Powerful lobbying has ensured that energy efficiency is high on the political agenda. With up to €23 billion available in a new round of EU funding, there is ample capital at the disposal of Member States to undertake energy efficiency retrofit programs. The question is: will countries be able to spend this money wisely? In a previous round of funding, energy efficiency programs were deemed ineffective. This time Brussels has imposed new conditions, such as a ‘renovation roadmap’, but in most EU countries basic information for such a roadmap is lacking. Clare Taylor takes us on a journey through the labyrinth of energy efficiency funding.
Like dental hygiene and world peace, energy efficiency is an ambition that’s hard to argue with. Leading institutions like the International Energy Agency tout efficiency as the world’s ‘first fuel’, and the European Commission’s energy roadmap to 2050 claims that it is possible to reduce energy use in buildings by 90 % by 2050. The UN has also jumped on the energy efficiency bandwagon. During a recent meeting at the UN Climate Conference COP19 in Warsaw, delegates from the UN together with European Commission officials met to discuss energy efficiency retrofit of buildings – and how to make it attractive to consumers.
It is estimated that 40 % of Europe’s energy consumption is in buildings, and there is a growing consensus that energy efficiency is the best way to keep Europe’s energy import bill down. The recast Energy Performance in Buildings Directive (EPBD), effective from 2010, mandates that existing buildings undergoing major renovation must achieve certain energy performance standards; and that all new buildings must be ‘nearly zero energy*’ by December 2020 (December 2018 for central government buildings). The more recent Energy Efficiency Directive keeps up the pressure – and again calls upon the public sector to play an exemplary role. As from 1 January 2014, 3 % of the total floor area of heated and/or cooled buildings owned by central governments must be renovated each year.
(*How nearly zero energy a building is depends on the national definition is, which is in turn partly determined by whether the building is in a Mediterranean or northern European climate. The definition of nZEB in the EPBD recast offers flexibility, but at the same time leaves uncertainties on the actual ambition level and CO2 emissions of such buildings.)
Energy efficiency spending is not only seen as a way to reduce energy consumption, but also as a path to job creation and much needed growth, especially in the construction sector which has been hit hard by the recession. A veritable mountain of reports and studies attest to the positive economic stimulus effects of spending in this area. And by way of the recently agreed European Structural Investment funds, national and regional governments can look forward to accessing up to EUR 23 billion to spend on the ‘transition to a low carbon economy’ – which includes energy efficiency.
The political drivers, the body of evidence and the public funding available for energy efficiency in buildings have come about in part as the result of the work of a closely linked group of NGOs and lobbyists. The most prominent of these in Brussels are the Buildings Performance Institute Europe (BPIE), European Council for an Energy Efficient Economy (eceee), the Coalition for Energy Savings, and the Renovate Europe campaign. These groups are, to put it mildly, interrelated: eceee describes itself as the ‘midwife’ of BPIE, which lists among its funders construction industry manufacturers’ associations EuroACE and EURIMA (members include Johnson Controls, Kingspan, GE, Ingersoll Rand, Philips, Rockwool). Similarly the Coalition for Energy Savings consists of BPIE, EuroACE, EURIMA, eceee and others. The Renovate Europe campaign is part-funded by EuroACE and EURIMA, along with their members. Somewhat unsurprisingly, for most energy efficiency projects, equipment represents a sizeable share of total project cost.
“The Member States were essentially using this money to refurbish public buildings while energy efficiency was, at best, a secondary concern”
Campaigning on the single issue of advocating deep renovation of Europe’s building stock, the Renovate Europe campaign (fronted by media-savvy Irishman Adrian Joyce) has been particularly successful at gaining recognition for its efforts – with a video message at last year’s Renovate Europe Day from President of the European Council, Herman van Rompuy.
At national level, one of the most interesting campaigns for deep renovation is the UK’s Energy Bill Revolution, whose messaging is framed in terms of the plight of households in fuel poverty and by categorizing the national building stock as infrastructure. Spawned by ‘independent organisation’ E3G, the campaign has succeeded in building a broad base of support among civil society organisations and at time of writing, lists 206 UK Members of Parliament supporting the campaign.
Currently it is the negotiating period for 2014-2020 European Structural and Investment (ESI) funds. The ESI funds are part of the EU budget aimed at reducing regional disparities in income, wealth and opportunities. How the money is spent at national level is determined by negotiation between the Commission and the national Managing Authority. This is made formal through Partnership Agreements (essentially overarching national strategies, setting out plans for use of the funds) and Operational Programmes (setting out a region’s priorities for delivering the funds).
For the upcoming funding period, more than EUR 23 billion is available for the low carbon economy – which includes energy efficiency. Deep renovation of buildings is a key target, and in support of this the Commission is designing new ‘off the shelf’ financial instruments for Member States to use. One of these financial instruments is the renovation loan, aimed at combining public and private money to finance investment in energy efficiency (or renewables). The contribution of ESI funds here is typically between EUR 5 million and EUR 30 million. The renovation loan can provide access to finance at preferential conditions and provide for loans up to 20 years maturity – aimed at offsetting the long paybacks that often make energy efficiency projects unattractive to investors.
Speaking at this year’s Renovate Europe Day, Mathieu Fichtler of the EU’s Directorate-General for Regional Policy, said, “The Structural Funds for the upcoming budgetary period 2014-2020 offer huge possibilities for investments in energy efficient renovations. Regional and local authorities must seize the investment opportunities for buildings in the European Regional Development Fund, Cohesion Fund and in the European Social Fund.”
That’s as may be, but are Member States ready to use these funds effectively? Just over one year ago, the European Court of Auditors (ECA) published a damning report on the failure of energy efficiency investments in previous round of funding. “None of the projects we looked at had a needs assessment or even an analysis of the energy savings potential in relation to investments”, said Harald Wögerbauer, the ECA member responsible for the report. “The Member States were essentially using this money to refurbish public buildings while energy efficiency was, at best, a secondary concern.”
According to the ECA report, the planned payback period for the investments was 50 years on average, and up to 150 years in certain cases. This means that these funds were not spent in a sensible way because the lifetime of the refurbished components or buildings is lower and can, to a large extent, be considered to be lost from the energy efficiency point of view.
Sticks and nudges
Lobby groups were quick to reject the findings, claiming that the methodology was fundamentally flawed (‘disengenuous’ according to one source) and that the projects in question were conceived before EU energy efficiency policy was ‘fully developed’.
However, some big questions remain. How will the money be spent this time around? How will the buildings be selected? How is cost-effectiveness determined? Will there be post-occupancy evaluation – a rare beast indeed in policy circles?
Higher energy prices could be an important driver for retrofits – without the bureaucratic muddle involved by subsidies
Brussels is employing a stick of sorts in this round of ESI funding by setting ex-ante conditionalities – basically meaning that ESI funds are not available to countries which have not fully enacted EU legislation. Another nudge comes from the Energy Efficiency Directive, which mandates that Member States submit to the Commission by April 2014 a ‘renovation roadmap’ – a long-term strategy for investing in the renovation of the national building stock, including policies and measures to stimulate cost-effective deep renovations. It is hoped that these roadmaps will provide the basis for sound investment of ESI funds.
In theory, this all sounds good – but here’s the rub. Very few Member States have readily available data on the national building stock which could be used to develop a strategic roadmap – to identify where the worst performing buildings are, and therefore where the cost-effective savings are. Denmark has the most comprehensive data set on buildings, due to a longer tradition of building energy certification (A-G rating of energy consumption, a similar concept to white goods labelling), but in most countries there’s a big information gap.
Countries which stand to benefit most from the ESI funds include Romania, Bulgaria and Poland. When questioned about the selection procedures for sites where the money will be spent, a Romanian source close to the ministry said, “This is under discussion – and highly influenced by politics.”
Even at the best of times, the challenge of designing effective public funding programs is not trivial. When coupled with the particular issues typically encountered in retrofit projects – mistrust in energy audits, difficulties in predicting energy savings and payback periods, to name but a few – it is no wonder that there is a credibility gap in whether investment in energy efficiency in buildings really pays off – or whether the program managers will end up with egg on their face and accusations of ‘green wash’, as happened to the UK’s Energy Saving Trust recently. At the same time, fresh inspiration is provided by relatively small scale projects coming from the newer Member States, currently achieving 60 % savings – and aiming higher at 70-85 % for future projects.
To be fair, at European level DG Regio is acutely aware of some of the challenges of effectively administering such a large budget – EUR 325 billion in total. Much has been made of the reform of Cohesion Policy. There are concerns over the capacity of Member States to match funding – and to direct funds appropriately at local and regional level. Commissioner Hahn’s most recent speech could be read as a final plea for effective and transparent multi-level governance of the funds.
But perhaps one of the most curious news snippets on this topic recently came from the UNEP Finance Initiative, which – as mentioned at the start of this article – held a high level meeting with European Commission officials during COP19 in Warsaw in November 2013. The reported conclusion of this meeting was that the availability of finance was not the ‘triggering factor’ for energy efficiency investment and that both supply and demand in the nascent energy efficiency market must be developed. In other words, higher energy prices could be an important driver for retrofits – without the bureaucratic muddle involved by subsidies. However, higher energy prices are not popular politically. Was will der Mensch?
Clare Taylor is a communications specialist in energy and environment. Tune in @smallhushedwave