This article is part of our special report Building the way out of the crisis.
SPECIAL REPORT / The buildings sector is facing a huge challenge: how to encourage investment in the refurbishment of Europe’s old building stock, and for the near-zero buildings of the future? Industry sources tell EURACTIV that member states are at fault for not doing enough to stimulate a market in energy efficiency investments.
According to European Commission figures, the buildings sector needs investment of €60 billion a year for refurbishments and new buildings, if it is to meet its energy efficiency targets for 2020 and beyond.
Yet in cash-strapped times, public funding is limited. As part of the recently agreed deal on Horizon 2020, €5.3 billion has been allocated to energy, of which 85% will go on energy efficiency and renewable energy, with energy efficiency receiving the bulk of that.
The European Investment Bank has actually reduced investments for energy efficiency projects, which peaked at €2.4 billion in 2010, and fell to less than €800 million in 2012. An official at the EIB attributed this to the economic downturn, and said that demand was lower. “We can only finance projects that we have been solicited for,” said EIB senior engineer Reinhard Six.
According to Carsten Müller, from DENEFF, an independent German business initiative for energy efficiency, huge additional financing efforts will be needed to meet Europe’s 2050 targets, and stronger public investment won’t be enough to meet that.
“We need energy efficiency to become attractive to financiers and to become economically appealing,” Müller told an audience at a conference on financing energy efficiency on 27 June.
Ultimately, the responsibility falls with member states to develop markets, says a key stakeholder in the buildings sector.
‘Safe have’ for investors
In an interview with EURACTIV, Oliver Rapf, executive director of the Buildings Performance Institute Europe (BPIE), argues that the money is there, as is the investment opportunity, in the form of Europe’s building stock. But he said the regulatory framework was missing.
Unlike the commodities market, investment in buildings renovation offers “a safe haven for investors,” said Rapf. However, he conceded that investors had to be willing to wait for long pay-back times of up to 12 years. Achieving lower pay-back times is one of the core challenges holding back investment in energy efficiency generally, particularly for smaller projects such as energy savings in small and medium enterprises (SMEs), where investors expect pay-back periods of five years or less.
For Rapf, one of the main issues is the lack of a suitable investment framework for the sector at national level, and for that member states are to blame.
“We need a regulatory framework. Not enough is being done. Most member states haven’t even transformed the EPBD into national legislation,” said Rapf, referring to the Energy Performance of Buildings Directive.
Asked what tools could stimulate a better private investment climate, Rapf argued that if Energy Performance Certificates could really steer the market if each certificate is reliable and mandatory.
“If your building has a bad rating, it will influence property values,” he said.
According to the results of a recent study, if a building goes up, an EPC rating following implementing energy savings, the value of the property goes up on average by 3%.
Another problem facing the sector is that banks either don’t know or don’t care about energy efficiency. A few alternatives financing schemes are popping up, such as the UK’s Sustainable Development Capital, which has an energy efficiency fund. The British Treasury’s Green Investment Bank has contributed £50 million to the fund.
Gil Levy, a partner at the investment firm, would like to see more incentives from EU governments, noting how the government’s incentives in the renewable energy sector have helped to galvanise developers and investors into the market.
“If you afford incentives or place a responsibility on energy mangers, projects will be more commonplace and investors will come in on the back of predictable and risk mitigated income streams. It’s takes the motivating of private sector CEOs and leaders in the public sector to do something about their energy levels”, he told EURACTIV.
“It’s either an incentive, or frankly, a stick. Requiring for example every CEO or every corporate to ensure that they are certain EPC grading”.
There are, however, some green shoots. In Germany, for instance, crowd-financing companies are just beginning to emerge. They aim to co-ordinate investment in largely small, local projects by asking the public to contribute small amounts, for example to pay for energy savings in a local hospital or shop, and then paying these investors back a percentage of the energy savings within a relatively short pay-back period of 3 to 5 years. However, even these companies are struggling to find suitable projects, as market demand is not strong enough.
“Right now the ball is in the court of member states. I hope the Commission can monitor closely what’s happening,” said Rapf. The long-term renovation roadmaps which were agreed under the Energy Efficiency Directive will be essential to determining the political will behind stimulating building renovations and the investments they require.
Member states have until April 2014 to submit their plans to the Commission.