Assessing the potential future use of financial instruments in Croatia A study in support of the ex-ante assessment for the deployment of EU resources during the 2014-2020 programming period Final report September 2015 Assessing the potential future use of financial instruments in Croatia – Interim Report focusing on EE/RES sector 1 European Investment Bank Disclaimer Any disclosure of this report to a third party is subject to this disclaimer. This report has been drafted for use by the European Investment Bank (EIB) and by the Ministry of Regional Development and EU Funds of the Republic of Croatia (MRDEUF). The contents and layout of this report are subject to copyright owned by the EIB. Any views expressed herein reflect the current views of the author(s), and may not in any circumstance be regarded as stating an official position of the EIB. Opinions expressed herein may differ from views set out in other documents, including other research published by EIB. 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Action Contributors Study designed by MRDEUF European Investment Bank Drafted by PwC Reviewed and edited by European Investment Bank Delivery date September 2015 Assessing the potential future use of financial instruments in Croatia – Interim Report focusing on EE/RES sector 2 European Investment Bank Table of contents Glossary of terms .............................................................................................................................................. 8 Executive summary ......................................................................................................................................... 20 1 Introduction ............................................................................................................................................. 42 1.1 Objectives and rationale of the study ............................................................................................... 42 1.2 Structure of the study ........................................................................................................................ 42 1.3 General methodology ....................................................................................................................... 44 1.4 Specific methodology used for the identification of the initial project pipeline ........................... 46 2 Policy guidance on the use of FIs in Croatia ........................................................................................... 50 2.1 Energy Efficiency and the use of renewable energy in (i) buildings - private and public, residential and non-residential; (ii) the improvement of industrial production processes ....................................... 50 2.2 Sustainable urban and territorial development ............................................................................... 52 2.3 Private-sector investment into RDI in support of an innovative and competitive business and research environment ................................................................................................................................. 54 2.4 Enhance access to ICT, encouraging private-sector investment into the “last-mile” for broadband services ..................................................................................................................................... 56 2.5 Technical Assistance ........................................................................................................................... 58 3 Croatian economic context..................................................................................................................... 59 4 Supply side analysis across the four investment areas ......................................................................... 62 4.1 Banking market in Croatia .................................................................................................................. 62 4.1.1 Overview ...................................................................................................................................... 62 4.1.2 Lending to the public sector ....................................................................................................... 65 4.1.3 Lending to the private sector ..................................................................................................... 67 4.1.3.1 Lending to non-financial corporations ............................................................... 67 4.1.3.2 Lending to households ....................................................................................... 68 4.2 International Financial Institutions, public and private sector actors ............................................. 70 4.2.1 International Financial Institutions ............................................................................................ 70 4.2.2 National financial institutions ......................................................................................................71 4.2.3 Key Croatian commercial banks ................................................................................................. 72 4.2.4 Building societies ......................................................................................................................... 73 4.3 Capital market .................................................................................................................................... 74 4.4 Specialised sector-focused funds and facilities ................................................................................ 75 4.4.1 Energy efficiency and the use of renewable energies in Croatia.............................................. 76 4.4.1.1 National programmes ......................................................................................... 76 4.4.1.2 Main facilities offered by Croatian commercial banks ...................................... 79 Assessing the potential future use of financial instruments in Croatia – Interim Report focusing on EE/RES sector 3 European Investment Bank 4.4.1.3 Facilities offered at international level............................................................... 80 4.4.2 RDI investments .......................................................................................................................... 83 4.4.3 SUD and territorial development .............................................................................................. 84 4.4.4 Broadband technologies ............................................................................................................. 85 4.4.5 Overview of main sources of finance available in Croatia per investment area ...................... 85 4.5 Summary of the supply-side analysis ................................................................................................ 87 5 Building block 1: Market assessment of priority investment areas ...................................................... 92 5.1 Energy Efficiency and the use of renewable energy in (i) buildings - private and public, residential and non-residential; (ii) the improvement of industrial production processes ....................................... 92 5.1.1 Analysis of market failures, suboptimal investment situations and investment needs .......... 92 5.1.1.1 Buildings – private and public, residential and non-residential ........................ 92 5.1.1.2 Improvement of industrial production process ............................................... 124 5.1.2 Value added of the FI ................................................................................................................. 131 5.1.2.1 Qualitative dimension of value added ............................................................... 131 5.1.2.2 Quantitative dimension of the value added ..................................................... 133 5.1.3 Estimate of additional public and private resources ................................................................133 5.1.3.1 Consistency with other forms of intervention ................................................. 135 5.1.4 Review of lessons learnt from the past and similar existing Funds ....................................... 136 5.1.4.1 Financial instruments targeting EE/RE in other EU MS .................................... 136 5.1.4.2 Technical assistance: the successful experience of the EEEF .......................... 141 5.1.4.3 National and regional funds/facilities ................................................................ 143 5.1.4.4 Summary of lessons learnt for EE/RE ................................................................ 144 5.1.5 Conclusion of Building Block 1 - Market assessment ..............................................................