How to finance energy renovation of residential buildings: Review of current and emerging financing instruments in the EU

The Paris Agreement goals require net-zero CO2 emissions by mid-century. The European Commission in its recent proposal for climate and energy strategy for 2050 indicated the need for more intensified actions to substantially improve the energy performances of buildings. With the rate of new construction in Europe, the challenge is to increase both the pace and depth of building energy renovations. Several barriers inhibit the wide uptake of comprehensive energy renovations, including the inability or inertia to finance upfront costs of energy renovations. Despite various policies implemented to address some of these barriers, current investments in buildings remain at suboptimal levels. The paper reviews current financing practices for energy renovations and investigates some innovative instruments with a special focus on their applicability to residential buildings. In addition to “traditional” financial schemes such as subsidies, tax incentives, and loans, the paper assesses innovative financing schemes: On property tax and on-bill financing, energy efficiency mortgages, and energy efficiency feed-in tariffs. The paper also investigates the concept of one-stop shops for building renovations and crowdfunding. The paper offers an assessment of the characteristics, benefits, and challenges of each analyzed financing instrument and provides policy recommendations for their successful implementation. In general, as financing instruments involve different stakeholders and due to complex nature of the sector, there is no single solution to accelerate energy renovation investment in buildings. The emerging financial models offer the potential to address the long-standing barriers to investment in energy efficiency. This article is categorized under: Energy Efficiency > Economics and Policy Energy Efficiency > Climate and Environment Energy and Climate > Economics and Policy

Deprivations and Inequities in Cities Viewed Through a Pandemic Lens

The COVID-19 pandemic brought a halt to life as we knew it in our cities. It has also put a magnifying glass on existing inequalities and poverty. While everyone has been facing the pandemic's risks, the lived challenges of the lockdowns have been felt most acutely by the poor, the vulnerable, those in the informal sector, and without savings and safety nets. Here, we identify three ways that the COVID-19 pandemic and related containment measures have exacerbated urban inequalities and how subsequent recovery measures and policy responses have tried to redress these. First, lockdowns amplified urban energy poverty, while recovery measures and policies offer an opportunity to address entrenched inequalities in shelter and energy access. Second, preexisting digital divides even within well-connected cities have translated into inequalities in preparedness for living through the lockdown, but digitalization strategies can enhance equity in access to e-services, online work and education for all in the future. Third, slum dwellers in the world's cities have been particularly hard hit by the pandemic and lockdown measures, but the spotlight on them provides further impetus for slum upgradation efforts that through improved access to infrastructure can improve living conditions and provide more secure livelihoods

One-stop shops for residential building energy renovation in the EU

This report is the second part of a Europe-wide survey and assessment of one-stop shops (OSS) for energy renovation of buildings. Based on the case studies of 63 OSS in the EU, we find that the approach has a potential to cover 5-6 of the renovation volume of 35 million buildings in 2030 set out by the Renovation Wave Strategy , at low social costs, integrating private investments with client-friendly methods. The current level of activity of the European OSS market is estimated to be around 100 000 projects per year. The OSS can bridge the gap between a fragmented residential building sector, with a large heterogeneous set of households, and the construction supply side. They can help increase the actual renovation rate by supporting potential clients through the various steps of the decision-making process. Their success lies in part with their locally embedded focus, engagement with interested but not yet committed energy users/asset owners and ability to form strong relationships with clients. They can support the renovation journey from start to finish and can facilitate access to financing, occasionally offering better rates. While our analysis identifies several structural, legislative, financial, and information measures with a positive impact on OSS-enabled renovation projects, it is possible to enhance their contribution by reviewing specific policies that support or hinder their success. Although not typical of OSS in general, but with proper incentives, they can improve the average renovation depth in terms of energy performance level by adopting a holistic approach and, at the same time, they can reach out to vulnerable populations, such as tenants of social houses, thus contributing to the alleviation of energy poverty. Finally, OSS can contribute to the enhancement of communities and neighbourhoods. They help current tenants to improve their living conditions and thus stay in the area

The role of one-stop shops in energy renovation - A comparative analysis of OSSs cases in Europe

With energy transition setting the ground for innovation and new ways of conducting business, one-stop shops (OSSs) have recently gained momentum in the renovation market. By transforming a complex set of multiple-actor decisions into a single entry and customer-centric service, OSSs have the potential of establishing a bridge between the fragmented demand and supply sides of the traditional renovation value chain. To assess the viability of the OSSs model as a vehicle of accelerating decarbonisation efforts in the European building stock, this paper collects and analyses 63 case studies of OSSs across Europe. The study offers insights into the dynamics of their business model, key benefits and ways forward, by explicitly exploring OSSs’ role in incentivising homeowners to decide to renovate. Our findings show that OSSs can be instrumental in addressing the multitude of barriers that prevent homeowners to renovate. With around 100,000 OSSs projects per year, their activity is expected to substantially contribute to the European renovation targets to rise, subject to favourable policy framework, availability of affordable financing solutions and experience sharing within and across countries. With some OSSs already supporting vulnerable households to renovate, OSSs might be well-placed in the future to contribute to tackle energy poverty by assisting in accessing financing and engaging property owners to renovate

COVID-19 impacts on energy demand can help reduce long-term mitigation challenge

The COVID-19 pandemic caused radical temporary breaks with past energy use trends. However, how a post-pandemic recovery will impact the longer-term energy transition is unclear. Here, we present a set of global COVID-19 shock-and-recovery scenarios that systematically explore the demand-side effect on final energy and GHG emissions. Our pathways project final energy demand reductions of 12 to 40 EJ/yr by 2025 and cumulative CO2 emissions reductions by 2030 of 28 to 53 GtCO2, depending on the depth and duration of the economic downturn and demand-side changes. Recovering from the pandemic with low energy demand practices - embedded in new patterns of travel, work, consumption, and production – reduces climate mitigation challenges. A low energy demand recovery reduces carbon prices for a 1.5°C consistent pathway by 19%, lowers energy supply investments until 2030 by 2.1 trillion USD, and lessens pressure on the upscaling of renewable energy technologies

Bouncing Forward Sustainably: Pathways to a post-COVID world. Sustainable Energy

The global lockdown due to COVID-19 has reduced industrial activities, construction, tourism, material demand, and mobility. This has impacted many sectors of the global economy including the energy sector which has witnessed movements both towards and away from sustainability. Key trends observed include a reduced demand for both energy and energy services, zero to negative oil prices, disruptions in the supply chain of energy technologies and materials – specially for renewable energy, and a decline in investments. This has led to welcome reductions in greenhouse gas emissions and air pollution, revealed opportunities for new and digitalized business models and responsible lifestyle choices, but all these will be short lived if we go back to business as usual. Such behavioral and societal changes have revealed the potential for structural change and transitions in demand for energy services towards sustainability. An interesting revelation is that the positive fallouts for sustainable development are all related to what are commonly perceived to be difficult-to-overcome barriers such as lifestyle choices, behavior, and business models. Whereas the negative fallouts for sustainable development are the relatively easier to address issues of reinstating supply chains and kick-starting/accelerating investments in sustainable energy. As the world looks to recover from the economic and jobs related consequences of the pandemic, all stakeholders have a responsibility to ensure that we create a system of incentives to reward sustainable behavior while penalizing those actions that would take us back to the path of unsustainability. For the energy sector, this would translate not only to the choices that influence the supply of energy, including evaluating the balance of centralized and decentralized energy options, but also the choices that would impact the demand for energy itself! Re-examining these business models from the point of view of contributions to economic growth and jobs, while building on heightened awareness and a desire for green growth is the imperative

Pandemic, War, and Global Energy Transitions

The COVID-19 pandemic and Russia’s war on Ukraine have impacted the global economy, including the energy sector. The pandemic caused drastic fluctuations in energy demand, oil price shocks, disruptions in energy supply chains, and hampered energy investments, while the war left the world with energy price hikes and energy security challenges. The long-term impacts of these crises on low-carbon energy transitions and mitigation of climate change are still uncertain but are slowly emerging. This paper analyzes the impacts throughout the energy system, including upstream fuel supply, renewable energy investments, demand for energy services, and implications for energy equity, by reviewing recent studies and consulting experts in the field. We find that both crises initially appeared as opportunities for low-carbon energy transitions: the pandemic by showing the extent of lifestyle and behavioral change in a short period and the role of science-based policy advice, and the war by highlighting the need for greater energy diversification and reliance on local, renewable energy sources. However, the early evidence suggests that policymaking worldwide is focused on short-term, seemingly quicker solutions, such as supporting the incumbent energy industry in the post-pandemic era to save the economy and looking for new fossil fuel supply routes for enhancing energy security following the war. As such, the fossil fuel industry may emerge even stronger after these energy crises creating new lock-ins. This implies that the public sentiment against dependency on fossil fuels may end as a lost opportunity to translate into actions toward climate-friendly energy transitions, without ambitious plans for phasing out such fuels altogether. We propose policy recommendations to overcome these challenges toward achieving resilient and sustainable energy systems, mostly driven by energy services

Modeling Low Energy Demand Futures for Buildings: Current State and Research Needs

Buildings are key in supporting human activities and well-being by providing shelter and other important services to their users. Buildings are, however, also responsible for major energy use and greenhouse gas (GHG) emissions during their life cycle. Improving the quality of services provided by buildings while reaching low energy demand (LED) levels is crucial for climate and sustainability targets. Building sector models have become essential tools for decision support on strategies to reduce energy demand and GHG emissions. Yet current models have significant limitations in their ability to assess the transformations required for LED. We review building sector models ranging from the subnational to the global scale to identify best practices and critical gaps in representing transformations toward LED futures. We focus on three key dimensions of intervention (socio-behavioral, infrastructural, and technological), three megatrends (digitalization, sharing economy, and circular economy), and decent living standards. This review recommends the model developments needed to better assess LED transformations in buildings and support decision-making toward sustainability targets