Financial crisis ‘increasing incentives’ for building retrofits

Green building low energy house.JPG

The long recession is increasing the attractiveness of energy saving investments in buildings, according to a new survey of construction and real estate players by the Buildings Performance Institute Europe (BPIE).

“Deep retrofits will be crucial to achieving lasting value,” the report says.

As financial assets have grown more risky, investors have found that building renovations cut energy costs, increase property values and prevent such assets from depreciating, according to Oliver Rapf, BPIE’s director. 

“One of the most interesting findings for us is that the financial crisis is increasing incentives for the real estate sector to invest in upgrades of buildings,” he said. “They know that in order to keep and increase the value of their buildings, they have to invest in energy efficiency measures.”

Conversely, “by delaying retrofits the companies will be exposed to assert depreciation,” he added.

The BPIE report ‘Investing in energy efficiency in Europe’s buildings’ finds that the risk of ‘asset depreciation’ on properties is compounded by a lack of data about the energy consumption and carbon footprints of buildings.  

“Depreciation is the next big Damocles sword for the industry,” Thomas Beyerle, the managing director of IVG Immobilien, is quoted as saying.

Only half of the EU companies surveyed by the BPIE audited their energy use, although this figure is higher than in the US (30%), India (28%) or China (15%). Of those companies which have begun proactive evaluations, four lessons emerge, the report says:

  • Deeper retrofits lower the risk of asset depreciation.
  • Taking a portfolio approach to managing building stock helps large property owners increase the cost effectiveness of their energy efficiency efforts.
  • Retrofitting should be strategic and Europe’s oldest and most inefficient buildings should be renovated first.
  • The scale of investment determines the speed of the retrofitting.

Recent BPIE figures show that new renovation rates in Europe are low, standing at approximately 1% of total building stock. To meet the EU’s energy savings target for 2020, they will need to double or even triple. This might not be as tall an order as it sounds.

Loss of trust

A 2012 survey by the BPIE found that 43% of EU-based respondents in the building sector focused on retrofits, compared to 37% in the US and 23% in China.

Rapf said that anecdotal data suggested that investors were increasingly willing to invest in their own properties, because they had lost trust in other forms of investment.

“There is a general move among Europeans to spend money on their home properties rather than putting it into other investment vehicles as, if they upgrade their house, they see what they get and what they save in terms of energy bills,” he told EURACTIV.

The depressing effects of the financial crisis had been felt most on the commissioning of new buildings, Rapf said.

Unlike China and India which are experiencing a housing construction boom, new construction in Europe only represents around 1% of the total housing stock at present.

Deep retrofits

The question though, of what constitutes a ‘deep retrofit’ – a term used interchangeably with ‘renovation’ – continues to sow confusion in some quarters.

The BPIE’s report says that the Energy Efficiency Directive (EED), like the Energy Performance in Buildings Directive (EPBD) is “riddled with ambiguity” because “it does not specify a time horizon or define what ‘deep’ retrofit means.”

For the BPIE, a deep retrofit involves an efficiency improvement of between 60-90% on what existed before, a process that requires significant investments and what the BPIE calls a ‘whole building analysis.’

But an exact target figure might not be needed in Rapf's view, as the energy saving potential of buildings varied considerably.

“With a heritage building there are only a certain number of measures you can implement without changing its façade,” he explained. “You can’t just put insulation material on the outside as it would dramatically change the appearance.”

How much is ‘nearly-zero’?

The report also says that “more definition of what is meant by ‘nearly zero-energy buildings’ is needed” in the EPBD.

The directive obliges all new buildings in the EU to be ‘nearly-zero energy’ consumers by 2021 but allows member states to define what this means. 

The BPIE says that it must include the integration of renewable technology into building structures, in a flexible way that takes account of local climatic conditions. 

“Member states must ensure that implementation of the directive is done effectively, and that they put a national renovation strategy in place that incentivises deep renovation,” Rapf said.

A lack of EU-wide harmonisation of the directive’s energy performance certificates was causing problems for private sector companies which operated transnationally, he said.

These certificates are supposed to give property owners and tenants information about the energy quality of buildings but without common rules it is difficult to compare the data across borders.

“From many conversations [with the private sector], I know that it would make life easier for many companies if there was better harmonisation,” Rapf said.

The report also underlines the importance of energy efficiency project aggregators – such as the UK’s Green Deal – in attracting private investment to the sector.

Aggregators of this sort minimise the risk involved when individual projects fail, but many member states lack the means to fund them.

EU nations have signed up to a voluntary objective of reducing the EU's primary energy use by 20% by 2020, measured against 2005 levels. Such savings would slash the EU’s CO2 emissions by an estimated 780 million tonnes and save €100 billion in fuel costs.

One of the EU's main policy tools to achieve this objective is the Energy Performance of Buildings Directive (EPBD), which was initially supposed to reduce the EU's energy consumption by up to 6%.

>> Read our LinksDossier: Energy Performance of Buildings Directive

The directive was recast in 2010 to cover residential and non-residential constructions. It provided a common methodology for calculating the energy performance of buildings and covered five main categories of end-uses: heating, cooling, ventilation, lighting, and hot water.

All new structures in the EU were required to be nearly zero-energy buildings by 2021, with a 2019 target for the public sector.

  • 30 April: Member states present their national programmes for the implementation of the Energy Efficiency Directive.
  • 2014: EU pledged to review progress towards energy efficiency 2020 targets and consider binding measures if it is too slow.
  • 9 July 2015: Deadline for threshold raising energy performance requirement on public buildings to 250m2.
  • 2016: European Commission to review the Energy Efficiency Directive.
  • 1 Jan. 2019: Deadline for all new public buildings to become near-zero CO2 emitters
  • 2020: Deadline for EU states to meet voluntary obligation to reduce energy output by 20%, measured against 2005 levels.
  • 1 Jan. 2021: Deadline for all new buildings to become near-zero carbon emitters

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