German asset manager DWS has outlined how the planned EU recovery package could help to finance energy efficiency in the building sector.
The EU will release a proposal for a covid-19 recovery package on 27 May.
A leaked draft has shown that the green recovery plan will include a focus on building renovation, a media company has revealed.
The recommendations by DWS come as it has been advising the EU as a founding member of the Energy Efficiency Financial Institutions Group (EEFIG), which is convened by the EU Commission and United Nations Environment Program Finance Initiative (Unep FI).
EEFIG is a platform for public and private financial institutions, industry representatives and sector experts, which identifies barriers to finance energy efficiency and proposes policy and market solutions.
DWS said that it is leading EEFIG’s steering committee on the covid-19 recovery package, and that its suggestions are also aligned with the proposed EU building renovation fund.
Aligning incentives
One of the EU policy recommendations by DWS is to align incentives between commercial property owners and tenants, which addresses a key barrier to finance the retrofitting of buildings.
Owners are not incentivised to retrofit their buildings as they bear the costs while the tenant benefits from falling energy bills, known as ‘split incentive’.
DWS has suggested allowing commercial building owners to share the cost of retrofit projects with tenants through service charges.
“Allowing costs to be shared through service charges would help address this barrier while higher service charges can be offset by lower energy use costs,” DWS wrote.
The EU could publish guidance for member states; which, as part of the smart meter roll-out, would encourage or require tenants to share energy use data with their building owners, DWS suggested further.
“Appropriate data sharing will help building owners to develop retrofit projects that save tenants and owners money, cut emissions, improve indoor air quality and create jobs for technology and installation companies,” DWS said.
It found that energy efficiency investments in buildings have stagnated.
The asset manager also cited a survey saying that retrofitting buildings is key to stimulate growth and cut carbon emissions.
A tripling of building renovation rates could create an additional two to four million jobs in the construction sector and additional jobs among product manufacturers, according to DWS, which cited a study by research and consulting firm Ipsos.
Other recommendations by DWS are:
1.Healthy buildings: Help doctors ‘prescribe’ retrofits to enable buildings to be healthier for everyone; support the creation of new business models for healthy buildings ‘as a service’.
2. Start to create mandatory building performance standards, drawing on the Carbon Risk Real Estate Monitor (CRREM) project.
3. A digital agenda for energy efficiency, which entails:
a) disclosure by member states of Energy Performance Certificates (EPCs) in databases, according to legislation;
b) measuring energy efficiency like the planet, jobs and health depend on it; ensuring the time and location of energy and carbon savings is accurately measured instead of ‘deeming’ savings. This is necessary to respond to the European Court of Auditor’s call for stronger focus on cost effectiveness; and
c) enabling energy utilities to start writing procurement contracts for energy efficiency and healthy buildings, creating revenue and stronger financial rigour for retrofit projects. The EU should learn from the US and Australian experience and EU stakeholders should work with an existing project on pay-for-performance (P4P) as part of the EU research and innovation programme Horizon 2020.
It was reported in September that the EU had already launched a “renovation wave”, which aims to triple the renovation rate which currently stands at around 1% of the building stock.
