Af Bjarne Bonné (Photo: Bjarne Bonné)
Carbon Neutral Cities Alliance (CNCA) is an alliance of 17 cities with aggressive commitments to reduce their emissions of green-house gasses. The alliance is formed to enable the participating cities to meet their objectives more effectively by collaborating and to foster a next-wave of carbon-neutral cities. Specialists from 8 CNCA cities met with financial sector experts, representatives of the International Energy Agency (IEA), the European Commission (CEC-EASME) and the C40 cities for a two-day workshop in Copenhagen in early October. The workshop is part of the CNCA project New Financial and Delivery Models for Retrofitting Buildings. The purpose of the workshop was to identify local and universal barriers to deep retrofits, transfer insights and experiences across countries and explore possibilities for up-scaling of models and methods used to promote and finance deep retrofits.
The critical question
John Dulac from the International Energy Agency (IEA) gave a presentation of scenarios to set the scene. In the OECD area deep retrofits have a critical role to play as 80% of today’s building stock is expected still to be in use in the year 2050. The global potential for savings to be made through increased energy efficiency is huge – in the range of 300 billion US dollars. This is sometimes summed up by referring to energy efficiency as the sixth fuel. The critical question is: why are we not achieving this? The answer is complex, involving the fragmented market for deep retrofits: There are billions of buildings with a vast range of different owners. There is a need for research and development which can pave the way for a lowering of the costs of deep retrofits. There is a lack of monitoring of actual compliance with building code requirements. Appropriate targets for particular climates and local conditions in different cities will vary. The challenges are daunting and they will only grow in the years ahead: The IEA expects an 85% increase in energy consumption related to buildings in the years to 2050 if present trends continue. An increase of this magnitude is not compatible with a target of keeping global warming below 2 degrees Celsius. The IEA scenario analysis concludes that the 2 degree target will require savings in the range of 70% of energy demand from buildings.
Slide from the IEA presentation depicting the scale of the challenge of reducing building energy demands sufficiently to limit global warming to 2 degrees centigrade.
Understanding the costumer
The workshop participants proceeded to discuss the challenges and exchange experiences from their respective cities in three groups. While participants found it inspiring and valuable to learn about each other’s experiences they also arrived at a joint frustration over the daunting difficulties they encounter in their work to promote energy efficiency in buildings. The discussion quickly focused on the demand side: Nobody wakes up in the morning with a burning desire to get their building retrofitted. The energy-savings industry is really terrible in understanding the customers. Retrofitting of buildings is not undertaken just to save on energy – they are undertaken when it’s time to renovate. Talk about energy efficiency does not really reach people – they care about measures which can increase their well-being and make them happy.
Financing deep retrofits
The workshop went on to hear a panel debate on finance for deep retrofits. The panel consisted of Ivan Gerginov, Econoler, Steven Fawkes, Energypro Ltd., Zoe Sprigings, C40, Manuel Adamini, Climate Bonds Initiative, and Toivo Miller, EBRD. The discussion was moderated by Adrien Bullier from the EASME programme of the European Commission.
From left to right: Ivan Gerginov, Toivo Miller, Manuel Adamini, Zoe Sprigings, Steven Fawkes (Photo: Bjarne Bonné, Gate 21)
Ivan Gerginov explained that Econoler has worked in a lot of countries. In general new small pilot project schemes tend to work well but prove very difficult to scale up. Maybe because the pilot projects can cherry-pick the most promising opportunities. Small companies grab the opportunity and find a lucrative niche in the market for retrofitting and stay there without ambitions of substantial expansion.
Zoe Sprigings presented the approach of C40. The organization is focusing on legislation, performance regulation of buildings and the establishment of stakeholder coalitions behind better regulation as a way to mobilize available capital and make the market more mature.
Toivo Miller presented the Sustainable Energy Finance Facility (SEFF) of the EBRD. He saw reliability and trust from all actors involved as a key factor and saw a role for cities to play in this respect. Standard documents and procedures make it easier for everybody involved so the wheel doesn’t have to be invented again and again.
Steven Fawkes suggested a three-dimensional approach to the promotion of energy efficiency in buildings: The demand-side (do building-owners want to undertake deep retrofits to enhance energy efficiency), the supply-side (what technologies are available for deep retrofits) and the world of finance (how to raise money for investment in deep retrofits). He compared the world of finance with an elephant – at present promotion of energy efficiency in buildings is a flea. The flea will never be able to take charge of the elephant. The way forward is to work with the world of finance as it is. The key is to acknowledge the crucial role of standardization of the processes involved in the mobilization of finance for investments in increased energy efficiency. Banks can only work with standard processes. Financing of wind farms is an example of successful standardization. Something similar has to be done for energy efficiency: It has to be structured in a way that makes it look like other existing financial markets. If that can be done, the possibilities are enormous as capital markets are unlimited. It is true that borrowing for retrofits which lead to savings in energy does not look like something which enhances a lender’s equity but funding of cash-flows are happening all the time (e.g. factoring).
Manuel Adamini presented the Climate Bonds Initiative which is a non-profit organization working to mobilize finance for mitigation of the climate problem. He saw scale and urgency as the crucial factors. The solution of the problem requires enormous amounts of money.
Adrien Bullier found it noteworthy that several members of the panel had said it is not a question of money. Maybe the discussion could be summed up along the line that we are looking for ways to make energy efficiency way less boring on the demand-side of things, i.e. more attractive and inspiring for building owners while making it way more boring on the financial side where boring is to be seen as a way of making it trustworthy to investors. He wondered if utilities could play a role in collecting payments on loans for investments in energy efficiency: If you fail to pay your electricity will be shot down. Cities have a role to play in building trust, stakeholder alliances and facilitate the establishment of new public-private-partnership arrangements.
On the second day of the workshop James Hardy (Programme Manager – Energy Efficiency, Greater London Authority) presented the LONDON ENERGIESPRONG PROJECT. The project explores the transferability of the Dutch ENERGIESPRONG concept for retrofitting existing social housing units to make them efficient enough to qualify as net zero energy units. Net zero energy, in this context, means that total yearly energy consumption does not exceed the amount of energy created at or near the premises from renewables (primarily photovoltaic panels mounted on the new roof). The retrofit is completed in a few days and includes improvements in the form of new kitchens and bathrooms. Energy performance is guaranteed for a period of 30 years by the supplier of the retrofit. Finance is provided via the savings on the energy costs, i.e. the dwellers continue to pay the same amount as before the retrofit.
Until this date 1070 housing units in The Netherlands have been included in the ENERGIESPRONG project – the target is to reach 111.000 units in the first instance. James Hardy saw four factors behind the success of the concept:
• Assured quality with the 30 year energy performance warranty;
• The retrofitting work can be carried out in a non-intrusive way enabling the tenants to stay in their house most of the very short time needed (a few days rather than months);
• Comprehensive retrofitting is made affordable: It can be financed by the energy cost savings (and other cost savings such as lower maintenance costs on the retrofitted units);
• The design makes the retrofit a desirable product for the tenants who get an improved and better-looking home.
The cost of the retrofitting is crucial to its feasibility. The first Dutch prototype had a cost of 130.000 euro. This has been reduced to a current level of 60.000 euro. The target is to develop the method further to reach a level of 40.000 euro for a housing unit. The first wave of retrofits was done at terraced housing units. The method is being developed to include retrofits on blocks of flats.
ENERGIESPRONG UK has been formed as a partnership established for this purpose which includes housing providers, construction companies, trade bodies, Greater London Authority and National Housing Federation.
Conclusions from the workshop will be presented in a report from the organizers.