluation of holding fund (BEERSF) focuses
on eligibility criteria, the feasibility of proposed projects, expected energy savings, and alignment
with the national program’s objectives.
Successful applications lead to the signing of loan agreements with the contract for state support
that will be issued by the holding fund, detailing the financial assistance and conditions.
Coordination with financial entities, such as banks providing concessional credit, is essential for
ensuring the financing of the renovation projects.
A.4 Step 3: Implementation of Renovation Works
A.4.1 Vendor and Contractor Selection
For approved projects, owners select vendors and contractors for technical designs, construction,
and technical supervision.
Under the Bulgarian national program for the energy efficiency of MABs, building owners or their
designated representatives (IIs), following the approval of their renovation projects, are tasked
with selecting qualified vendors and contractors. This selection process encompasses professionals
tasked with creating technical designs, conducting the construction work, and overseeing technical
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supervision. The selection process should prioritize vendors and contractors with proven expertise
in energy efficiency projects and a solid understanding of Bulgarian building standards and energy
codes.
The Bulgarian Energy Efficiency and Renewable Sources Agency (or an equivalent regulatory
body) may provide a list of certified vendors and contractors who specialize in energy efficiency
renovations. This ensures that all parties involved have the necessary qualifications and experience
to implement the projects effectively.
The Bulgarian approach may involve the development of standard technical solutions and a guide
to EE measures. The state construction inspection can ensure the quality of work by contractors
and technical supervisors. To promote efficient use of funds, project preparation, design, and
supervision services will be financed through the EE program with defined cost limits. The
procurement efficiency and by achieved by using centralized or aggregated procurement at the
municipal level, ensuring transparency and efficiency.
A.4.2 Renovation Execution
Execution of the renovation works according to approved plans, with oversight to ensure
adherence to energy efficiency standards and building codes.
With the appropriate team in place, the execution phase of the renovation works begins, strictly
adhering to the approved plans. This phase includes the comprehensive application of energy
efficiency measures such as insulation improvements, HVAC systems upgrades, window
replacements, and the installation of energy-efficient lighting and water systems.
Throughout the renovation process, a critical emphasis is placed on compliance with Bulgarian EE
standards and building codes to ensure the intended energy savings are achieved. Technical
supervisors play a pivotal role in this phase, providing ongoing oversight and quality control to
guarantee that all renovation activities align with the approved investment plans (energy audits)
and technical designs. Their responsibilities also include addressing any deviations or issues that
arise during the construction process promptly.
Additionally, the implementation phase involves regular progress reports and coordination
meetings with all stakeholders, including building owners, residents, contractors, and regulatory
bodies. This ensures transparency, facilitates the resolution of any emerging challenges, and
maintains the project’s alignment with its energy efficiency goals.
Upon completion of the renovation works, a thorough inspection and verification process is
conducted to confirm that the implemented measures meet the predefined EE improvements.
Successful projects not only contribute to the national goals of reducing energy consumption and
GHG emissions, but also enhance the living conditions for residents and increase the value of the
renovated properties.
The Bulgarian government, through its national program, supports these initiatives by providing
financial incentives, technical assistance, and resources to ensure the widespread adoption and
successful implementation of energy efficiency renovations across MABs.
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A.5 Step 4: Monitoring and Quality Assurance
By emphasizing technical supervision and quality assurance throughout the renovation process,
Bulgaria’s national program aims to elevate the standard of living for residents, reduce energy
consumption, and contribute to the country's environmental sustainability efforts.
A.5.1 Technical Supervision
Ongoing supervision of the renovation works to ensure compliance with technical specifications
and energy efficiency improvements.
In Bulgaria's national program for enhancing the energy efficiency of multi-apartment buildings,
continuous technical supervision forms a cornerstone of the monitoring phase. This involves the
oversight of renovation activities by qualified engineers or technical supervisors who ensure that
the execution of works strictly adheres to the approved technical specifications, energy efficiency
measures, and relevant Bulgarian standards and regulations.
Technical supervisors are responsible for on-site inspections, monitoring the quality of materials
used, and verifying the correct implementation of energy-saving technologies and practices. Their
role is critical in identifying deviations or non-compliances early in the process, allowing for
timely corrections and adjustments to keep the project on track towards achieving its energy
efficiency goals.
A.5.2 Quality Assurance and Control
Implementation of mechanisms for quality control and assurance during and after the renovation
works to ensure long-term benefits and sustainability
To guarantee the long-term benefits and sustainability of the renovation works, Bulgaria's national
program integrates robust mechanisms for quality control and assurance. This includes:
• Before formally completing the renovation works, detailed inspections are conducted to
ensure all aspects of the project meet or exceed the set EE and quality standards. This may
involve thermal imaging assessments, air leakage tests (blower door tests), and system
performance evaluations.
• After the renovation, a period of post-completion monitoring is established to assess the
actual energy savings and performance improvements. This phase might include collecting
utility bills for a defined period to compare pre- and post-renovation energy consumption.
• A feedback loop is established between the residents and the building management to allow
residents to report any issues or defects related to the renovation. This ensures any
deficiencies are promptly addressed, maintaining the integrity and effectiveness of the
energy efficiency measures implemented.
• Upon satisfactory completion of the renovation works, including passing all quality
assurance and control checks, the project is certified. The energy performance certificate
(EPC) is provided to the building owners or management, detailing the energy efficiency
improvements, expected savings, and guidelines for maintenance and operation of the new
systems and installations.
• To maximize the benefits of the renovation, residents and building managers are offered
education and support on best practices for energy use, maintenance schedules for new
installations, and strategies to further enhance EE in their daily lives.
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A.6 Step 5: Financing and Repayments
A.6.1 Disbursement of Funds
Financial intermediaries disburse funds according to the project milestones and achieved results,
including upfront financing from loan and reimbursements from grant upon project completion.
In Bulgaria's national program for the energy efficiency renovation of MABs, the financing model
is designed to support the effective implementation of projects through strategic fund
disbursement. Financial intermediaries, which could include national banks, EU funding
mechanisms, or other financial institutions, play a key role in this process.
Funds are released based on predefined project milestones and demonstrated results, ensuring that
financing aligns with progress and the achievement of energy efficiency targets. The disbursement
process typically involves the following steps:
• The financial intermediary makes an initial disbursement to kick-start the renovation
works, enabling the procurement of materials and payment for initial labor costs.
• Subsequent disbursements are made as the project reaches certain milestones, such as the
completion of the energy audit, the finalization of the investment plan, elaboration of
technical design and significant stages of the construction work, as verified by technical
supervision.
• The final portion of the funding is released upon the successful completion of the project
and achievement of required energy performance class proved by EPC, subject to thorough
verification of the works against the project goals and energy efficiency improvements.
A.6.2 Repayment and Incentives
Establish clear repayment terms for loans, including interest rate subsidies for energy savings
achieved, and provide additional grants or subsidies for low-income households.
The apartment owners will oversee loan repayment based on the on-bill like repayments
pmechanism that will be issued by the implementing intermediary. By linking the loan to the
apartment and incorporating on-bill repayments, like utility payments, the responsibility for these
payments can be transferred to new owners in case of property sale. This mechanism aims to make
the financial product attractive by ensuring that the combined monthly cost of on-bill payments
and heating bills post-renovation is less than the pre-renovation heating bills. Low-income
apartment owners can receive a government subsidy (voucher) through municipality to repay loan.
This will allow for all owners, irrespective of their social status, to participate in the building
renovation program.
The repayment framework for the EE renovation program in Bulgaria is structured to encourage
participation while ensuring sustainability of the funding mechanism. Key elements include:
• Clear and favorable repayment terms are established for the loans, which might include
below-market interest rates, extended repayment periods, and grace periods before
repayments start, making the financial burden manageable for the homeowners
associations or the residents.
• To further incentivize energy savings, the program offers interest rate subsidies that reduce
the cost of borrowing as a reward for achieving or exceeding targeted EE improvements.
This aligns financial incentives with environmental goals.
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• Recognizing the varying financial capabilities of residents, the program provides additional
grants or subsidies (vouchers) for low-income households. This ensures that the benefits
of EE improvements are accessible to all residents, regardless of their economic status.
• Additional incentives may be offered for projects that achieve exceptional energy savings
or incorporate innovative EE technologies, further motivating the adoption of high-
performance solutions.
A.7 Step 6: Evaluation and Feedback Loop
The evaluation and feedback loop is integral to the adaptive management of Bulgaria's national
program for energy efficiency in MABs. It ensures that the program remains responsive to the
needs of its participants, leverages lessons learned for continuous improvement, and contributes
to the country's energy efficiency and environmental goals.
A.7.1 Project Evaluation
Post-renovation evaluation to assess the energy savings achieved, improvements in building
quality, and residents' satisfaction.
After the completion of renovation works under Bulgaria's national program for the energy
efficiency of MABs, a comprehensive evaluation is conducted to measure the outcomes of the
projects. This evaluation focuses on several key aspects:
• A quantitative assessment of the energy savings realized post-renovation compared to the
baseline before the interventions. This involves analyzing energy bills, monitoring energy
consumption, and comparing the results against the project's EE targets.
• An examination of the structural improvements, enhancement in the thermal comfort of the
building, and any other qualitative improvements in building quality resulting from the
renovation works. This may include aspects such as indoor air quality, temperature
regulation, and the overall aesthetics of the building.
• Surveys and interviews with the residents and the HOA to gauge their satisfaction with the
renovation process, the quality of work done, and the impact of the renovations on their
living conditions and utility costs.
A.7.2 Feedback and Continuous Improvement
Collect feedback from participants and stakeholders to improve the renovation process, financial
products, and implementation mechanisms for future projects.
The evaluation phase is followed by a structured process to collect and analyze feedback from all
participants involved in the renovation projects, including:
• Residents’ and HOAs’ perspectives on the project execution, outcomes, and any areas for
improvement.
• Contractors’ and vendors’ insights into the challenges faced during the implementation,
suggestions for streamlining procurement, and execution processes.
• Financial Intermediaries’ feedback on the financial products offered, the effectiveness of
the disbursement and repayment mechanisms, and any barriers encountered by participants
in accessing financing.
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• Technical supervisors’ and energy auditors’ recommendations for enhancing technical
supervision, improving energy audits, and ensuring compliance with EE standards.
This feedback is used to establish a continuous improvement loop, whereby the insights gained
are fed back into the program to refine and enhance:
• Renovation processes by streamlining procedures for application, selection,
implementation, and evaluation to make the program more accessible and efficient;
• Financial products to better meet the needs of participants, making financing more
attractive and accessible; and
• Innovating the mechanisms for project implementation to ensure higher-quality outcomes,
greater energy savings, and improved participant satisfaction.
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