Without a serious dose of investment, buildings in Europe will continue to hinder the energy transition and be serious contributors to climate change

Over the last decade most attention has been paid to developing and optimising the concept of new nearly zero energy (NZEB) or zero emission buildings. One of the key drivers has been the 2010 EU Buildings Directive that requires all new public buildings to be NZEB from 2019 and all new buildings to reach this standard from 2021. Much less attention has been given to the renovation challenge, which in Europe, as in most parts of the world, is massive. In Europe, 75% of buildings standing today will still be in use in 2050 and most of them are already in poor shape. The importance of renovating the building stock to deliver the energy transition is well-recognised, buildings account for 36% of total greenhouse gas emissions in the EU. Longer-term ambition is also clear — in the newly revised Buildings Directive, member states are asked to develop strategies to bring their building stock to nearly zero energy levels by 2050. We know how to renovate single buildings to both NZEB and energy positive levels. We have the technical solutions and the social, environmental and economic benefits are well documented. Deep renovations combined with aesthetic quality and use of long-lasting materials are cheaper in the long run as maintenance costs are lower and buildings continue to look good. But these impacts are not fully appreciated or considered when governments are deciding which investments to prioritise. To change this mentality, and meet the challenge of more than doubling renovation rates over the next 30 years to deliver Europe’s objective of a nearly zero energy building stock, it is essential to re-think the EU system so it can more successfully get countries to act.

Marshall Plan

One idea we heartily support is a Marshall inspired Plan to renovate Europe as suggested by Oliver Rapf from the Buildings Performance Institute Europe. Such a plan could include a toolbox of today’s policies and financial measures, but also ways for the EU to directly engage with countries to deliver faster and deeper results. Instead of waiting for member states to prioritise renovation, a Marshall Plan should include a European Renovation Task Force to give dedicated support, initially to the most interested countries. It would be established by the European Commission and have direct access to leading experts and sufficient capacity to assist countries to design and implement national renovation programmes at scale. Successful learnings would be applied to the next wave of countries — similar to the approach applied to countries preparing to joining the EU. The task force could nudge and assist national administrations with capacity building, information, training, education, facilitation, help to remove undesirable regulatory barriers at both national and EU level, make better use of EU funds to leverage more private investments and to de-risk investments instead of creating a market totally reliant on grants. In the EU, the public sector owns and operates 20% of residential housing and a large share of all buildings — hospitals, schools and offices account for nearly half of the total floor area of non-residential buildings. This large portfolio of public buildings provides opportunities for economies of scale. Leadership by governments and cities renovating their own buildings would have significant impact and could lead the way to upscale energy renovation actions.

Large-scale projects

Even though energy renovation delivers multiple benefits far outweighing investment costs, the public sector is constantly challenged to find upfront investment. One solution is to create large-scale projects and blend public and private funding where there is a business case. In this way, a larger share of public funding can be allocated to renovating publicly owned residential housing. Energy performance contracting (EPC) is one way of attracting private investment. Generally this means that an Energy Service Company (ESCO) manages the project, including financing and the measurement and verification of energy savings in the repayment period. At present ESCOs and EPC are increasingly found in the public sector and to a lesser extent in the industrial and commercial building sectors. The ESCO model is attractive for the public sector as it can help free up public money to be spent on projects with a higher economic return measured in terms of social and environmental benefits. Several cities are already using EPC to renovate municipal buildings and the number of innovative financing schemes to fund locally owned projects is growing. When the public sector makes use of ESCO contracts it is important to ensure that they are designed to maximise benefits for the public sector representing citizens. Contracts must target deep renovations, ensure aesthetic quality and the use of long-lasting materials, and the renovation of public buildings should always be evaluated on the triple bottom-line of environmental, social and economic benefits.

Inspiration from Croatia

One country that deserves special recognition for its efforts to renovate public buildings is Croatia. Via public-private partnerships for large-scale projects managed by, among others, ESCOs, from 2014 to 2016 more than 15,600 family homes, 2300 multi-unit buildings, 80 commercial buildings and 262 public buildings benefited from a €220 million energy renovation programme. By 2020, €411 million worth of structural funds will have been invested in renovating the building stock. Hospitals in Croatia have been able to undertake significant renovations with ESCO companies providing 60% of funding from private investors and the remaining 40% coming from the Croatian Energy Efficiency Fund. Since Karlovac Hospital near Zagreb was renovated in 2016, its energy use and carbon dioxide emissions have more than halved, with annual financial savings of around €540,000 a year, money that will finance the investment over a period of 14 years. Despite this success, Croatia could also benefit from a European Renovation Task Force to help solve regulatory barriers, design renovation programmes for cities, make better use of EU funds and carbon revenues to leverage more private investment and to de-risk investments.

Lessons learned

• To reduce perceived risk, it is important to have transparent rules and ensure a fair deal for local or national authorities. The Croatian government has created a contract template that defines all obligations, risks and rights to prevent disagreements during the contract period over the accounting of public debt.
• Public buildings like hospitals which are in use 24 hours, seven days a week, 365 days a year are the most attractive investments for ESCOs.
• The business case for deep renovation is more challenging for ESCOs in buildings with a shorter occupancy time and/or mixed use such as schools and kindergartens as the guaranteed energy savings will be lower.
• ESCO contracts for public buildings in Croatia must guarantee at least 50% energy savings and have a contract period of a maximum of 14 years.
• To maximise total savings, the government can co-fund projects.
  This short video shows the transformation of Karlovac Hospital.

This article is part of a series examining how to decarbonise heating and cooling systems

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