Key stakeholders in energy efficiency financing in Hungary

(Tolna County)

For analyzing the possibilities and barriers of municipal energy investment financing in Hungary, especially in Tolna County, the following actors’ roles and responsibilities must be taken into consideration:

  • Hungarian State Treasury: Its role is unique in municipal investments, as public expenditures can be made only on the basis of authorization by law in Hungary. Therefore, the Treasury takes part in the evaluation of local municipalities’ debt-generating transaction requests. The Hungarian State Treasury is a central budget agency with a separate operation and financial management. Its establishment was an important element during the process of modernization of the general government's financial system. It has an executive power and a national scope of competence, standing under the direction of the Minister for Finance concerning both the functional and the regulatory aspects. During the implementation of the budget, the Treasury is responsible for financing, money circulation, clearing of accounts, cash-, deficit- and state debt management, determined data supply as well as management and detailed registration of guarantees and loans extended by the state. Local municipalities are members of the treasury system, where real disbursements should only be carried out following the proof of the performance by invoice in the case of organizations outside the scope of the Treasury and private individuals. The money circulation is ensured through the Single Treasury Account, which is kept by the National Bank of Hungary, and the Treasury has an exclusive right of disposal over it. Besides, the Treasury must keep data records and provide information concerning budgetary appropriations, real expenses and public expenditures in a manner that it permits control over the real financial activity of the organizations belonging to the scope of the Treasury. Without the permission of the Treasury, local municipalities are not entitled to contract other entities for debt-financing (e.g. bank loans).

  • Regional Government Office of the Tolna County: Counties represent an intermediate territorial level between the settlements and the State. Their responsibilities are connected to strategic planning: counties are responsible for territorial development, rural development, spatial planning. Counties adopt the spatial plan, elaborate the NUTS3 level territorial development concept and prepare a territorial development programme. Counties also manage the Territorial and Settlement Development OP of Hungary, which supports regional, decentralized economic development and an increase in employment based on local resources. The programme allocates more than EUR 1 billion to integrated sustainable urban development actions in the framework of a dedicated priority. Its priority 3 supports the improvement of the energy efficiency of local government buildings. That means that the roles of the counties are inevitably important in preparing, evaluating and monitoring municipal energy efficiency and renewable energy projects. Concerning debt financing, the government office takes part in the evaluation of those local municipalities’ debt-generating transaction requests, which are located in the geographical area of the county. Recently a new strategic document had to be elaborated by the Hungarian counties: the county level climate strategies. The Association of Climate-Friendly Municipalities was appointed by the State to elaborate the structures and content requirements of the climate strategies.

  • Association of Climate-Friendly Municipalities - the association was formed in 2009 on the initiative of some proactive mayors and experts to mitigate the adverse effects of climate change. It supports its members by regular and widespread information (open-access website, community site, publications), building a well-searchable knowledge base, developing a training programme and curriculum, methodological guide for climate strategies (published: 2017), providing a network of experts, developing local climate strategies, organization of educational, awareness-raising, and networking programmes among the various stakeholders. As the structure of climate strategies already had to be applied by county municipalities (NUTS3) and will have to be applied by local municipalities in the forthcoming years, their local energy strategy shaping role is unique.

  • Association of Cities with County Rights - the association was formed on December 19, 1990 by 16 cities, in accordance with the provisions of the law on association. The aim of the association is the collective representation of the municipal rights of cities with county rights, the protection and enforcement of interests, the development of the operation of local governments, and the cooperation with national and international local government associations. In 2018, the association joined the Under2 Coalition, a global community of state and regional governments committed to ambitious climate action in line with the Paris Agreement. Governments in the coalition commit to keeping global temperature rises to well below 2°C with efforts to reach 1.5°C. As a member of the coalition, the Association encourages all Hungarian cities with county rights to ensure the necessary planning for the achievement of these goals, i.e. to elaborate or renew their SECAPs and get prepared for the development of settlement level climate strategies.

  • Ministry of Interior - The Ministry is responsible for the surveillance of the operation of local municipalities, and it takes part in the evaluation of local municipalities’ debt-generating transaction requests.

  • Ministry of Finance - The State Secretariat responsible for public finances operates under the Ministry. The Ministry of Finance is involved in the evaluation of local municipalities’ debt-generating transaction requests. Also, the Managing Authority of the Economic Development and Innovation Operational Programme operates under the Ministry.

  • Ministry for Innovation and Technology - The Managing Authority of Hungary's Environmental and Energy Efficiency Operational Programme operates under the Ministry.

  • National Development Bank, commercial banks - the banks take part in debt financing.

  • Energy Service Companies (ESCOs) - ESCOs provide financial and technological support for municipal EE&RES developments. The details of the capital involvement are set in the energy performance contract.

  • Licensing authorities - The authorities are involved in the permission procedures; hence they surveil the fulfilment of professional and legal requirements at new investments. They are also involved in the strategy shaping processes.

  • Technology providers - Enterprises of various size, offering different products and services for the developments.

  • Local municipalities Settlements – with usually the involvement of energy experts - define their local energy needs, as they possess the detailed information on their building stock, energy production and consumption units. The also represent the needs of the inhabitants.

Summary of the situation in Hungary

To sum it up from the financial point of view, the Hungarian State Treasury, Regional Government Office, Ministry of Interior are responsible for the surveillance of investment financing, while the banks and ESCOs take part in providing the necessary funds and technologies.

If we examine the process of strategy development, energy efficiency and renewable energy policies exist on national level. They are initiated by the ministries and associations responsible for sectoral and regional development issues: the development of the National Energy Strategy, Hungary’s Renewable Energy Action Plan and Hungary’s National Energy Efficiency Action Plan 2020 have been coordinated by the Ministry of National Development. At the Ministry the Deputy State Secretariat for Green Economy Development and Climate Policies was in charge of publishing these national level policy documents. Concerning the local level, SEAPs, SECAPs, Local Agenda 21 and other policy documents are initiated, coordinated and renewed by the local municipalities. On this level, the General Assembly initiates the elaboration and approves the content.

ESCOs, technology providers and any other entities have the possibility to take part in the strategic planning process via the public consultation phase of the announcement of new policies, but the definition of the main targets and tools falls out of the scope of their activities.

The question of legal responsibilities can be divided into 2 parts: fulfilling the strategic goals on policy level, and implementing the technological developments and achieving the planned savings or energy generation on technical level. Regarding national level policies, the fulfilment of the strategic targets is the responsibility of the State. As these strategies are usually issued to meet the requirements of relevant EU directives, the State is obliged to report the achievements to the European Commission. On the local level, the successful implementation of energy action plans is the responsibility of the municipality. However, no sanctions are put in place in case of non-fulfilment of any targets, as the development of SE(C)APs – most frequently used energy action plans on local level – are undertaken on voluntary basis by the settlements, without any legal enforcement from any national or EU institutions.

From technological and financial implementation point of view, the roles and responsibilities of the actors (financing parties, technology providers, municipalities) are governed by contracts, like the energy performance contract in case of the cooperation of municipalities and ESCOs. Also, as almost all municipal energy investments are financed by different calls of the Structural Funds’ operational programmes, responsibilities and indicators are governed by the subsidy contracts and regularly audited by the programme management bodies.

The ownership, maintenance and operation of EE projects must always be clearly defined. Without such official agreements on responsibilities, project financing is not possible.