ERDF renewable energy loans in Pomorskie, Poland

Anna Zurek. Dzień dobry wszystkim! Hello and welcome to this fi-compass Jam Session podcast episode. My name is Anna Zurek, and I am a Financial Instruments Advisor at the European Investment Bank. 

Today, we are exploring how financial instruments supported by the European Regional Development Fund (ERDF), are driving renewable energy investments in Poland, with a special focus Pomorskie and its Renewable Energy Sources loan fund, ‘RES loan’ in short or ‘Pożyczka OZE’ in Polish. 

I am delighted to be joined today by a great panel of guests: Kornelia Milczarek, Marshal’s Office of the Pomorskie Voivodeship, Joanna Protasiewicz from the Pomorski Loan Fund, Ewelina Żaguń from the Pomorski Development Fund, and Andrzej Urbanik, Policy Officer at European Commission, DG REGIO. 

Welcome. Can you briefly introduce yourselves and explain the role of your institutions? 

Kornelia Milczarek: Thank you, Anna. Greetings from Gdańsk. It is great to be here with you. As you mentioned, I am from the Marshal’s Office of the Pomorskie Voivodeship, and I represent the managing authority. Our main responsibility is to implement the regional programme. Of course, where we also closely cooperate with the holding fund managers and the financial intermediaries. As we discuss today, it is crucial to have two programming periods in mind, the previous one 2014-2020 and the current one 2021-2027.

Within the previous programming period, in cooperation with the European Investment Bank, in Pomorskie, we implemented three loan instruments in the area of urban renewal, energy efficiency in housing and, of course, renewable energy sources. Today, we will focus on the Renewable Energy Sources loan, which was available in the 2014-2020 programming period and is also available in the current one, but in a slightly modified form. 

Anna Zurek: Thank you very much. Joanna, over to you. 

Joanna Protasiewicz: Hello also from my side and thank you for the invitation. I represent the Pomerania Loan Fund (PFP in short). It's a public, non-commercial financial institution that efficiently implements financial instruments. What does it mean in practice? We directly provide tailor-made financial products to the financial recipients, mostly SMEs in Pomorskie region. Our leading shareholder is the Pomeranian Voivodeship. 

We have been operating on the regional market since 2004, and today we are one of the largest financial intermediaries in Pomorskie, or referring to the right terminology, institutions strongly involved in specific funds implementation and management. And the same role we played in the RES loan in the 2014-2020 programming period. That means, we transferred funds to final recipients in Pomorskie in the form of RES loans. 

Anna Zurek. Thank you very much. And Ewelina, over to you. 

Ewelina Żaguń : Hello. Also, hello, everyone. It's a pleasure to join this conversation. I represent the Pomorskie Development Fund. It's a fund supporting SMEs and municipal governments, by providing financial instruments. The PFR was established in 2015 at the initiative of the Pomorskie Voivodeship Self-Government, primarily to manage the funds returned from financial instruments that were implemented under the 2007-2013 regional programme. 

In the 2014-2020 perspective [meaning: programming period], we started for the first time implementing financial instruments in the role of the fund of funds manager, but only for the one financial product, in one project. In the current perspective, we are implementing four projects, among other things than the RES loan. 

Anna Zurek: Super, thank you very much, very clear. And Andrzej, over to you. 

Andrzej Urbanik: Hello. I will be very short. I work at the European Commission in the Directorate-General for Regional and Urban Policy, specifically for the Financial Instruments Unit, where I'm supervising the implementation of financial instruments in Poland, not only in Pomorskie.

Anna Zurek: So, let’s get started. Andrzej, I would like to begin by asking you to set the scene for our listeners. What main market failures in the renewable energy sector do you see overall in Poland? Why is there a need for public intervention? And how are financial instruments addressing these financing gaps?

Andrzej Urbanik: Poland and Europe as a whole desperately need more investments in the renewable energy sector for several reasons. First of all, in order to reduce CO2 emissions generated from fossil fuels, as you know, this is important to eliminate all harmful effects of climate change on our societies and economies. Secondly, renewable investments are also important in the context of energy security, especially after Russia's aggression against Ukraine that, simply speaking, questioned Europe's dependence on imported fossil fuels.

The reality is that relying so heavily on fossil fuels, whether from Russia or elsewhere, can't give us the energy security and prosperity that Europe needs. It leaves us incredibly vulnerable to international market prices, volatility and pressure from external actors. Domestic renewables reduce this dependence and stabilise energy prices in the long term. And, like the European Commission President Ursula von der Leyen said, as our energy dependency on fossil fuel goes down, our energy security goes up.

Furthermore, RES deployment is crucial for addressing the problem of air pollution, which remains a major public health challenge in many regions in Poland, including some cities in Pomorskie, such as Starogard Gdański, Kościerzyna. Also, on average, the air quality in Pomorskie is much better when compared to southern regions in Poland. 

And finally, I would like to say that affordable and predictable energy prices support competitiveness. I mean that companies with access to low and stable energy prices are on average, more innovative, more productive, and – on top – more resilient to external shocks.

Anna Zurek: Thank you, Andrzej. You raised a number of really important topics, both, geopolitical but also climate related. And, Kornelia, now over to you. Tell us a little bit about your region and how Andrzej's synopsis corresponds to your very region?

Kornelia Milczarek: Well, it corresponds with Pomorskie perfectly, especially when it comes to understanding the importance of energy security and access to clean energy. In Pomorskie, we have very good natural conditions for the development of renewable energy sources, such as wind, as we are one of the Baltic regions of Poland. Pomorskie has experienced a consistent increase in the percentage of energy derived from RES. Our region's infrastructure, including the outer part of Gdańsk and service ports, supports the development of offshore wind farms, which are especially important for us nowadays.

There is also growing interest in energy self-sufficiency among consumers, evident in the rising adoption of RES micro-installations. It is worth mentioning that the share of energy production from renewables consistently exceeds the national average, which has experienced a significant rise, increasing from only 2% in 2004 to 31% by 2025. The previous financial perspective saw a significant shift towards expanding RES with public funds, and it was strongly underlined in the ex-ante assessment for 2014-2020, which recommended the implementation of preferential loans in this area.

Anna Zurek: Thank you, Kornelia. I would now like to turn to Joanna from the Pomorskie Loan Fund. How did the RES loan work in practice for final recipients?

Joanna Protasiewicz: Let me briefly say, how did it happen that we started implementing the RES loan from the previous programming period. PFP was selected by the EIB through direct negotiations in 2019. At that time, the RES market in Poland was highly unregulated. RES technologies were little known and seemed expensive. This may have been the reason why financial institutions were not interested in implementing a new instrument or another instrument in the RES sector. Anyway, we took the challenge. I use the word ‘challenge’ because at the time, PFP possessed the necessary expertise and experience in handling financial instruments, but we had relatively limited knowledge of the renewable energy market. That's why we invited the Baltic Energy Conservation Agency to collaborate with us, and they provided technical know-how to the project, especially by the technical assessment of the applications.

PFP did not introduce any rules for shaping the structure of final recipients. The loan parameters were very flexible, and we wanted to encourage potential beneficiaries, various entities excluding individuals, to participate in the energy transition in Pomorskie. The RES loan supported the production and distribution of energy from all renewable sources – biogas, biomass, solar and water energy, except wind. Supported projects were innovative, with the highest environmental impact, and it was very important that they comply with municipality-level air quality programmes.

As you can see, we leveraged the flexibility of financial instruments to support the widest possible group of borrowers and a wide variety of projects. Thanks to this, it was possible to obtain ecological, financial and social benefits for the region, enabling additional capacity to generate renewable energy, [resulting in] reduction of greenhouse gas emissions and of course, energy security, energy independence and just access to clean energy.

Anna Zurek: Thank you very much, Joanna. We also encourage all our listeners to read the case study about the RES loan in Pomorskie. For more details, we will link this publication in the transcript of this podcast episode. And, Joanna, can you tell us what were the key parameters of the 2014-2020 RES loan, and what made the loan attractive for final recipients?

Joanna Protasiewicz: Of course. PFP designed flexible and attractive parameters for financing the investment but, of course, the objectives of the project must be compared with the assumptions of the investment strategy of the managing authority. In my opinion, simplicity and flexibility made the RES loan attractive for final recipients. I'm sure my colleagues will agree with me, these parameters that can be achieved in the case of financial instruments, not grants, were: variable – means adjusted to the individual projects – loan values, variable grace periods, and repayment periods. 

And second, relatively straightforward criteria for securing preferential interest rates, lower than market conditions, waiver of transaction fees and different public aid forms. It was of course necessary by such a wide range of final recipients.

That's why we managed to have in our lending portfolio various project sizes implemented by different final recipients: installations for own use, heat pumps, biogas installation, large-scale projects like PV farms. They are implemented by SMEs, energy producers of special purpose vehicles or local government units, organisations, institutions, agriculture. Of course, investors had to meet the criteria, generally – European Union regulations. All of these projects contributed to the increase of RES power capacity installed in Pomorskie, which brought economic, social and environmental benefits for our region.

Anna Zurek: Thank you very much. So, I take note: keep it simple and flexible!

Joanna Protasiewicz: Yes, exactly.

Anna Zurek: Now, Kornelia and Joanna, for you both. Can you tell us a little bit more about the impact of the instrument on the ground. Maybe you have some examples of final recipients that you supported through the instrument, some interesting projects?

Kornelia Milczarek: Yes. Of course, thank you. I would like to talk about an interesting investment carried out by the owner of the enterprise CET-EKO, Mr Tomasz Cegiełka. This enterprise deals with the trade and sale of waste to biogas plants. The owner decided to invest in his own biogas plant. It is situated in the Malbork district in the eastern part of Pomorskie. It was launched in the first quarter of 2018, and from the end of 2019 until the beginning of 2021 it was financed from the RES loan. The investment involved the construction of the entire renewable energy system in the form of the agricultural biogas plant. The project includes the construction of a system of the tanks, the engine room with a control room, a sub-station and also associated infrastructure.

The result of the project is a co-generation unit, producing electricity and heat. The installation uses biogas, contributing to the production of renewable energy and improving the CO2 emissions balance. The estimated annual decrease in greenhouse gas emissions was 3.2 thousand tonnes of CO2 equivalent. The generated electricity is used for the entrepreneur’s' own needs and supplied to the operator’s network.

The loan amount, to yesterday's euro exchange rate, is about EUR 1 million. It was taken out for 15 years with a fixed preferential interest rate. It is one of the few biogas plants co-financed by the regional programme and the only one financed in repayable form.

Anna Zurek: Super! And, from your perspective, Joanna, any project that stood out?

Joanna Protasiewicz: I will present a small project to illustrate the diversity of the portfolio. The municipal company of a commune [‘gmina’] in Pomorskie deals with municipal services, water supply, sewage disposal and housing management, among other services. To reduce the cost of heating and electricity, the company implemented two investments for its own needs. The first one involved the installation of a PV system and heat pump in a social and residential building, providing eco-friendly electricity and heating. The second one involves the installation of a PV system for the water intake station. The loan value was about EUR 10 000, with a preferential rate lower than market conditions – 0.25%, a long repayment period and a six-month grace period. It was enough time for the project implementation. This is an interesting case that shows how often the ecological and economic benefits will additionally benefit the local community.

Anna Zurek: These are really great examples, both big and small, as you mentioned. Kornelia, can you tell us a bit about the overall achievements of the 2014-2020 ERDF RES loan? Maybe there was something specific that surprised you in particular, in the course of implementation of this financial instrument?

Kornelia Milczarek: Overall, we are very happy with the results. The financial instrument has been fully absorbed through 137 loan agreements with a total value of EUR 32 million. And the supported projects included a varied mix of investments ranging in size from EUR 6 000 to even EUR 5 million, and catered for various types of final recipients, including micro-enterprises, SMEs, large enterprises, public entities, associations and many others, as also Joanna has already mentioned. 

Micro-enterprises received most of the loans, almost half of them. They are followed by small and medium enterprises and large enterprises. The final recipients are spread across a variety of sectors, including manufacturing, agriculture, forestry, fishing, wholesale and retail trade, accommodation and food service. And I can mention many, many more sectors. This variety highlights the diverse range of industries benefiting from the loans and the universality of this product. This was what made the advantageous. The achievement of the RES loan is evidenced by the increase in installed capacity in renewable energy sources of 40MW (megawatts) within the region. The total reduction of greenhouse gas emissions is equivalent to over 29 000 tonnes of CO2 per year.

It is surprising how the data is compared to information about the capacity of conventional power plants in the region and country. For example, Gdynia’s new integrated heat and power plant will have a capacity of 42MW. Some industrial combined heat and power plants in Lower Silesia have a capacity of 46MW each. Of course, their role in the energy system is different from that of renewable energy capacity, but it is worth emphasising that since 2019 there has been a significant development of renewable energy resources in Pomorskie. Thanks to that, funds that will be returned will continue to support the development of the region.

Anna Zurek: First of all, congratulations for the full absorption of the resources. It is really impressive. And now, a question to all of you. How do you see the key success factors for the 2014-2020 ERDF RES loan in Pomorskie?

Kornelia Milczarek: Well, several success factors can be pointed out here. Joanna has already talked about a few of them. I will try to keep it short. 

Firstly, the loan had a very attractive interest rate. The interest rate of 0.5% was offered for meeting one preference criterion and a 0.25% for meeting 2 or 3 criteria. It was particularly beneficial from 2022 as commercial rates increased in Poland at that time. 

The second factor is that the loan provided great financial flexibility. It featured a long repayment period – up to 15 years, a substantial maximum loan amount of 3.5m EUR, with no prescribed minimum. The extended withdrawal period was up to 24 months, and it was combined with no commissions or fees for loan processing. 

The third factor is the wide range of eligible final recipients and products. The RES loan was designed to address the needs of a variety of stakeholders, both from private and public sectors.

It supported a really broad spectrum of projects such as generating heat from solar, geothermal, biomass, biogas and hydropower. The loan could be used for the broad purpose of financing projects in the area of installations, generating energy from renewable sources. Those projects should have been cost effective and rational in terms of the assumed ecological effect. 

And the fourth factor, but not the least, is, of course, the great role of the PFP staff and their deep understanding of the regional market and establishing the professional support network for the applicants.

Anna Zurek: Awesome. Warm words to PFP, so Joanna, maybe we can continue with you.

Joanna Protasiewicz: Thank you very much for the warm words. In this case, the cooperation between all institutions involved in implementing the instrument was of great importance. I mean, managing authority, EIB as Fund of Funds (FoF) manager and PFP as a local loan fund. We identified potential final recipients and supported them along the way (kind of with a personal touch). And as the institution close to the market, we reported to the EIB about growing expectations or increased allocation of sources. And these expectations were met. And I'm sure this is another side of the success. And we hope that, in the current perspective, where we are also implementing the RES loan, the effects of the support will be significant for the region, especially since the circumstances of the renewable energy market in Pomorskie have really changed.

 Anna Zurek: Thank you very much, Joanna. And Andrzej, over to you.

Andrzej Urbanik: Let me be a bit provocative. The real success of the Pomorskie loan fund, in my opinion, starts with the fact that the managing authority decided not to play it safe, so instead of relying on grants, it deliberately chose to deploy financial instruments. And that choice really matters in a sector where investment needs massively outweigh public resources. 

Secondly, this case challenges a common myth that regional instruments are too small to make a difference. Pomorskie  shows the opposite. When you have a strong regional intermediary like Pomorski Fundusz Pożyczkowy (PFP) with real boots on the ground, not just in the capital of the region, but across the whole region, you can reach investors that national schemes often miss. This is also a clear example of how regional and national financial instruments can complement each other, especially in areas like renewables where the financing gap is huge.

And the last provocative point, generic financial products don't work in the energy transition. This one did because it was tailor-made.

Anna Zurek: Yes. Really great points. And once again, congratulations to the region not to play it safe and to be open minded and to decide to deploy financial instruments for this new for them area. And Ewelina, from your perspective, do you have maybe some key success factors you would like to share?

Ewelina Żaguń: Maybe it's obvious, but it's important: the previous perspective has proven that it's reasonable and effective to finance projects related to renewable energy sources through financial instruments. The grants were not the only form of funding that guaranteed success. The RES loan offer came at the time characterised by high demand for this kind of investment. The specific nature of the financial products allowed for quick project implementation and efficient start-up of installations to produce energy.

Anna Zurek: Let's turn now to the 2021-2027 programming period. Did the need for more renewable energy investments in the Pomorskie region remain, and have the needs maybe changed in any way? And how are the current programmes and financial instruments under these programmes addressing them? Let's start with the global view on Poland, Andrzej.

Andrzej Urbanik: Unfortunately, what is happening in Pomorskie is not yet the norm in Europe. And if you are serious about the energy transition, we need many more ‘Pomorskies’ and we need to act fast. The funding gap remains huge and public funding alone is not enough, as we know. And this mismatch between the needs and available public funding underlines the critical role of private capital, mobilised through financial instruments such as loans and guarantees, which allow us to scale up investments and reuse funds over time. 

And the good news, the lessons from 2014-2020 and successful regional examples like Pomorskie show us that well-designed instruments paired with technical support and local knowledge really work. The challenge now is to scale them up quickly across all of Poland and across all of Europe.

Anna Zurek: Thank you very much. And Kornelia, from the perspective of Pomorskie.

Kornelia Milczarek: I totally agree, with Andrzej’s diagnosis. In the current programming period, we continue the regional repayable support in the area of RES development because we see that there is still the need in the region. The reflows from the RES loan 2014-2020, like most of the funds from other financial instruments, have been transferred to the Pomorskie Development Fund (PFR) for use in accordance with the CPR regulations.

And now I would like to shed some light on the [2021-2027] implementation model. It is quite similar to how it was in 2014-2020. We cooperate with the manager of the holding fund which, on the basis of public procurement, selects financing partners, so-called bodies implementing specific funds. The Pomorskie Development Fund (PFR) acts as the manager and the Pomorskie Loan Fund (PFP) acts as the financing partner.

Anna Zurek: Thank you very much. Ewelina, I understand that the Pomorskie Development Fund plays a significant role. Can you tell us a little bit from your point of view?

Ewelina Żaguń: Yes. Thank you. I would like to say something more about involvement of the PFR in the current perspective. As I mentioned at the beginning, in the previous perspective, PFR was involved for the first time in implementing as the Fund of Funds manager, but only in a single product. In the current perspective, we are already implementing four ‘projects’ that include four financial instruments: related to SME support, thermal modernisation loan, the eco loan for SMEs and the RES loan. All reflows from both perspectives are reinvested in the market, in accordance with the original objectives of the original programmes. It's very important that PFR conducts an active investment policy in line with the development goals of Pomorskie Voivodeship, which are also outlined in the Pomorskie Voivodeship development strategy. These funds serve the long-term development objectives of our region. 

Anna Zurek: Thank you, Ewelina. And can you tell us a little bit about the interest from final recipients in the financial instrument? Does it remain high?

Ewelina Żaguń: Yes. Interest from final recipients in the current instrument is still significant. Although the [typical] market-related example of photovoltaic installations has changed. We currently have 20 investments in the financial product portfolio for almost EUR 5.5 million. The RES loan is currently being implemented by three financial intermediaries, one of which is, of course, the Pomorskie Loan Fund. And currently in the investment strategy, we have EUR 23 million allocated for the RES loan.

Anna Zurek: Thank you very much, Evelina. And are there any key differences compared to the 2014-2020 RES loan?

Ewelina Żaguń: Yes, some of them were mentioned by Kornelia but I think it's interesting to add that when it comes to comparing both financial products, the parameters of both loans are quite similar but there are some differences. The RES loan in the current perspective is part of a wider energy transformation strategy and supports not only energy generation but also modern elements such as energy storage.

The lending period for both instruments is the same, with a maximum of 15 years and the current maximum loan amount is right now lower because it is EUR 2.3 million and the previous one it was EUR 3.5 million. It's worth noting that the new RES loan offers new preferences. Preferences are given to projects that incorporate the use of energy storage or hybrid systems, powered by at least two different renewable energy sources. And, additionally, limits on the installation capacity for biomass and biogas have been introduced. In my opinion, these are the main differences between the two products. 

Anna Zurek: Thank you very much. And all the best for this continuation of the RES loan and wishing you the full absorption as well as in the first perspective. 

Kornelia, Joanna, Ewelina and Andrzej, thank you very much for sharing all these insights with us. This was all very interesting.

Kornelia Milczarek: Thank you for the opportunity to share our experiences. I hope our insights are useful for others.

Andrzej Urbanik: And also big thanks from Brussels. See you next time, or hear you next time.

Joanna Protasiewicz: We are always happy to share our experience with the 2014-2020 RES loan. 

Ewelina Żaguń: Thank you. It was a pleasure, and we are always very happy to share feedback from the 2021-2027 implementation with all of you.

Anna Zurek: And a big thank you, dziękuję bardzo, also to all our listeners for tuning in today to this episode of fi-compass Jam Session Podcast.

I hope that this podcast was useful and inspiring for all of you, and for all of you who would like to know more about the 2014-2020 RES loan implemented in the Pomorskie region in Poland, we'll link our case study about this financial instrument in the transcript of this episode.

If you have any questions, we encourage you to get in touch through our email contact@fi-compass.eu .

We look forward to hearing from you and until the next time, goodbye, or ‘do widzenia.’