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State guaranteed loans hope to spur green investment amongst households

The Ministry of the Environment and the Ministry of Employment and the Economy have negotiated a large loan programme with the European Investment Fund.

A new loan initiative funded by the Finnish government and European Investment Fund aims to lower the threshold for households investing in green technology. Image: Esa Huuhko / Yle

At the beginning of next year, a new government subsidised loan programme will aim to lower the threshold for expensive energy purchases and renovations.

"It is a pot of around 700 million euros, to which the Finnish state has contributed 100 million euros. It is a significant new package for implementing energy projects and in many ways more effective than direct subsidies to citizens can be," Minister of the Environment and Climate Change Maria Ohisalo (Green) told Yle.

This initiative is an energy self-sufficiency loan negotiated by the Ministry of the Environment and the Ministry of Economic Affairs and Employment with the European Investment Fund.

"Energy self-sufficiency solutions are usually financially viable in the longer term, but for many, making large upfront investments is financially impossible. However, there is a clear desire to move away from fossil energy. With this loan product, we aim to lower the threshold for energy renovation," Ohisalo explained.

The loan, with a built-in state guarantee, is intended for households, housing associations and small and medium-sized enterprises (SMEs) investing in a more energy-efficient system.

"The guarantee rate for loans to households and housing companies can be as high as 80%. For small and medium-sized enterprises, it can be as high as 70%. This ensures that banks can grant these loans to a wide variety of households and operators across Finland," Ohisalo clarified.

The loan can cover a plethora of household green investments, including energy efficiency renovations, upgrading a heating system to geothermal or solar energy, the purchase of low-emission or electric vehicles, and building charging infrastructure.

May not change auto sector much

One of the stipulations is that this loan initiative could be used to purchase an electric car and its necessary charging system, which could come into conflict with the instalment payment frequently used by car dealerships.

"Of course, the interest rate on an energy self-sufficiency loan depends on the bank and the customer relationship. In general, you can think that the loan is cheaper than the instalment," said Development Director Juho Korpi of the Ministry of the Environment.

However, not all agree that this is the case as the state-supported loan may not be as advantageous for consumers.

"I believe that the target guarantee part-payment system, which has been in use for 60 years, will continue to be used and that only individual electric cars will be financed through this guarantee system, i.e. not many electric cars will be purchased," said Pekka Rissa CEO of the Finnish Central Organisation for the Motor Trades and Repairs.

He justified his position in particular by the ease of the instalment system. On the other hand, financing costs and interest rates also play a role in the sale of electric cars worth tens of thousands of euros.

"The hire-purchase rate varies a lot depending on the finance company and the car. New cars are offered at rates of between one and two percent. Typically, the hire-purchase rate is probably somewhere around four and five percent for a 72-month loan period," explained Rissa.

Rissa did however add that this energy loan initiative could be good for the automotive industry and boost electrification of Finland's car fleet.

"This is a step in the right direction. The whole package approach is a good one - solar cells on roofs and more charging equipment in homes. That is the line we need to take. We only have about 140,000 charging cars registered in Finland and we should have more than 700,000 in 2030," Rissa pointed out.

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