Crisis puts off investors from big energy-saving spend


This article is part of our special report Energy efficient buildings : Powering Europe.

The financial crisis has made owners of large commercial and public buildings more cautious about spending on energy efficiency improvements. But experts argue that upfront investments are recovered fast and go beyond merely saving energy and reducing electricity bills.

Commercial and public buildings make up 25% of the existing building stock in Europe – a minority compared to residential houses.

But energy efficiency improvements there pay back faster than in residential houses because the reduction in electricity bills is more substantial, making the return on the initial investment visible more rapidly.

Surely, this should be enough to persuade public and commercial building owners to make the investment. However, the financial crisis has made them more cautious about making large investments in energy efficiency refurbishments.

“Every single investment cost is scrutinised very closely," says Adrian Joyce, secretary-general of EuroAce, a trade group representing leading companies involved in the energy saving goods and services industry.

"In growth times, companies are more likely to invest, but during an austerity period, they go back to their core expertise, and energy efficiency is not their core,” says Joyce, who speaks on behalf of companies like Johnson Controls, Saint Gobain, BASF and United Technologies. “There are not enough projects in the pipeline, they still haven't bought into it”.

Working on public buildings, for example, can indeed be very costly, since most have a historical value that make it harder to carry out traditional energy efficiency improvements. "Public authorities still see expenditure on energy efficiency as public spending,” Joyce said.

"But from our point of view, that is wrong because you get a return very fast.”

Funding schemes

One of the reasons for reluctance towards energy-efficiency improvements is the often heavy upfront investment cost and the need to see immediate results.

However, the burden of the initial capital investment can be spread through specialised energy services companies (ESCOs), like Germany's Kreditanstalt für Wiederaufbau (KfW), a government-owned development bank based in Frankfurt. KfW provides, through regular banks, long-term loans for residential houses, but also public authorities and enterprises that want to refurbish their old buildings or make their production more energy-efficient.

What makes the KfW scheme attractive for investors is that it also takes part of the investment risk, making it a leader in the field of energy efficiency. For every euro spent, investors saw a return of €5, calculated on the basis of the number of jobs created or the benefits brought to society and business. The same returns were experienced in Ireland, which also had an energy-efficiency state-funding scheme.

Still, the most frequent obstacle for investing in energy efficiency remains the long investment return period.

PlasticsEurope, a trade which represents companies in the sector, cites a "lack of funds" and the "inability to secure them on acceptable terms" as the biggest obstacles. "This is true especially for the initial investment costs, and this is where the industry needs concrete measures from national and European authorities," it said.

But commercial building owners need not worry about that, Joyce argued. “They can take investment in their assets – their buildings – and this way the investment doesn't show in their books, because as a lump sum it is spread throughout years, so they save not only on the energy bill, but also on taxes,” Joyce explained. 

By experience, Joyce says customers usually change their mind about the cost-benefit analysis after an initial energy-efficiency audit, even in times of economic austerity.

“There are many customers who do not know how much they can save,” said Michel van Roozendaal, in charge of energy solutions for Trane, a global business specialised in energy-efficiency services for the commercial and public sector.

In some cases, the payback is only half a year, if the systems businesses used to operate in were wasting a lot of energy, van Roozendaal explained. Usually, he said,  the return on investments is between two and five years.

Social and health benefits

Despite the more cautious attitude towards spending, there are many businesses all over Europe currently undergoing energy-efficiency improvements in their buildings, Maureen Lally of energy service provider Trane said. Whilst most of their reasons are economical, such as saving money on their electricity bill, businesses opt for lower-energy buildings also for the productivity and wellbeing of their employees, Lally said.

Joyce agrees there is “a good market” for commercial buildings at the moment, but says “it is not enough”. He complains that owners’ attitude, but also the existing literature and policy debates are “short-sighted”. 

“Everyone seems to concentrate uniquely on the economic measure put in place, but that is short-sighted, benefits are economical and social. In properly renovated buildings, the productivity of the work is higher, the comfort is higher,” Joyce said.

Proud to be green

And when economical or social reasons are not enough to convince a business or a public body to turn their buildings green, then the public relations argument will often work, said Jon Slowe, director of Delta Institute for Energy. In the corporate sector, reputation plays a central role. When they make energy-efficiency improvements, companies are able to adapt their corporate messages and showcase their responsibility in managing their carbon footprint.

Most, if not all big companies already have what they call sustainability management plans. And there are also plenty of success stories in each industry to compare oneself with.

"At times of crisis, energy efficiency at production sites is already a prerequisite to reduce costs and is even increasingly becoming a marketing argument," says PlasticsEurope, a trade group representing the plastics sector. "Most businesses are already engaged in reducing energy consumption and such moves are likely to become more attractive in the future."

In the hotel industry for instance, higher energy efficiency standards mean better comfort and health for clients. For example, hotels rooms can turn on the air conditioning the moment the room card is put in its socket. Also, receptionists or building monitors can control the temperature in the room, verify the air quality and keep higher comfort standards in the most energy-efficient ways.

Such systems make hotels proud to be green, and they are not shy from flagging their actions to their clients. In the city of Brussels, 15 organisations, including luxury hotels and government buildings have been granted an eco-label set up by the Walloon government's environment federation (Federation Inter-Environment Wallonie) in 2011 after having proved they have efficient water, energy and waste management plans in place.

They are now effectively communicating to their clients and to the public the means through which they are encouraging an efficient, more sustainable living. 

Buildings account for over 40% of the EU's final energy demand and are a major source of greenhouse-gas emissions, making energy savings there a key element of European climate change objectives.

The Energy Performance of Buildings Directive (EPBD), adopted in 2002, was meant to reduce the EU's energy consumption by up to 6%. The directive was reviewed in 2010 (read full text) to cover residential and non-residential constructions.

>> Read our LinksDossier on energy efficiency in buildings.

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