Energy Efficient Retrofitting of Buildings

Description

Improving energy efficiency of the building stock in a city needs strategic and long-term thinking. Complex ownership structures, market barriers, diversity of building typologies, consumer preferences and multiple stakeholders involved in the construction and retrofitting of a building makes energy efficient buildings a challenge even with the advanced technological developments. However, to realise positive energy districts and reach the ambitious climate goals set forward by cities, zero and positive energy buildings play a critical role.

A variety of initiatives worldwide have proven that while a complex challenge, Energy Efficient Retrofitting of buildings is possible and has huge impact towards greener and more resilient cities.

Problems to be solved

Legal Requirements

The urgency to deal with the energy efficiency of buildings is enormous. The EU also recognizes this and there are several standards on the energy efficiency of buildings at EU level. Several legislative initiatives have been introduced for building renovation, the most important ones are given below:

• Energy Performance in Buildings Directive (EPBD, Directive 2010/31/EU amended by Directive 2018/844/EU)
• Energy Efficiency Directive (EED, Directive 2012/27/EU amended by Directive 2018/2002/EU)
• Directive of 16 December 2002 on the energy performance of buildings
• Directive of 6 July 2005 establishing a framework for setting eco-design requirements for energy-using products
• Directive of 5 April 2006 on energy end-use efficiency and energy services
• Directive of 23 April 2009 on the promotion of the use of energy from renewable sources providing for the promotion of energy efficiency
• Directive of 21 October 2009 establishing framework for setting Eco-design requirements for energy-related products
• Directive of 19 May 2010 on the indication of energy efficiency labelling and standard product information on the consumption of energy and other resources by energy-related products
• Directive of 19 May 2010 on the energy performance of buildings

Since member states had to integrate these directives into national law, there are many standards regarding energy efficiency in the EU on the national level differing from country to country. Some examples of regulations and standards regarding energy efficiency are listed below (United Nations Economic Comission for Europe, Mapping of Existing Energy Efficiency Standards and Technologies in Buildings in the UNECE Region, 2018):

• France: sets minimum standards for existing buildings and defines the necessary renovations for them.
• Switzerland: the renovated building must not exceed 125% of the new building's energy limit.
• Denmark: Solar heating systems must be provided when the expected hot water consumption exceeds 2,000l per day and can meet 95 per cent of demand.
• Greece: 60% of domestic hot water is from solar energy.

Further standards of various countries can be found in the countries’ information sheets of the report of UNECE. Some regulations already mentioned in North America are:

• Energy Policy Act of 2005
• ASHRAE9 90.1.2007
• ICC Energy Conservation 2000-201510
• Vancouver’s step-by-step plan

Operating Models

Energy retrofit calls for huge initial capital investment with long payback periods. To accelerate retrofitting, favourable financing and market mechanisms, as well as innovative business models are crucial. The policy interventions highlighted in the previous section have the potential to improve access to financing, de-risk investment and reduce barriers while increasing the attractiveness of building sector investments. 

While local and national governments can promote specific supporting policies, public resources can cover only a limited amount of total investments. To obtain substantial results, it is necessary to involve the private sector in financing energy-efficient refurbishments. However, financial institutions face several challenges while approaching the energy efficiency market. These include the small size, fragmentation of investments, and lack of project standardisation which cumulatively result in higher risks.

There is a variety of financing mechanisms available to and being explored by local and state governments including energy service performance contracts (ESPCs), revolving loan funds, leasing, on bill financing, and more. Some of these are explained below:

1) Revolving Loan Funds: RLFs are capital pools set aside by the local or national government from which loans can be made for energy retrofit projects. As the loans are repaid, the capital is then reloaned for another project. Assuming that defaults remain low, RLFs can be "evergreen" sources of capital that are recycled over and over again to fund projects well into the future.

2) On Bill Financing: OBF is a type of loan, introduced first in the USA, that uses the utility bill as a repayment vehicle. It helps reduce barriers like high upfront costs in retrofitting and is a possible solution for the owner tenant dilemma. The loan is paid back over time through the monetary savings on the reduced utility bill. The property owner pays the same bill before and after the renovations and the difference due to savings goes to the investor.

3) Energy Performance Contracting: EPC is a form of financing for capital improvement which enables funding of energy upgrades from cost savings. Under an EPC arrangement an external organisation (ESCO) implements a project to deliver energy efficiency, or a renewable energy project, and uses the stream of income from the cost savings, or the renewable energy produced, to repay the costs of the project, including the costs of the investment (European Commission, 2020).

A key component of successful green retrofit finance programs is the concept of the “cash positive” financial model. This refers to having financial mechanisms which reduce the risk and burden from property owners by ensuring savings right from the first month. The financial arrangements should have interest rates that ensure that the monthly utility bill is reduced by an amount greater than or equal to the monthly repayment instalments providing immediate and steady returns. It has to be noted that legal aspects and underpinnings of various financial models vary greatly across state and local governments. It is essential to conduct rigorous due diligence to clearly understand what types of financing models can be deployed in your community.

Cost Structure

Cost Structure for Energy Efficient Retrofitting of Buildings (BABLE, 2021)

A good reference for costs can be found in the Use Case from Vienna. The initial investments for interventions in 95 flats over 50 years old, was about €4,3 million, which accounts for €680 per m² of useable surface and contained the costs for thermal refurbishment works, maintenance works, and works to increase housing comfort.

The thermal refurbishment of the façade reduced the heat energy demand by more than 80 percent, from 130 kWh/m²yr to approximately 23 kWh/m²yr. Additionally, a 50 m² large PV-System with 9 kWp was installed on the roof.

The total cost of €4,3 million was reduced by direct grants and annuity grant and the annual rent-income of €2.55 million (for 6.330 m² useable surface = €3,35 per m² per month) is used for the payback of the investment (BABLE, 2019).

Market Potential

The Energy Efficient Retrofitting market for buildings has enormous potential since 75% of the building stock in Europe is considered energy inefficient. On a global scale, this number might even be worse, generating an interesting gap to cover with refurbishment initiatives.

Stakeholder Mapping

Stakeholder Map for Energy Efficient Retrofitting of Buildings (BABLE, 2021)

Government Initiatives

Local and national governments need to make clear commitments to ensure long-term market signals towards energy efficient technologies. The accelerated uptake of energy efficient technologies will require a push and pull policy approach. On one hand, mandatory performance targets that push building owners to adopt energy efficient technologies. On the other hand, upfront incentives such as consumer rebates, which reduce barriers such as high upfront costs and higher cost of energy efficient products.

The following list provides examples of some policy measures that can be adopted:

Legislative

• Design building codes and standards that encourage the delivery of deep renovation and regularly strengthen them in response to new technological developments. Strive for near-zero emissions in new construction.
• Set Minimum Energy Performance Standards for energy use equipment.
• Introduce quality standards/certification systems for installers and products.
• Identify restrictive tenancy laws which disincentivise or inhibit energy performance improvement and update those laws to support sustainable transition.
• Set minimum on-site renewable energy production limits in order to promote the local implementation of renewable energy sources and to utilize the existing local sustainable energy potential (an example of legislative action to use at least a certain share of the roof area for PV can be found here). 
• Streamline the design of sustainable energy concepts by starting the process at the beginning of the planning phase of the transition process. Thereby, the district development process can be influenced by the energy concepts towards positive energy districts and energy saving and self-sufficiency potentials can be utilized more easily (avoiding disadvantageous path-dependencies in the planning process).

Technical

• Ensure minimal or no lock-in of inefficient and carbon-intensive technologies in all new constructions during the planning approval phase (e.g. prioritising connection to district heating/cooling network).
• Simplify and enable deployment of high-efficiency, low carbon technologies such as electric heat pumps and solar thermal units.
• Promote use of advanced controls, such as energy management systems and smart home technologies for energy efficient behaviour.
• Address challenges concerning local deployment of low/zero carbon technologies.
• Ban energy intensive and polluting technologies that are reliable on fossil fuels (e.g. incandescent and halogen light bulbs, electric resistance heaters, oil boilers etc.).
• Mandate the usage of waste heat from large scale plants for on-site or district systems. 
• Promote the development of integrated energy concepts that incorporate various building types, sectors and energy demand to maximize the utilization of (energetic) synergies

Financial

• Develop funding vehicles tailored to specific market segments that provide simple and commercially attractive source of finance for deep renovation.
• Develop mechanisms to encourage deep renovation via third party financing e.g. ESCOs and EPCs
• Strengthen carbon pricing mechanisms to provide the right economic signals.
• Incentivise deep energy retrofitting of existing building shells (e.g. reduce property tax for high energy performing buildings).
• Incentivise adoption of renewable energy and energy efficient technologies.

Worldwide there have been interesting movements happening towards increasing the efficiency of buildings. The European Union seems to be in the vanguard of the movement, with several directives published aiming towards climate neutrality. Among them are specific directives for Energy Performance of buildings, frameworks for setting requirements for materials and design, and for promotion of renewables.

While in the United States, the Energy Policy Act of 2005 covers almost every aspect of energy generation, distribution, and consumption, along with guidelines on energy efficiency. In 2012, 31 USA states, by adopting either ASHRAE9 90.1.2007 or the ICC Energy Conservation 2000-2015, implemented model codes for residential and commercial buildings, in Canada there is the Vancouver’s step-by-step plan to promote the uptake of highly energy efficient buildings by removing barriers to Passive House is linked to Vancouver’s Greenest City Action Plan   (UNECE, 2019).

In countries like Serbia, Kazakhstan, Belarus, Russia and some others, the governance structure is such that building codes are made at the federal level, without an option for regional governments to choose whether to adopt the codes or not. In such cases, regions are able to prepare and submit additional design and construction norms or procurement procedures requirements, which will reflect the regional specifics, but will not contradict the federal level law. This situation does not allow the codes to be updated more frequently considering the technological developments in the building sector. The regulatory bodies of these countries acting at the federal level are currently focusing on the implementation of performance-based building codes with minimum energy standards rather than prescriptive building codes. This will give building contractors and owners the flexibility to choose the best technological option to reduce energy consumption (UNECE, 2019).

Supporting Factors

Percentage share of buildings in the EU in different EPC classes (Buildings Performance Institute Europe, 2017)

To achieve carbon neutrality , it is essential to consider both the future buildings being built, and the existing building stock, which constitutes a majority of the buildings we live in today and onwards. As already mentioned, approximately 75% of the European building stock is considered as not energy efficient, i.e., not reaching at least EPC class C, as shown in the figure above, while the figure below gives this distribution on a country basis.

Distribution of the building stock in theEU per EPC class (Buildings Performance Institute Europe, 2017)

The lifetime of European buildings ranges from 40 - 120 years. To reach the ambitious climate and energy goals set by the European Union and demanded for mitigating climate change, the majority of the building stock in the EU needs to be at least nearly zero-energy (Dorizas, Groote, & Fabbr, 2019). Consequently, renovating buildings is a crucial aspect of meeting the European energy efficiency and CO2 emission reduction targets. For the decarbonisation of the building sector, three central pillars are recommended by the International Energy Agency (IEA, 2020):

1) Sufficiency: This deals with interventions in design stage. Energy demand in buildings should be minimized while providing same or improved level of comfort. This will focus on reducing energy need using innovative design, materials and other similar measures that lead to passive buildings.

2) Efficiency: Improving performance of building technologies through facilitation adoption of energy-efficient solutions through policy and market frameworks. This would also include investing and promoting research and innovation in highly energy efficient technologies.

3) Decarbonisation: Once the energy demand for buildings is minimized by using sufficiency and efficiency measures, the remaining low energy demand should be satisfied with high performance, low-carbon solutions.

City Context

It is estimated that people spend on average 85-90% of their time indoors either in their home, in school, at work, or during leisure time. To ensure a high level of comfort, buildings across the globe are fitted with different technologies to heat or cool space, provide clean and hot water, fresh air and electricity to power appliances that simplify human life.

As per the International Energy Agency (IEA), buildings and building construction sectors combined are responsible for one-third of global final energy consumption and almost 40% of total direct and indirect CO2 emissions and hence are a source of enormous untapped efficiency potential (IEA, 2020).

Global Urban Primary Energy Use and CO2 Emissions

According to the European Commission estimations, almost 75% of Europe’s building stock is currently energetically inefficient, and the annual renovation rate ranges from just 0.4 to 1.2%, depending on the country. The inefficiency of buildings in terms of energy and resource use constitutes a large societal challenge in connection to our total consumption and CO₂ footprint. This adds pressure on the total integrated energy and city system (State of Green, 2020). Thus, building efficiency plays a decisive role in supporting cities to achieve their carbon neutrality targets. Buildings generate direct CO2 emissions through fuels that are burned (e.g. oil, natural gas) and indirect emissions through the use of fossil fuel powered electricity that is used in the buildings (IEA, 2019). The figure above shows the share of buildings in urban primary energy use and CO2 emissions, relative to global levels.