The Significance of the Financial Situation of Local Government Units for Their Energy Transition Activities: The Case of the Podkarpackie Region

Abstract

This paper discusses the financial determinants of the efforts of local government units (LGUs) to invest in the area of energy transition (ET). The main objective is to verify the links between the scale, directions, and funding sources of LGUs’ investments in ET and their budgetary situation described by the level of income independence, budget result, and debt level. The general research hypothesis assumes that the ET investment activity of LGUs is associated with their financial situation. The analysis covers the period 2019–2022 and uses data from the questionnaire-based survey conducted in 2023 among 181 LGUs in the Podkarpackie region in southern Poland. Non-parametric tests were employed to verify the association between the LGUs’ ET investment activity and their financial situation: the Chi² test, the Mann–Whitney U test, the Kruskal–Wallis test, and the Kendall’s Tau correlation. Financial aspects were shown to influence the scale of municipal ET investments, as well as the type of projects implemented. Among the analysed financial indicators, the debt level was the most important constraint for LGUs to make their own ET investments. The debt level not only determined the scale of municipal ET investment, but also influenced decisions on the type of investments.

1. Introduction

Energy transition (ET) is a major strategic direction to foster sustainable development. It aligns with efforts to achieve climate neutrality and energy security, which are recognised as priorities, among others, in the UN’s 2030 Agenda for Sustainable Development [1,2,3], the Kyoto Protocol, the Paris Agreement [4], and the conclusions of the COP26 summit—the United Nations Climate Change Conference (COP26) held in Glasgow in 2021—as well as the European Green Deal (2019) [5] with the Clean Energy Package—CEP Fit for 55 (2021) [6,7]. Developing a green economy implies reducing CO₂ emissions, increasing energy efficiency, and the use of low-emission resources, including renewable energy.

The increase in the share of renewable energy sources (RES) in the structure of energy production and consumption is also acknowledged as an important element of the country’s energy security [8]. In 2021, the Council of Ministers adopted the Energy Policy of Poland until 2040 (EPP 2040), which presents an ambitious program for the energy transformation of Poland [9]. It assumes reducing the negative impact of the energy sector on the natural environment, which is to be achieved, among others, through the intensive development of RES in all sectors and technologies. By 2030, there will also be a reduction in GHG emissions of about 30% compared to 1990 and a reduction in primary energy consumption of 23% compared to 2007.

At the end of 2023, RES already represented 44.9% of installed capacity and 27% of energy production in the Polish electricity mix (the remaining sources were fossil fuels) [10]. It is significant progress, as 3 years earlier, i.e., in 2020, the share of RES in energy production was 18.9% [11]. Over two decades, the share of RES in heat energy production also increased by nearly 10 p.p. to 12.6% (in 2002 it was 2.9%) [12]. The decrease in the consumption of carbon fuels by 15.5 p.p. compared to 2002 contributed to reducing harmful gas emissions. According to available data for 2019, greenhouse gas emissions in Poland amounted to 314 million tons of CO₂ equivalent. Poland is the fourth largest emitter of greenhouse gases in the European Union (EU), after Germany, France, and Italy [13]. Compared to 1988, the emission for 2019 decreased by 32.5%. The preliminary results of greenhouse gas emissions in 2020 show a decrease in emissions compared to 2019 by 3.7% [14]. However, reducing greenhouse gas emissions in Poland, including greenhouse gases and harmful dust emitted by the energy sector, remains a great challenge in the context of ET.

Fostering ET in Poland requires the involvement of not only central, but also regional and local authorities [15,16]. Local government units (LGUs) play a key role in the transition to a low-carbon economy and in improving energy efficiency at local and regional levels, among others, due to the fact that renewable energy production is more decentralised compared to conventional sources [17,18,19]. Moreover, these administrative organs are closest to the local society and have a deep understanding of its needs. Local authorities have an essential role to play in the decarbonising of local transport, social housing, and waste because of their powers and responsibilities in these sectors [20]. The local government not only drives action directly, but also encourages and inspires changes among local residents and businesses to reduce emissions [21]. Action on climate change also delivers wider benefits: for fuel-poor households, for the local economy, for the environment and biodiversity, as well as the provision of green jobs and skills [20].

The ET activity of LGUs is not an automated process and is associated with a series of challenges and adversities [22]. There are a considerable number of studies on the role of LGUs in promoting and implementing ET. Research investigates, among other aspects, the determinants of the investment activity of local and regional governments, including ET investments, in particular the implementation of renewable energy sources (RES). In this regard, the financial context also receives considerable attention, especially the importance of public funds in overcoming financial constraints for this type of investment [17,23,24,25,26,27,28]. Financial issues are often identified as key determinants of ET investments [17,29,30]. The emphasis is placed on the cost intensity of such investments [31,32], the financial situation of LGUs, such as their debt [33], or the extent of public support for ET investments [34,35]. Although numerous studies have been conducted, the literature still lacks a discussion of the relationship between the financial situation of local government units and their ET investment activity. The research gap concerns the inner budgetary determinants of LGUs activity in ET and various dimensions of the financial situation of LGUs, e.g., income independence, budget result, and indebtedness.

Therefore, the main goal of this study is to verify the links between the investment activity of LGUs in ET and their financial (budgetary) situation. In particular, the links between the scale of LGUs’ investment expenditures on ET, the directions for these investments, the sources of funding for the ET expenditures, and the following characteristics of the LGUs’ budgetary situation were verified: the income independence ratio (IIR), the budget result (BR), and the debt level (DL). A benchmarking analysis of LGUs’ investment activity in ET broken down by LGU type was also performed. In this way, the organisational and administrative aspects of ET were considered.

The issue was analysed based on the example of the Podkarpackie voivodeship, a NUTS-2 basic administrative region in south-eastern Poland. In the Podkarpackie region, there are 160 local government units at the lowest level, that is, communes, and 21 units at the poviat level (poviat is a part of the voivodeship (administrative region NUTS-2). It is the second-level unit of local administration in Poland, equivalent to a county or district (formerly NUTS-4) in other countries. A poviat is subdivided into communes.). The region has a lower level of economic development (measured by GDP per capita) compared to the national average and the average of the EU (in 2022, it was EUR 17,300, accounting for 68% of the average for Poland and 49% of the EU27 average [36]). Furthermore, in 2021, Podkarpackie recorded one of the highest levels of the energy poverty indicator (LIHC) in the country (11.56%) [37,38]. The energy production from RES in the region in 2021 was 787.9 GWh, which accounted only for 2.6% of the production in Poland (30,460.7 GWh) and its growth was slighter than in the whole country (compared to the 2018 year, it was 38.5% in Podkarpackie and 40.9% in Poland) [39]. It is therefore a region where dynamising ET processes necessitates greater involvement of the public sector. At the same time, communes and poviats in the Podkarpackie region are more active (compared to other Polish LGUs) in implementing communal investments, including investments co-financed from EU funds, but face relatively greater budgetary constraints in the area of financing investments compared to the average LGUs in Poland [39,40]. Therefore, it is justified to seek an answer to the following question: To what extent do budgetary constraints, and more broadly the financial situation, affect ET investments?

The article identifies the relationship between ET investments and the financial situation of local government units based on the example of LGUs in a region where the income potential of communes and poviats is relatively low, while the need to accelerate ET is high. It addresses the call to look for conditions to support sustainable development at the local and regional level.

The analyses cover the period 2019–2022, that is, the years of intensified ET projects at the local and regional level in Poland. The research period starts from 2019 as many studies indicate that the LGUs’ activity in ET in previous periods was limited [18,33,41]. The increase in municipal investments, such as the thermal modernisation of public buildings or the municipal installation of RES, conducted in 2019–2022 was induced by the availability of public funds, both national and from the EU (within the perspective 2014–2020) [18,41]. Using EU support, 2625 RES projects (EUR 1.8 billion) were implemented for the 2014–2020 period (in 2007–2013, it was 572 RES projects, EUR 0.8 billion). LGUs, including communes, were the most active beneficiaries of EU support for the development of RES. They represented more than a third of the number and approximately 50% of the value of all projects implemented in the years 2007–2013 and 2014–2020 [18,41]. The year 2022 was the last year that ensured the availability of financial reporting data covering the entire year. The four-year research period avoids distortions of LGU financial results that may occur in a single financial year.

The study draws on data from Statistics Poland (GUS, Local Data Bank). To deepen the analysis of the investment activity of LGUs in the context of their financial situation, a questionnaire-based survey was conducted among 181 LGUs in the Podkarpackie region. The survey was carried out in cooperation with the Statistical Office in Rzeszów in August 2023. To establish links between the analysed characteristics, non-parametric Chi², U-Mann–Whitney, and Kruskal–Wallis tests were applied. To further explore this relationship, the Kendall’s Tau correlation coefficient was used.

The rest of the paper is organized as follows. The next part discusses the literature related to conditions and determinants of the LGUs’ participation in ET. The methodological approach and data are then described. The next parts report the research results and their discussion. Finally, some concluding remarks are presented.

2. Literature Review

Investment expenditures on ET aimed at the production and storage of energy from RES or energy savings through infrastructural modernisation can bring economic, environmental, and social benefits. ET can significantly reduce energy intensity, and, in the influence, the government effectiveness acts as a threshold variable [42]. Increased use of RES can result not only in a reduction in greenhouse gas emissions, but also in a number of significant benefits, such as reducing local air pollution or improving energy security [23,43], which is essential in the face of the depletion of natural resources and increasingly frequent energy crises due to geopolitical factors. On the other hand, the benefits of thermal modernisation have a strictly economic dimension not only for the local government but also, directly or indirectly, for the residents. Benefits also have a social dimension and include reducing energy poverty and social exclusion [44].

ET is both a necessary and challenging process involving many stakeholders, including individual households, enterprises, non-government organisations, and governments (at local, regional, and national levels) as well as international institutions. All these participants face strong barriers to actions aimed at reducing CO₂ emissions, energy intensity, and gaining energy security. Although the character of these barriers is compound, ranging from social and corporate, ecological and technological, to monetary, the financial constraints appear to be the most severe [45].

It will not be possible to intensify ET at the local and regional level without LGUs becoming more involved in the process. This consensus has emerged from a review of the literature on the subject [16,29,44,46,47]. Following this belief, attempts have been made to identify the determinants of LGUs’ investment activity in general [48], in the field of green investment expenditures [49,50,51,52], or narrower, in the area of ET [17,22,28,53]. The list of potential factors for the ET investment activity of LGUs includes: central government policy incentives, local government organization, availability of external funding, LGU fiscal capacity, and characteristics of the socio-economic environment, such as the municipal size, the presence of environmental NGOs, and the attitudes of residents.

Regardless of the country, among the determinants of the involvement of LGUs in the ET area, regulatory factors (e.g., formal and legal requirements for the implementation of investments) and financial issues have proven to be crucial [17,29,30]. The financial barriers most frequently cited to this type of action are: high investment costs, which often exceed the budgetary capabilities of LGUs [31,32], the low scale of public support for ET investments in relation to the needs and expectations of local governments [34,35], and financial (budgetary) constraints related to the poor financial situation of many LGUs, including the issue of excessive debt level of local governments [33]. In the literature, the lack of human capacity and expertise [30,54], regulatory barriers, in particular related to spatial planning [55,56,57], and the lack of public acceptance of certain types of investments related to ET (e.g., wind power plants or biogas plants) [22,33,58,59,60,61,62,63,64] are also indicated as barriers to municipal investment in ET.

In Poland, according to many authors, the main barrier to municipal ET activity is the lack of funds for investment [17,22,29,44]. However, the authors of the Poland Net-Zero 2050 report [44] indicate that this is often due to a lack of qualified specialists who could be effective in energy planning and in obtaining external funding for programmes implementing the EU’s ET priorities. According to studies by Kata et al. [47] and Rakowska and Ozimek [22], a large proportion of local governments in Poland declare the implementation of RES or, more broadly, investments in the area of ET, but far fewer local governments view this as a priority. Local governments have identified other areas as more important for local communities and more urgent to implement. These include building or modernising local roads, improving road safety (by building pavements, pedestrian crossings, etc.), building water supply and sewage systems, modernising or expanding sewage treatment plants, investments in the area of waste storage and management, or investments in education and upbringing infrastructure (crèches, kindergartens, and schools) as well as sports and cultural facilities.

This hierarchy of LGUs’ investment activity is largely due to the constraints of local budgets, which often do not allow local governments to expand investments beyond statutory tasks. In Poland, given the large development gaps in road and social infrastructure, and infrastructure used to provide basic municipal services, investments in ET are de-prioritised.

Many researchers have stressed the importance of non-repayable funding for investments in the area of ET to increase their dynamics and to shift this type of undertaking to a higher priority in the hierarchy of investment tasks of local governments [17,22,29,44]. In Poland, LGUs were able to apply for funding for ET projects as part of the EU (e.g., the Regional Operational Programmes and the Infrastructure and Environment Operational Programme) and national budget (e.g., Government Local Investment Programme, the Polish Deal Strategic Investment Programme) funds to support municipal investments. Between 2019 and 2022, the EU funds allocated to LGUs to finance ET were mainly intended for investments in RES [33,44]. Currently, support for LGUs’ activities from national funds has been rolled out. Various programmes have been launched to support the thermal modernisation of public buildings, convert heating systems in these types of buildings, and to support low-emission public transport [33,44]. These funds, however, were insufficient in relation to the needs of the local governments. The implementation of investments also relied on the commitment of the LGUs’ own income (own contribution) and, in the absence of such income, on repayable funds in the form of loans, borrowings, and the issue of municipal bonds. As a consequence, the investment activity of LGUs in the area of ET was, to a greater or lesser extent, dependent on their financial (budgetary) situation. Nevertheless, the literature misses a diagnosis of the relationships between ET investments by LGUs and their multidimensional financial situation, specified by income independence, budget result, and indebtedness. This paper tries to fill this gap.

The financial situation of LGUs is diagnosed based on the most general indicators of its ability to support an adequate level of services for local societies by the use of financial sources gathered in a form of income or liabilities that the entity can repay in a timely manner [65,66,67]. In the literature, there are multiple attitudes to assess the financial situation of local governments. Some researchers construct synthetic measures that aggregate numerous indicators. In this vein, Kita and Łukomska-Szarek [68] used 22 indicators concerning, among others, own income representing financial independence, budget result, investment expenditures, and their self-financing and indebtedness, while Malinowski [67] conducted an analysis based on 35 indicators of the financial situation of LGUs. On the other hand, some researchers diagnose the financial situation by selecting few or just one of its indicators. Ładysz [69] described the situation using own income, investment expenditures, and operational results. Malinowska-Masiąg [65] conducted an analysis based on budget results and debt. Jastrzębska [66] discussed the compound nature of financial condition and similar concepts describing LGUs’ finances and mentioned the most often used indicators of indebtedness, financial liquidity, efficiency of spending, structure of expenditures and incomes, relations between incomes and expenditures, as well as indicators of a level and structure of debt and its cost. Grzebyk and Musiał-Malago [70] used a level of income per capita as an indicator that objectively describes the financial condition of municipalities. This paper stems from the strand of literature that is focused on the multidimensional assessment of the financial situation of LGUs. However, it limits the diagnosis to three indicators, as they are derived from survey research, and synthesizes the financial situation of the examined LGUs in the context of their activities in the field of ET. The connection of the multidimensional assessment of the financial situation and different aspects of the ET activities of LGUs is a novel approach that addresses the research gap.

Another aspect distinguishing the presented study lies in a unique collection of data on investment activities of LGUs in a field of ET in a peripheral region. Such information is not accessible in public databases and allows to diagnose ET at a local level giving important practical conclusions. Gathering such data is a challenging task, and in the literature different methodological approaches are used. Research aimed at identifying main barriers and motivation to energy development at the municipal level is based on a case study method or, more typically, on a survey method. There are also some research projects that adopt a multi-method approach with the survey and qualitative stages as well (e.g., [19]); however, the choice of LGUs to the in-depth interviews or observations is always disputable. The case study method, as conducted, e.g., by [49,71], although it allows for an in-depth diagnosis of the ET process, is limited to the specific unit, and it is difficult to generalise research findings even for the region under research. As increasing the sample of LGUs enables identification of more common features of ET, it is adopted in our study. However, there are at least two different methodological paths for conducting survey research. The first assumes reaching municipal leaders interested in ET problems. In such a case, numerous respondents can represent the specified LGU. This survey method was adopted, e.g., by Patel and Parkins [72], who conducted a survey among municipal decision-makers in Alberta, Canada. The other is based on surveys among representatives of LGUs who present opinions on behalf of their unit. In this case, it is possible to specify the research group more precisely and avoid selection bias resulting from personal interest in the ET problem and overrepresentation of LGUs that are more advanced in implementation of modern solutions. Such an attitude to research was adopted, e.g., by Kata and Pitera [29] or Lackowska and Swianiewicz [51]. The research presented in this paper is also conducted within this methodological vein.

3. Materials and Methods

The main research question of this study is: Are there any links between the scale, directions and funding sources of LGUs’ investment in ET and income independence, budget result, and debt level, and if so, what are they?

The general research hypothesis assumes that the investment activity of LGUs in ET is associated with their financial (budgetary) situation. More specifically, it is supposed that:

H1: 

Higher income independence positively affects the scale of ET investments.

H2: 

The surplus in the budget result favours higher LGU’s investment expenditure in the field of ET.

H3: 

A higher debt level limits the ability of LGUs to invest in ET.

Apart from the scale of ET investments of LGUs, their directions (realised and planned) and funding sources were analysed as well.

Investment expenditure in the field of ET is considered, according to Kata and Pitera [29], in a broad sense—not only as investments in the production and storage of RES energy but also as investments aimed at saving heat and electricity (replacement of heat sources with ecological ones and improvement in the energy efficiency of buildings).

A questionnaire-based survey was conducted to deepen the analysis of the investment activity of LGUs in the Podkarpackie region in the context of their financial situation. The questionnaire included open-ended questions and close-ended questions that were either multiple choice or used a 5-point Likert scale. It was also possible to choose an option not included in the multiple-choice answers. The open-ended questions concerned specific financial indicators and the structure of investment expenditures, including those related to ET, as well as the main sources of funding for ET activities (in 2019–2022). The close-ended questions were used to obtain information about the directions of implemented (in 2019–2022) and planned (in the next 2–3 years) ET investments. The 5-point Likert scale was used in the questions on the priorities and factors determining the scale and structure of LGUs’ investments.

In August 2023, the questionnaire was distributed electronically (by e-mail as an active PDF file) to all 181 LGUs in the Podkarpackie region. Responses were received from 84 local governments (46.4% of all communes and poviats in the region), of which 70 were from communes (43.8% of communes) and 14 were from poviats (66.7% of poviats)—

Table 1. LGU structure—the Podkarpackie region and the survey sample.

Specification	LGU Total	Poviats	Communes Total	Urban Communes 1	Rural Communes	Urban-Rural Communes
Podkarpackie region − number	181	21	160	16	108	36
Research sample − number	84	14	70	5	48	17
− %	46.4	66.7	43.8	31.3	44.4	47.2

¹ including cities with poviat status. Source: own study based on Statistics Poland (GUS, Local Data Bank) [73] and own survey.

. There was a relatively lower representation of urban communes in the survey sample (31.3%). However, the surveyed LGUs represented all poviats in the region, which means that the survey sample is geographically representative of the region.

The answers for some of the questions were incomplete; hence, the analysis of individual topics was performed with a varying number of responding LGUs. This was indicated each time in the presentation of the study results.

The financial situation of the LGUs was determined based on three indicators covering the areas identified in the literature review [29,31,33,47,56,74,75,76]:

• income independence ratio (IIR): share of own income in relation to total income (average for 2019–2022, in %); calculated according to the formula:

$$IIR=\frac{\sum _{t=1}^n\frac{{OI}_t}{{TI}_t}\ast 100\%}{n}$$

(1)

where: OI—own income achieved by the LGU, TI—total income of the LGU, t—time period (t = 1, …, n; n = 4);

• budget result (BR): budget balance in relation to total income (average for 2019–2022, in %); calculated according to the formula:

$$BR=\frac{\sum _{t=1}^n\frac{{BB}_t}{{TI}_t}\ast 100\%}{n}$$

(2)

where: BB—budget balance of the LGU (positive value for surplus and negative value for deficit), TI—total income of the LGU, t—time period (t = 1, …, n; n = 4);

• debt level (DL): debt in relation to total income realised (as at the end of 2022, in %) calculated according to the formula:

$$DL=\frac{D}{TI}\ast 100\%$$

(3)

where: D—debt of the LGU, TI—total income of the LGU.

The income independence ratio (IIR) of a commune or poviat provides information on the ability to create income over which a local government unit has full authority [76]. The higher this ratio, the greater the income independence of the commune or poviat and, therefore, the greater the possibility of committing income to finance ET investments.

The budget result (BR) represents the difference between total income and total expenditures in a given financial year and can be either a surplus or a deficit. The average budget result for 2019–2022 provides a reliable measure of the LGU’s financial (budgetary) situation, as it covers a 4-year period. As such, its value is not susceptible to fluctuations due to certain incidental factors external or internal to the LGU, which affect the budget result in a given year.

The LGU debt level (DL) adopted in this study is the relation of local government debt to total income at the end of 2022. It is a measure of an LGU’s financial situation because it shows the burden of the unit’s long-term liabilities on its income. This ratio determines the costs of servicing debt and restricts the local government’s ability to incur further debt. As a result, a high debt level may limit the ability of LGUs to invest in ET.

The above-mentioned indicators provide the basis for classifying LGUs into two groups according to each criterion, i.e.,

• LGUs with an average level of own income for 2019–2022 in relation to total income above the region average (group 1) and below the region average (group 2);
• LGUs with an average budget balance for 2019–2022 in relation to total income, showing a surplus (group 1) or a deficit (group 2);
• LGUs with an average debt level in relation to total income realised in 2022 below the average for the sample (group 1) and above the average for the sample (group 2).

Where an LGU is classified as group 1 in each of the above areas, it represents a relatively good financial situation.

To verify the association between LGUs’ ET investment activity and their financial situation, non-parametric tests were employed that are appropriate for small sample sizes that generally do not meet the requirement of a normal distribution [77].

The Chi² independence test is commonly used to verify the dependencies between qualitative variables. It is based on the observed frequency distribution of categorical variables according to the formula [77]:

$${\chi }^2=\sum _{i=1}^r\sum _{j=1}^k\frac{{\left(n_{ij-}{np}_{ij}\right)}^2}{{np}_{ij}}$$

(4)

where r = 2—the number of LGU groups according to the level of the specific financial indicator, k—the number of options of the second characteristic (e.g., the directions of LGUs’ investments in ET, the main sources of financing ET investments), n_ij—the observed frequencies, and np_ij—the expected frequencies.

In the Chi² test, the null hypothesis assumes that the tested characteristics are independent, while the alternative hypothesis indicates that the tested characteristics are related [77]. In this study, the Chi² test was used to examine the association between the LGUs’ financial situation and the directions of ET investments and source of funding of such activities.

The Mann–Whitney U test verifies differences in the central tendency (median) between two groups. For a small sample size, the basic test statistics are calculated as [78]:

$$U=n_1{n}_2+\frac{n_1(n_1+1)}{2}-R_{1}or{U}^{\prime }=n_1{n}_2+\frac{n_2(n_2+1)}{2}-R_2$$

(5)

where n₁, n₂—sample sizes and R₁, R₂—rang sums in the samples.

In the Mann–Whitney U test, the null hypothesis assumes that there is no difference in the median between the two groups, and the alternative hypothesis indicates that the central tendency in the two groups differs. In this study, the Mann–Whitney U test was applied to examine the differences in the scale of ET investments between LGU groups according to the level of the specific financial indicator.

The Kruskal–Wallis test is an extension of the Mann–Whitney U test for 3 or more groups [79]. It was used to verify the differences in the scale of ET investments between the LGU groups according to the administrative type of the LGU.

To further explore the statistical relationship between the financial indicators (IIR, BR, DL) and the scale of ET investments, the Kendall’s Tau correlation coefficient was used. It is a nonparametric, more flexible statistical method designed to examine the relationship between two variables measured on at least an ordinal scale. Its advantages are robustness against outliers and lack of an assumption of a linear relationship. Kendall’s Tau takes value from the range [−1, 1], with higher values indicating a stronger association [80].

The adopted research approach focuses on verifying the links between the categories analysed and is not sufficient to establish causal relationships and the strength of impact. However, it allows the research questions to be answered.

4. Results

4.1. Characteristics of the Study Sample

4.1.1. Financial Situation of the Surveyed LGUs

LGUs from the Podkarpackie region have a lower income independence than the average for Poland. In recent years, for both communes and poviats, the share of own income in total income has been lower than the national average. In the communes in the Podkarpackie region, the average IIR in 2019–2022 was 33.4% (the amount of own income per resident was PLN 2412), with a national average of 49.6% (PLN 3370). For poviats, these figures were as follows: 33.6% (452 PLN per capita) compared to a national average of 39.5% (PLN 524). In the structure of LGUs in the Podkarpackie region (N = 181), just over a quarter achieved an IIR above the average for the region (were classified as group 1). Among the different types of LGUs, urban communes had the strongest ability to earn their own income, as in the country [81], and rural communes had the lowest capability in this regard, as shown in

Table 2. Selected financial indicators of LGUs in the Podkarpackie region.

Local Units		IIR		BR		DL
		Region (N = 181)	Sample (n = 84)	Region (N = 181)	Sample (n = 84)	Region (N = 181)	Sample (n = 79)
LGU—total	a *	33.4	32.0	3.1	3.1	22.5	15.9
	b	26.5	22.6	82.3	79.8	-	58.2
Poviats	a	33.6	31.6	4.7	4.3	12.0	12.2
	b	38.1	28.6	95.2	92.9	-	78.6
Communes:
- total	a	33.4	32.1	2.9	2.9	18.4	16.6
	b	25.0	21.4	80.6	77.1	-	53.8
- urban 1	a	48.1	45.2	−0.3	−0.6	30.1	31.5
	b	87.5	60.0	50.0	40.0	-	20.2
- rural	a	31.4	29.6	3.6	3.7	12.5	12.4
	b	16.7	12.5	88.9	85.4	-	69.8
- urban-rural	a	33.1	35.1	2.1	1.6	21.4	23.0
	b	22.2	35.3	69.4	64.7	-	23.5

* a—financial indicator (value), b—share of units included in group 1 (%). ¹ including cities with poviat status. Source: own study based on Statistics Poland (GUS, Local Data Bank) [73] and own survey.

.

The LGUs surveyed (n = 84) had a level of income independence that was comparable to the regional average. In addition, the percentage of LGUs classified as group 1 based on the IIR level by LGU type was similar to the region, as confirmed by the results of the Chi² test (p > 0.05). Therefore, it can be concluded that, in terms of the income independence, the surveyed group of LGUs is representative of the Podkarpackie region.

Similarly, in terms of the budget result achieved in 2019–2022, the structure of the LGUs surveyed was comparable to that of all LGUs in the Podkarpackie region (p > 0.34 in the Chi² test). Among the LGUs, those which, on average, achieved a budget surplus between 2019 and 2022 predominated (ca. 80%). Their average budget balance in relation to total income (2019–2022) was 3.1%, while the national average was 0.4% [39].

Considering the types of LGUs, urban communes were in the most difficult budgetary situation in the Podkarpackie region. Their unfavourable budget result was reflected in the highest value of the debt ratio (30.1%, in comparison to 22.5% for all LGUs). Among the communes, rural communes were relatively the least indebted, with a DL of ca. 12.5% (nationally: 16.2%). Compared to communes in general, poviats were in a better position in terms of debt, with a debt ratio of 12% in the Podkarpackie region in 2022 (15.4% nationally).

In general, LGUs in the Podkarpackie region, compared to other LGUs in the country, are characterised by a lower level of income independence, a more favourable budget result, and a relatively lower debt level. The situation of LGUs varies depending on the type of LGU. The sample of LGUs covered in the study can be considered representative for the Podkarpackie region, both in terms of the level of the three financial indicators analysed (income independence, budget balance, and debt level) and their distribution in the study sample.

4.1.2. Investment Activity of LGUs

Investment expenditures in the budgets of LGUs in the Podkarpackie region accounted for 14.9% to 19.1% of total expenditures in 2019–2022 (in the study sample, this range was similar: 14.5% to 18.7%), as shown in

Table 3. Share (%) of investment expenditure in total expenditure of LGUs in the Podkarpackie region.

Local Units	Region (N = 181)				Sample (n = 84)
	2019	2020	2021	2022	2019	2020	2021	2022
LGU—total	17.4	15.2	14.9	19.1	15.4	14.5	15.0	18.7
Poviats	18.2	15.9	16.0	23.8	17.0	13.3	15.3	20.2
Communes—total	17.9	15.3	14.8	17.3	15.0	14.7	14.9	18.4
- urban 1	15.5	15.5	14.5	16.2	13.5	14.1	14.3	16.5
- rural	17.2	15.1	14.9	19.2	14.9	14.7	15.7	18.8
- urban-rural	18.7	14.7	13.7	17.2	15.9	15.0	12.7	17.9

¹ including cities with poviat status. Source: own study based on Statistics Poland (GUS, Local Data Bank) [73] and own survey.

. The investment activity of LGUs in the Podkarpackie region measured this way was slightly higher than the national average. The discussed ratio for all communes and poviats in Poland varied between 15.4% and 18.2%. In the analysed period, a slightly higher share of investment expenditures in total expenditures was recorded by poviats compared to communes (Table 3). Among the different types of communes, urban communes generally demonstrated the lowest level of investment expenditures.

The important source of funding for LGUs’ investment expenditures between 2019 and 2022 was own funds, covering approximately 37.2% of these expenditures (Figure 1). National government funding (36.5%), including the Polish Deal (11.1%) and the Government Local Investment Fund (9.9%), also proved to be a significant source of support. LGUs also frequently benefited from European funding (17.5%), mainly as part of the Regional Operational Programme for Podkarpackie Voivodeship (ROP PV) (11.1%). This type of support was supplemented with external borrowing, which financed approx. 8.8% of investment expenditures.

The type of the LGU determined the structure of financing sources for investments. Communes had a higher proportion of own funds supplemented with borrowing compared to poviats. In addition, communes covered their investment expenses to a greater extent with European funds. By contrast, poviats were more likely to rely on national funding (Figure 1).

The surveyed LGUs (n = 84) considered financial aspects to be the key determinant of their investment activities—primarily the availability of external non-repayable sources of funding (from the EU and national sources), but also the level of own income, which provides opportunities for funding investments (Figure 2). On average, these factors were given the highest score, 4.7 and 4.4 respectively, on a five-point scale.

Among the important drivers of investment, the need for investment in road infrastructure and transport accessibility was also mentioned (4.2). Another important factor was the availability of financial support as part of existing contests (calls) launched under EU and national programmes (4.1). The next most important criterion for the implementation of investments is their dependence on the acceptance by the public (3.8). Local government officials stated that they avoided investments that some residents find questionable.

The results of the survey show the importance of ET-related considerations, including investments in RES, among the factors determining LGUs’ investments. On a five-point scale, the need for such an investment focus received a relatively moderate score of 3.6.

4.2. LGUs’ Spending on ET

4.2.1. Level of LGUs’ Investment in ET

The survey results show that the scale of LGUs’ investment in ET is not significant (

Table 4. Share (in %) of ET investments in LGUs’ investment expenditures in 2019–2022 *.

Local Units	Total	IIR		BR		DL
		Group 1	Group 2	Group 1	Group 2	Group 1	Group 2
LGU total	12.2	12.4	12.2	11.7	14.6	15.6	5.9
Poviats	6.8	7.9	6.4	6.6	10.0	7.2	5.3
Communes—total	13.5	13.8	13.4	13.1	14.9	18.8	5.9
- urban 1	4.9	7.3	0.0	0.0	7.3	0.0	4.9
- rural	16.1	22.7	15.1	15.1	22.8	19.5	6.7
- urban-rural	7.0	5.8	7.7	6.1	8.5	13.0	5.3

* individual LGU numbers were lower than for the total sample due to missing responses. ¹ including cities with poviat status. Source: own survey.

). These investments accounted for around 12% of investment expenditures between 2019 and 2022. The communes allocated a higher proportion of funds for this type of investments (13.5%) compared to poviats (6.8%). The individual types of communes exhibited differences in this respect. Expenditures on ET accounted for the largest proportion of investment expenditures in rural communes, where they exceeded 16%. Urban communes allocated the least (less than 5% of investment expenditure) for energy investments. A formal statistical verification using the Kruskal–Wallis test indicates an association between the scale of ET expenditures and the LGU type (p = 0.02). A post hoc test (p = 0.017) shows that the differences between poviats and communes are statistically significant. This means that administratively different types of LGUs are characterised by different ET behaviours. This reflects the impact of administrative and organisational considerations. In Poland, communes are the LGUs with the primary responsibility for managing local public investments.

When comparing LGU investments in ET by the level of income independence of LGUs (IIR), it is difficult to identify a clear relationship pattern, although in almost every breakdown (except urban-rural communes) there is a slightly higher share of investments in LGUs with higher levels of income independence. The absence of an association in this breakdown is confirmed by the results of the Mann–Whitney U test (p = 0.317).

Similarly, only minor differences in ET expenditures show when the budget result (BR) is used as a criterion for comparison. A slightly higher proportion of ET expenditures is characteristic for LGUs that show a deficit, and a similar pattern is found across all types of LGUs. Nevertheless, the differences are insignificant, and the Mann–Whitney U test has not confirmed the existence of associations between the scale of ET expenditures and the budget result (p = 0.14).

The debt level criterion (DL) proves to be the only significant factor differentiating the ET activities of LGUs. LGUs with a relatively smaller debt burden allocated, on average, more than 2.5 times the proportion of their investment expenditures to ET investments (15.6%) compared to more indebted units (5.3%). The significance of these differences is confirmed by the results of the Mann–Whitney U test (p = 0.064). The disproportion in the scale of investments in ET due to the debt level was particularly evident among communes. The investments of communes with a low level of debt were more than three times greater than those of the more indebted communes (18.8% to 5.9%). The statistical significance of these differences is confirmed by the Mann–Whitney U test (p = 0.011). This means that the share of ET expenditures in the investment expenditures incurred by communes between 2019 and 2022 was related to their debt level.

The identification of potential ties between the scale of ET investments of LGUs and their financial situation based on Kendall’s Tau correlation revealed some additional essential relationships, as shown in

Table 5. Kendall’s Tau correlation coefficients between the scale of LGUs’ investments in ET and the indicators of their financial situation.

Correlation between Scale of ET Investment with:	Total	IIR		BR		DL
		Group 1	Group 2	Group 1	Group 2	Group 1	Group 2
Own income to total income (%)	0.03	0.059	−0.04	0.017	−0.24	0.12	0.05
Budget result to total income (%)	0.033	0.15	0.05	0.171 *	0.01	0.15	−0.28 *
Debt level to total income (%)	−0.13	0.03	−0.18 *	−0.21 *	−0.07	−0.1	0.19

* statistically significant coefficients (at 0.1 level). Source: own study.

. Although there is no confirmed relationship between the budgetary situation and the ET investment scale for the entire sample, some ties were found within the LGU groups specified above. Entities characterised by more favourable budget results invested more in ET, when their budget results improved. Furthermore, within this group, the scale of ET investments was limited by debt level. The same relationships were identified within LGUs specified by lower income independence, in which higher debt appeared to constitute a strong barrier to ET investments. Furthermore, in a group of more indebted LGUs, more favourable budget results were negatively correlated with ET investments. This could result from the necessity to repay the liabilities, which created an alternative to the energy modernisation way of using surpluses. The identified relationships are consistent with the research hypotheses, especially with regard to the limiting ET influence of debt. The budget result also appeared to be essential for ET investments; however, the research revealed some more compound interconnections with the level of debt. The level of own income appears to indirectly affect ET investments: the lower level of income independence increases the sensitivity of the ET activity of LGUs to the debt level.

4.2.2. Directions of LGUs’ Investments in ET

The ET efforts embraced by LGUs can take a variety of forms, which are distinguished by the different scale of the expenditure, technological sophistication, the time required to complete the investment, or the nature of the outcomes achieved. The specific nature of ET investments determines how often they are undertaken by LGUs (Figure 3).

Between 2019 and 2022, LGUs implemented ET investments most frequently in the form of thermal modernisation of public buildings (56%). Street lights were also frequently replaced with energy-efficient lighting (48%). Measures were also taken in the form of installing RES on public buildings (46%). In addition, lighting inside public buildings was replaced (43%). Every third LGU (35%) modernised its heating system. Energy-efficient equipment purchases and thermal modernisation of public housing were relatively rare, at 16% and 12%, respectively. Energy management systems were occasionally introduced in municipal facilities (2%). One commune purchased electric buses, and another invested in a biogas plant at a landfill. Between 2019 and 2022, none of the LGUs made investments that could be more sustainable and strategic in nature, such as the construction of a biogas or biomass heating plant, a municipal wind power plant, a hydroelectric power plant, or a municipal waste-to-energy power or heat plant.

The catalogue of investments in ET planned by LGUs in the Podkarpackie region to be implemented in the next 2–3 years is much broader than the investments already made (Figure 3). The most common plans included replacing indoor lighting (48%), installing RES on public buildings, and replacing street lighting (39% each). Every third unit plans to modernise the heating system (35%), purchase equipment (35%), and thermally modernise public buildings (32%). However, among the investments planned by the LGUs were also more challenging projects such as the construction of biogas plants and heating or power plants, which have not been implemented so far.

Communes carried out and planned a slightly wider range of ET investments than poviats. Nevertheless, the study has not confirmed major differences in the direction of ET investments undertaken by different types of LGUs. The Chi² test has not revealed any relationship between either the direction of investments made or plans to do so and the type of LGU (the respective p-values were: 0.8178 and 0.2011, with the investment directions grouped as A_C–E–FG–DH_N), as shown in

Table 6. Implemented (in 2019–2022) and planned (in the next 2–3 years) ET investments of LGUs (response rates—% *) by LGUs’ groups.

Investments	Implemented Investments									Planned Investments
	Total	LGU Type		IIR		BR		DL		Total	LGU Type		IIR		BR		DL
		Poviats	Communes	Group 1	Group 2	Group 1	Group 2	Group 1	Group 2		Poviats	Communes	Group 1	Group 2	Group 1	Group 2	Group 1	Group 2
A	56.0	57.1	55.7	57.9	55.4	53.7	64.7	58.7	57.6	32.1	35.7	31.4	31.6	32.3	32.8	29.4	30.4	30.3
B	11.9	0.0	14.3	15.8	10.8	10.4	17.6	8.7	18.2	22.6	0.0	27.1	21.1	23.1	19.4	35.3	21.7	21.2
C	34.5	28.6	35.7	21.1	38.5	34.3	35.3	34.8	39.4	34.5	35.7	34.3	52.6	29.2	31.3	47.1	37.0	27.3
D	47.6	14.3	54.3	36.8	50.8	44.8	58.8	43.5	54.5	39.3	7.1	45.7	52.6	35.4	38.8	41.2	37.0	39.4
E	46.4	50.0	47.1	42.1	47.7	46.3	47.1	41.3	57.6	39.3	28.6	41.4	47.4	36.9	37.3	47.1	50.0	24.2
F	42.9	35.7	44.3	36.8	44.6	43.3	41.2	45.7	42.4	47.6	42.9	48.6	47.4	47.7	46.3	52.9	45.7	45.5
G	2.4	7.1	1.4	5.3	1.5	1.5	5.9	2.2	3.0	28.6	14.3	31.4	31.6	27.7	26.9	35.3	26.1	30.3
H	15.5	28.6	12.9	21.1	13.8	13.4	23.5	15.2	15.2	34.5	28.6	35.7	31.6	35.4	35.8	29.4	37.0	27.3
I	1.2	0.0	1.4	5.3	0.0	0.0	5.9	0.0	3.0	21.4	7.1	24.3	21.1	21.5	19.4	29.4	15.2	27.3
J	1.2	0.0	1.4	0.0	1.5	0.0	5.9	2.2	0.0	13.1	0.0	15.7	5.3	15.4	13.4	11.8	13.0	12.1
K	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	8.3	0.0	10.0	5.3	9.2	9.0	5.9	6.5	9.1
L	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	8.3	0.0	10.0	5.3	9.2	9.0	5.9	6.5	9.1
M	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	6.0	0.0	7.1	5.3	6.2	7.5	0.0	6.5	3.0
N	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	7.1	0.0	8.6	5.3	7.7	9.0	0.0	6.5	6.1

* the individual LGU populations were lower than for the total sample due to incomplete responses. A—thermal modernisation of public buildings, B—thermal modernisation of municipal housing, C—modernisation of heating systems, D—replacement of street lights with energy-efficient lighting, E—installation of RES on public buildings, F—replacement of interior lighting in public buildings, G—introduction of an energy management system in municipal facilities, H—purchase of energy-efficient equipment for the LGU and its subordinate units, I—purchase of environmentally friendly buses, J—construction of a biogas plant at a landfill or a sewage treatment plant, K—construction of a biogas or biomass-fuelled heating plant, L—construction of a municipal wind power plant, M—construction of a municipal hydroelectric power plant, N—construction of a municipal waste-to-energy power or heat plant. Source: own study using a survey questionnaire.

.

The analysis of the investment decisions of LGUs with varying degrees of income independence (IIR) allows the conclusion that the level of income independence is a factor determining the directions of realised ET expenditures. LGUs with relatively higher own income were more likely to undertake thermal modernisation measures, introduce energy management systems, and purchase equipment and buses. LGUs with a lower degree of income independence focused more often on measures to modernise heating installations, replace lighting, and install RES, and this group also included a commune that invested in the construction of a biogas plant at a landfill. The association between the LGUs’ ET investment directions and their income independence was confirmed with the Chi² test (p = 0.0000, with the investment directions grouped as A_C–D–E–FG–H_N). In contrast, the level of income independence does not determine the ET investment plans declared by the LGUs surveyed (p = 0.5887).

The budget result (BR) as a classification criterion for LGUs, on the other hand, has not proven itself as a statistically significant differentiator of the existing or planned ET investment directions declared by LGUs (p = 0.6264 and p = 0.7448 for the Chi² test, respectively, with the investment directions grouped as A_C-D-E-FG-H_N). However, it can be observed that LGUs with a deficit more often undertook investments in the interior lighting of public buildings and the replacement of street lights with energy-efficient lighting. By contrast, they were less likely to undertake other types of ET investment projects. To some extent, these decisions may be explained by the desire of LGUs with a deficit to seek opportunities to reduce the cost of maintaining public infrastructure, which can be achieved with investments that reduce electricity consumption.

An LGU’s debt level should be considered as a factor determining ET investment directions. Units with a lower debt level invested more frequently in the thermal modernisation of public buildings and replaced indoor lighting; among these LGUs was a commune that built a biogas plant at a landfill. It should be noted that these units were less likely to install RES on public facilities. Differences between LGUs with different debt levels were confirmed using the Chi² test (p = 0.0000, with the investment directions grouped as A_C–D–E–FG–H_N). In addition, debt levels also determine the directions of ET investments planned by LGUs. This is confirmed by the Chi² test (p = 0.0000). Units with a lower level of debt are much more likely to declare that they will install RES on public facilities, which means completing investments that have not yet been made.

4.2.3. Funding Sources of LGUs’ Investments in ET

Investments in ET can be financed both from external sources and from an LGU’s own funds. The availability of funds from each of these sources is determined by a number of factors, which include the expertise and engagement required to apply for financial support from EU or national programmes, as well as the level of development of the local economy, which determines a fiscal capacity of LGUs.

The survey conducted among LGUs in the Podkarpackie region has shown that the main source of financing for ET investments is external funding, which was declared by 79% of the surveyed LGUs (Figure 4). These are both European and national funds. Regarding the EU funds, local government officials have mentioned funding from the Rural Development Programme 2014–2020 and the European Regional Development Fund (as part of the Infrastructure and Environment Operational Programme 2014–2020 and the Regional Operational Programme for Podkarpackie Voivodeship 2014–2020). Some local governments have also financed investments in ET with Norwegian funds.

ET investments are also financed from the state budget. The Government Local Investment Fund and the Polish Deal Government Fund “Strategic Investment Programme” have been mentioned. Local governments also receive support from the National Fund for Environmental Protection and Water Management (NFOŚiGW) and its regional agendas. Most commonly, the support is received in the form of subsidies. However, some local governments avail themselves of loans and borrowings.

A significant proportion of the surveyed LGUs (62%) co-finance energy investments from their own funds. These include both budgetary funds (e.g., from shares in PIT) and the contribution (also in the form of payments) by residents participating in the investment costs. LGUs also receive subsidies for this purpose, e.g., from a higher-level unit.

When comparing the sources of ET investment funding declared by the different types of LGUs, varying proportions of funds used can be observed. External financing dominated in communes (83% of responses), which was supplemented by own funding (56% of responses), while among poviats, 91% used their own funds and only 64% used external sources. However, formal verification of the relationship between the funding source used and the type of LGU by the Chi² test has not confirmed the significance of these associations (p = 0.1673).

The study has not identified a statistically significant relationship between LGUs’ financial situation and the main source of funding for investments in ET (the Chi² test produced p = 0.3504 for the income independence criterion, p = 0.3230 for the budget result criterion and p = 0.3328 for the debt level criterion, respectively). Nevertheless, the data collected suggest that the financial situation may determine the type of funding used to finance investments in ET. This is indicated by the research results presented in Figure 4, illustrating the structure of sources of financing investments in ET by LGUs, including their division into groups according to the analysed budget parameters. LGUs with greater income independence were more likely to rely on their own funding than the alternative group, and the same was true for LGUs with a budget surplus. However, the behaviour of LGUs with relatively low debt levels, which were less likely to rely on their own funds, deviated from this pattern. This may be due to a potentially bidirectional relationship between the debt level and the sources of funding used for investments in ET. Therefore, the results presented warrant further research into ET investments and the financial situation of LGUs.

5. Discussion

Local governments in Poland, including the relatively economically underdeveloped region of south-eastern Poland, are interested in investing in the area of ET. Economic and financial factors, such as investment costs and the availability of external funding sources, determine the implementation of municipal investments in this area, especially investments in RES. This research adds that another important determinant of the activity of communes and poviats in the area of ET is their financial (budgetary) situation.

The study findings remain consistent with the determinants of LGUs’ ET activity previously identified by [17,19,22,28,29,31,32,34,47], among others. These studies indicate that ET barriers are not only a matter of limited own funding and external funding but are also linked to the features of national and EU financing. The availability of national and EU funding so far has been ad hoc in nature and irregular rather than constant and has created periodic ET funding opportunities for LGUs. This was also reflected in the investment activity of the surveyed local governments. ET investments were short-term in nature, and their directions were determined by the possibility of obtaining external financing rather than by the implementation of local strategic plans.

The results presented in the article deepen the analysis of financial determinants by considering three aspects of the financial situation of LGUs, that is, an income independence ratio, budget result, and debt level in relation to total income. An LGU’s debt level proved to be the most differentiating dimension in the scale of ET investment, representing a significant barrier to such activity. This conclusion could have been derived only from research that considers the financial situation of LGUs multidimensionally. Although many researchers diagnosed financial constraints to ET investments of LGUs, neither using a single indicator nor a synthetic measure of budgetary situation allows one to identify which aspect of financial condition is linked with investment decisions. However, our approach is still limited to only three main aspects of the financial situation of LGUs and thus needs further development.

Additionally, our in-depth study of correlation within the groups of LGUs specified by results in each of the financial dimensions revealed some compound relationship in line: ET investments—budget result—indebtedness. Concerning the need to repay liabilities, LGUs had to limit their expenditures to achieve budget surplus, and even with a favourable budget result, they reduced ET investments to avoid debt. Simultaneously, ET investments resulted in worse budget results and a higher debt level. Thus, the identified relationships are at least bidirectional. Some other researchers (e.g., [82]) also concluded about the mutual influence of financial indicators for LGUs. Moreover, in the research for Norway (e.g., [48]), as in our study, income independence appeared to be a less important factor of investments. However, similar to our results, the lower level of income increases the sensitivity of investment activity to debt levels.

Observation of the prevailing role of indebtedness aligns with the patterns observed in the area of public finance at the level of national economies and at the regional and local level across the world. This is because debt is the most common source of funding for investments in public infrastructure [83]. Heinemann [84] suggests that rising debt as well as increasing capital mobility were key factors explaining the decline in investment spending by OECD countries in the last two decades of the 20th century. At the local level in Poland, Banaszewska [85] has shown that high debt levels negatively affected communes’ investment expenditures per capita. A similar situation has been observed in Norway [48] and Australia [86]. In an effort to maintain a balanced budget, communes reduce investments in local infrastructure [48,86], which can be problematic from the perspective of long-term development. Our research reveals that the relationships described also apply to the type of LGUs’ investments, in particular to the investment expenditures on ET.

In the longer term, it is also important to keep in mind possible two-way interactions between public investment spending and debt. There are studies, e.g., by Veiga and Veriga [82], suggesting that a higher share of investment expenditures disturbs the budgetary balance, thus contributing to an increase in the debt level of communes. Future studies need to verify whether this relationship also applies to expenditures on ET.

Furthermore, the research shows that in Poland, LGUs’ investments in ET are more of an ad hoc, short-term nature and are less cost-intensive, evolutionary, and geared towards gradual changes rather than an energy revolution based on state-of-the-art and high-tech solutions. Polish communes are less advanced in this regard than LGUs in the Nordic countries. Germany or France, which more often generate their own local renewable energy, are experienced in smart grid technology or in setting up and operating municipal energy companies [87]. This aligns with a broader picture of geographical disparities in development due to varying political, regulatory, or economic contexts.

In a deeper context, the structure of the investments of local governments is also determined by the financial and budgetary constraints. It has been demonstrated that, in Poland, the directions of LGUs’ investments in ET are conditioned by both their debt level and their income independence. LGUs with more favourable financial indicators were more likely to implement thermal modernisation measures, while they were less likely to replace heating systems and street lighting and install RES. However, in terms of identifying the characteristic directions of investments in ET, the results are not clear from the perspective of budget balance. Small sample sizes and, as a result, the need to aggregate investment directions into larger groups is a limitation of the study. Nevertheless, the study confirms that LGUs’ finances (debt level and income independence) cannot be ignored in the planning of ET activities.

Financial and budgetary constraints can be mitigated by public funding—for example, investment grants for ET at the local and regional level as part of the European Union’s RePowerEU programme (National Recovery Plan) and the EU Structural Funds in 2021–2027. However, even greater access to European and national funding may not be enough to boost the activity of many LGUs in the area of ET in view of their serious budgetary constraints, especially when it comes to debt level. On the other hand, a high level of debt can stimulate the search for other means of implementing public investments. A study by Kopańska and Asiński [83] shows that communes with higher debt levels are more likely to announce tenders as part of a public–private partnership (PPP). In contrast, local units that are more dependent on central government grants or receive more European grants are less likely to engage in PPPs.

6. Conclusions

LGUs’ investments in ET are an essential part of green investment expenditure, or more broadly, a part of green finance as they support achieving the sustainability goals. They contribute to improving the environment through reduced greenhouse gas emissions and resource consumption and bring economic benefits in the form of cost savings from increased energy efficiency, while contributing to improving energy security and minimising social risks, including those related to energy poverty and social exclusion. As climate pressure intensifies, more emphasis will also be placed on local governments to adopt the concept of environmentally sustainable long-term investments.

Previous experience in the area of ET has demonstrated the particular importance of initiatives implemented locally by LGUs at the lowest level of the administrative structure. So far, these have been largely influenced by national and EU programmes (competitions). They are often short-term investments that improve energy efficiency through relatively low-tech and low-cost measures, such as thermal modernisation of public buildings or lighting replacement. Thus, ET is an evolutionary process that involves the gradual diffusion of solutions to improve everyday energy efficiency. It is difficult to expect spectacular action in this area from local governments, which perform a much wider range of public tasks and are confronted with the dilemmas of choosing to meet the immediate needs of local communities.

Yet, in view of the vast array of benefits of investments in ET, it is reasonable to mobilise LGUs in this area, which requires minimising the barriers to such activities. The presented studies confirm that the financial situation of LGUs and access to financing are important determinants of ET measures implemented in less developed areas where local governments are more likely to encounter financial constraints. The main hypothesis assuming the existence of relationships between investment activity of LGUs in the field of ET and their financial situation was confirmed. The results of the study show that a high debt level is a strong barrier to LGUs’ ET activities, which positively verifies the detailed research hypothesis H3. Although the hypothesis H1 and H2 about stimulating influence of income independence and budget result on ET investments’ scale were not formally confirmed, some relationships were identified as well. Income independence seems to be a factor conditioning links between debt and a scale of ET investments, while budget result can both directly and indirectly determine relationships in line: investments—indebtedness. Analyses of directions of ET investments also suggest the determining role of income independence and a debt level.

The need to obtain funding for ET investments, which would represent a long-term debt burden on the local community, does not encourage decisions to implement solutions to improve energy efficiency and increase environmental neutrality. For many LGUs, the challenge of budgetary constraints, determined, among other things, by a high debt level, is becoming an important barrier to decisions on ET investments. Although expected by residents, in the hierarchy of investment priorities, such investments rank behind projects that concern basic technical and social infrastructure (roads, sewage systems, education infrastructure, etc.).

Therefore, one opportunity for accelerated ET is to expand the range of support offered by non-repayable European and nationally funded programmes, as well as to increase LGUs’ financial independence. Non-repayable sources of funding are particularly important in the context of LGUs’ debt level being identified as a factor that noticeably limits the scale of investments in ET. Leaving LGUs without support in this area carries a real risk of not achieving energy policy and sustainability goals.

It should be stressed that the presented results reflect the behaviour of LGUs in a relatively economically underdeveloped region where local governments confront the challenges of low budgetary income and low income independence, while having to meet many of the basic needs of local communities. As a result, the decisions of such LGUs to invest in ET may differ from the behaviour of local governments in regions with different socio-economic situations. Thus, it is reasonable to conduct research to collate the ET investment activity of LGUs operating in regions with higher levels of GDP per capita and other characteristics describing the advancement of development processes. These could provide a basis for verifying the thesis of the universal nature of debt level and other indicators of LGUs’ financial situation as determinants of investments in ET. Further in-depth research on the impact not only of LGUs’ debt levels but also of the form and structure of LGUs’ debt on their ET activities is also required. Furthermore, the existing relations may be bidirectional in nature, which necessitates verification in future research. It is especially important to search for not only direct but also indirect and mutually interplaying relationships between multiple dimensions of financial situation of LGUs and their decisions about ET investments.

From a methodological point of view, there is a strong necessity to gather more detailed data and simultaneously covering a wider spatial scope describing LGUs’ activity in the field of ET investments. They should concern different aspects of financial determinants of decisions of involvement in energy modernisation, taking into account multiple aspect of budgetary situation, among others, indebtedness with its structure and costs, a level and structure of income specifying independence and ability to meet the needs of local society, budget results, and short- and long-term financial liquidity, which were only partially touched in the study. In addition, as control variables, features of the socio-economic environment (the presence of environmental NGOs, the attitudes of residents), as well as local government organization should also be included. Moreover, in future research, some more sophisticated methods of data analysis could be adopted, such as multidimensional correspondence analysis, factor analysis, or structural equation modelling. In this study, the use of these methods was limited by the range of data.