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Ways to finance deep energy retrofits from around the world

Energiesprong homes
Energiesprong homes

It’s not possible for the world to just “fuel switch our way out of global climate disruption” according to one construction industry observer. We have to invest significantly in making buildings energy efficient at a rate much greater than we do now.

But as anyone in this game knows, the financial returns on investing in eco-retrofitting buildings are hard to capture. That isn’t stopping people from trying, with Great Britain, the USA, and Canada taking very different routes. Which is working best?

Deep energy retrofits in Britain are teasing out the best solutions

First off the mark is the city of Nottingham which, in the absence of government initiatives to support domestic energy retrofits, is forging ahead with a rollout of Energiesprong homes that’s also given tired-looking 1960s homes a total facelift.

Energiesprong is a standard for deep passive house retrofits. The first 10 homes completed found funding from an EU Horizon 2020 project called REMOURBAN. An EU Interreg NWE project called E=0 is now funding 17 retrofits on neighbouring homes. 

These award-winning pilots have been used to test the concept and trial different technologies to maximise efficiencies and their ability to integrate with each other.

A further £5 million (AU$8.23 million) of EU funding, from the European Regional Development Fund, is now going to be used to rollout these developments across the city and adapt the retrofit approach for a public building. 

This will bring down the costs through economies of scale and lessons learnt. The project has already attracted visitors from across the UK and Europe to see what they can learn.

One point of the program is to develop a UK market for deep retrofit technologies that includes suppliers, contractors, landlords and tenants.

Nottingham has committed to becoming a “net-zero carbon” city by 2028

After hitting its 2020 energy strategy targets early and reduced its fuel poverty rate 21 per cent to 14 per cent over the past eight years, Nottingham’s city council has committed to becoming a “net-zero carbon” city by 2028. It has united its fuel poverty strategy with its climate change ambitions and used its tenders to call for innovation and collaboration to tackle high-energy bills in a low carbon and sustainable manner.

Against this background the British government’s current state of play seems years behind, with low ambitions, but attempting to tackle the problem at a higher level.

An auction-based approach to increasing the uptake of energy efficiency

The British government is currently virtually ignoring most of the domestic market, instead seeking opinions from industry on how to design an auction-based approach to increasing the uptake of energy efficiency measures by the UK’s 5 million small and medium sized enterprises.

In an auction, bidders would compete on the basis of price to win funding to deliver energy savings. This would make the winning bidders responsible for engaging businesses to participate in the program as well as providing capital to deliver the measures. 

It’s not yet clear how much money would be available, but the idea of an auction is modelled on the energy market capacity auctions that have been held for a few years now that have significantly brought down the price of offshore wind power.

Can you create targets for delivering measures to improve the energy performance of commercial buildings?

The government is also wondering whether to introduce a business energy efficiency obligation, or Business Esco, which would require suppliers – and potentially networks or generators – to hit targets for delivering certain measures to improve the energy performance of commercial buildings. Another option is to use an Esco “pay as you save” model that SMEs can access, where third parties fund installation of energy efficient measures – such as LED lighting or higher efficiency boilers or renewable heat – and the capital is paid off via the resulting energy bill savings.

At the same time, the government has launched a £6 million (AU$11.5 million) Boosting Access for SMEs to Energy Efficiency competition. It will provide funding for parties that come up with ideas to encourage uptake of SME energy efficiency building retrofits by driving down transaction costs and promoting third party investment in small-scale energy efficiency projects. 

It’s looking for “innovative, scalable business models or solutions that facilitate investment for small energy efficiency retrofit/refurbishment projects in commercial and industrial buildings in the UK”. 

This is all part of the government’s rather conservative ambition to enable businesses to improve energy efficiency by at least 20 per cent by 2030.

Energiesprong homes

Looking to give investors confidence they can obtain a return for backing energy retrofits.

Meanwhile, the UK Energy Systems Catapult – which is about funding research and development – is looking to back novel smart heating and cooling technologies.

These would improve the performance and cost effectiveness of building fabric retrofit and low carbon heating and cooling solutions, using smart data technology, AI, and packaged installed solutions which could create performance guarantees.

Securing guarantees of the future performance of energy retrofits is the secret to giving investors confidence that they can get a return on investment.

“Many UK innovators face systemic barriers preventing their products and services getting to market at scale, that’s what this programme is aimed at helping,” Innovator Support Platform business lead Paul Jordan said.

Utilities are financing retrofits in the USA

As might be expected, in the USA it’s left to the private sector utilities to find ways of funding energy retrofits. You might wonder why they would want to, but it’s often cheaper for them to do this than invest in new generation plant.

As a result, utilities across the US spent $7.9 billion (AU$11.4 billion) on energy efficiency programs in 2017. Investments specifically targeted at affordable multifamily buildings have grown significantly in recent years.

Non-profit affordable housing providers who are members of Stewards for Affordable Housing for the Future received an average of $750/unit (AU$1057) in utility incentives and consequent annual utility bill savings exceeding $125/unit (AU$176) at participating properties. But there remains an estimated $16 billion (AU$22.55 billion) savings potential in the sector. 

That’s partly because of the many barriers that exist. Occupants of these houses have limited time or capability to participate in these programs and while industry players have done their best to make it as easy as possible, there is a way to go.

These energy efficiency upgrades fall into three main categories: 

  1. whole building retrofits
  2. direct installation of efficient appliances, and 
  3. prescriptive and custom incentives, or product rebates.

California’s Low-Income Weatherization Program is one example. Others are the New York State Energy Research and Development Authority’s Multifamily Performance Program and CenterPoint Energy and Xcel Energy’s Multifamily Building Efficiency Program in Minnesota.

In Pennsylvania, the PECO Smart Multifamily Solutions Program offers building owners direct installation measures for lighting and water efficiency measures in common areas and units, at the same time assessing properties for potential energy savings.

Prescriptive programs offer financial contributions for standard energy efficiency projects like HVAC or lighting upgrades. 

Others offer custom financial incentives for more complex projects. Examples of these are the Consumers Energy Multifamily Program in Michigan and the ComEd Low-Income Multifamily Program in Illinois, where owners can improve their HVAC systems and install efficient light bulbs or appliances or apply for incentives to save money on other upgrades.

These programs have shown that several barriers can be overcome if tackled the right way

These ways are:

  1. Free or highly subsidised measures address one of the biggest barriers to efficiency in rental properties — the split incentive.
  1. Whole-building incentives based on energy savings thresholds encourage deeper retrofits and help owners make more cost-effective investments and benefit from greater bill savings.
  1. One-stop-shops or technical assistance overcome the problem of residents’ low capacity to manage retrofits by offering a single point of contact for everything.
  1. Programs targeting multifamily-specific issues such as common areas and measures or metering make it much easier to get people on board.

$30 million (AU$31.7 million) to underwrite energy efficiency improvements in commercial buildings in Quebec

Canada is a bit slow off the mark in trialling retrofits. There is a national initiative but often it’s up to individual states to come up with ideas.

For instance the Quebec government and the labour-sponsored investment fund, Fondaction, have pledged $30 million (AU$31.7) to underwrite energy efficiency improvements in commercial buildings and provide technical advice to recipients.

For homeowners there is $172 million (AU$182 million) fund for tax credits that allows a rebate of up to $10,000 (AU$10,580) for certain energy and water efficiency improvements with a similar program for businesses, municipalities and other public sector institutions.

Canada’s Investing in Canada infrastructure plan aims to invest over $180 billion (AU$190.5 billion) over 12 years in public transit projects, green infrastructure, social infrastructure, trade and transportation routes and Canada’s rural and northern communities, but only a little of this is allocated to energy retrofits.

At the same time, Canada is developing building codes and standards that integrate climate resiliency requirements

Natural Resources Canada is charged with spending $182 million (AU$193 million) over eight years, on an Energy Efficient Buildings program that covers energy code development, data sharing, research and development, and market transformation strategies for the buildings sector, plus research, development, and demonstration of emerging technologies and construction practices for net-zero energy ready buildings and deep energy retrofits across Canada.

Last week (March 14) a $600,000 (AU$635,000) investment was announced for the Pembina Institute to support two energy efficiency retrofit projects. Previously, a $200,000 (AU$211,600) pilot program for energy retrofits of BC’s social housing stock is retrofitting up to five social housing complexes on the Lower Mainland. ENERGY STAR Portfolio Manager is used to support retrofit projects in Canada.

Each country or city will ultimately find solutions for mass scale energy retrofits that are particular for their conditions. But the race is on because the Paris Agreement’s climate change targets will not be met unless the global 27 per cent of emissions from buildings are tackled.

David Thorpe is the author of Passive Solar Architecture Pocket Reference, Solar Technology and Sustainable Home Refurbishment.

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