Latent demand, not funding, is biggest obstacle for building renovation

A row of 1930s period houses is seen in south-east London. House prices have rocketed in the outskirts of the capital as buyers move further out. [Facundo Arrizabalaga / EPA]

This article is part of our special report Financing energy efficiency.

A lack of demand for housing renovation – not a funding shortage – is the biggest obstacle to reaping the benefits of energy savings, seen as an unexploited ‘golden goose’ to tackle climate change and improve energy security.

EU legislation currently under revision must address the latent demand for housing renovation, stakeholders said at a Wednesday (10 May) breakfast event, hosted in Brussels by Bendt Bendtsen, a Danish MEP who is the rapporteur on the recast Energy Performance of Buildings Directive.

With Europe’s building stock responsible for 40% of EU primary energy consumption and 36% of CO2 emissions, it is difficult for many to accept that 75% of it remains inefficient.

The current underwhelming annual renovation rate of 1% across the EU means it would take a century to decarbonise the building stock. In reality, 2050 targets to lower the bloc’s CO2 emissions by 80% mean a tripling of the renovation rate is required.

EU heads of state have adopted a “show us the money” attitude, saying sufficient funding must be in place before tougher energy efficiency targets can be approved at European level.

But building stock renovation actors are keen to point out sources of funding are indeed available.

Energy efficiency entrepreneur: EU targets should be higher

Ambitious European Union targets to boost energy efficiency can unlock much-needed private investment, Peter Sweatman told EURACTIV.com. But the current targets are not high enough, said the rapporteur on the Energy Efficiency Financial Institutions Group (EFFIG).

Banks ready, willing and capable

“Banks are ready, willing and capable to meet the demand for energy renovation when it materialises,” said Stephen Hibbert, head of energy and carbon efficiency finance operations at ING, the Dutch banking and insurance multinational.

“There is no shortage of funds, we have all the tools ready to be deployed. But confidence must be boosted in the market,” Hibbert explained. “Increased awareness and a stronger legislative and policy framework, with ambitious, bold and binding measures, can act as important triggers to stimulate consumer demand for energy renovation,” he said.

Bendtsen confirmed that private investment is ready, citing commercial banks like ING which are taking up the upfront investment, and a growing number of pension funds securing long-term income streams.

“Both want to invest in energy renovation. A strong EPBD must support this private investment,” Bendtsen stressed.

When asked why renovation was not happening at the pace and scale required, Bendtsen cited two main reasons: The first is so-called split incentives, whereby owners and tenants of rental properties neither want to invest further or pay more, respectively. The second is the cost and availability of financing for renovation, meaning only those who can afford it do so.

If we want to crack the nut, we must get private funds – such as pension funds – working for us,”  Bendtsen underlined.

Pension fund: EU should promote ‘one-stop shop’ for housing renovation

Homeowners typically don’t have the capital to invest in energy renovation solutions, despite the proven returns. Danish pension fund PKA helps bridge that gap with a one-stop-shop solution which, it believes, could be replicated across Europe.

Window of opportunity

The current revision of the EPBD offers a window of opportunity to address the demand for building renovation by boosting confidence and providing the regulatory certainty investors and consumers are asking for.

Paul Hodson, head of unit for energy efficiency at the European Commission, pointed to the lack of “negative numbers related to the renovation of the building stock”, adding that the executive want to ensure that the financial sector understands the risks related to energy efficiency, a better bundling of projects and promoting private finance in renovating the building stock.

Hodson underlined the importance of a “clever” use of public money, leveraging it to better drive higher levels of private funding.

Fiona Hall, a campaigner for the European Council for an Energy Efficient Economy, supported Bendtsen’s call for strong legislation to help consumers obtain healthier, more comfortable homes and lower energy bills. “Setting out a clear long-term vision for the building stock in the EPBD will boost consumer confidence and demand in a market eagerly waiting to lend a helping hand,” she said.

Inaction on building renovation is ‘costing lives’

Energy efficiency renovation can alleviate fuel poverty and bring a raft of health and societal benefits. While the EU could do more to boost renovation, several governments have shown that effective answers can be found at a national level.

Miapetra Kumpula-Natri, a Finnish Social Democratic Party lawmaker (S&D) who is shadow rapporteur on the EPBD, emphasised the importance of supporting financial initiatives targeted at the poor.

“We must strive for a coherent package of legislation on energy renovation which will benefit all in society,” said Kumpula-Natri.

“Contrary to popular belief, money is actually not the issue here,” added Adrian Joyce, from Renovate Europe, a campaign group. “Banks are keen to invest, but they cannot address the latent demand. They need governments to support a stronger legislation which outlines a clear path to achieve a highly energy efficient building stock in the EU by 2050 in order to stimulate consumer awareness and demand in the market.”

Insiders close to the negotiations between the European Parliament and the EU Council of Ministers on the recast EPBD point to Valletta’s desire to rush proceedings in order to clinch a deal under the Maltese EU Presidency.

But Bendtsen called for “500 MEPs” to back the Parliament’s proposed revision of the EPBD, and stand up against EU member states that are resisting calls to increase the bloc’s proposed energy efficiency targets.

“That way, we can be strong (in our discussions) with the Council,” Bendtsen said.

If the golden goose is to lay any eggs at all, Bendtsen will need exactly that.

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