Real Estate

Innovative financing to spur energy-efficient retrofits

May 6, 2013 | 3 min read

“In the current economic downturn, we should embrace investments in efficiency as one of the key drivers to spur new and sustainable economic growth in the EU,” said David Myers in the report, president of building efficiency at Johnson Controls, a global provider of energy technologies and services. Approximately 40% of the residential buildings in Europe predate the 1960s, yet, until recently, the overvalued housing market (notably in France, Britain, Spain and Netherlands) buffered owners from having to undertake renovations. “Prior to the crisis, the constant increase in the real estate prices had hidden the depreciating value of the existing building stock. The challenge companies are faced with today is how to maintain the value of the existing stock in the short term while increasing the long-term value of the portfolio,” observes Frank Hovorka, director of real estate sustainable policy at Caisse des Dépôts, France’s public long-term investor.

The report, authored by Elie Chachoua, was commissioned by the Global Buildings Performance Network (GBPN) in collaboration with its European hub, the Building Performance Institute Europe (BPIE), and in partnership with the World Business Council for Sustainable Development. It explores how the private sector perceives the latest EU regulations and how innovative financing could help them ramp up retrofits to achieve ambitious emission reduction targets. Apart from including data and reports on the real estate sector, the report builds on a previous EIU survey[1] of 96 EU executives in the EU building sector and in-depth interviews with experts and C-level executives from leading companies involved in energy efficiency in the EU buildings sector.

In Europe, buildings now account for 40% of total primary energy consumption and 36% of greenhouse gas emissions in the region. Approximately 40% of Europe’s building stock predates the 1960s and is in dire need of renovation. Unlike emerging economies such as China and India that are experiencing an explosion of new building, new construction in Europe represents only about 1% of building stock. EU energy efficiency laws for buildings are some of the world’s most progressive, but implementation is patchy and varies by country. Full execution of existing regulation is needed to promote both energy-efficient new builds and retrofits—the latter being where most gains can be achieved. Indeed, most buildings present today in the EU will still be standing in 2050. Yet, renovation rates across the EU are low, standing at approximately 1% of the building stock. Only a minority of upgrades is substantial or what experts refer to as “deep retrofits”. Encouraging deep renovations through clear legislation and innovative financing mechanisms would help achieve scale and help meet the 2020 targets, according to the report.

Doubling efforts

Furthermore, the report concludes that EU companies are relatively active in retrofitting buildings compared with their counterparts in other regions, but efforts need to double to meet EU energy efficiency goals by 2020. The earlier mentioned 2012 survey revealed that 43% of EU respondents in the building sector focus on retrofits—more than in the US (37%) and in China (23%), for example. However, the majority (57%), still focus on new builds, with energy-efficient retrofits still accounting for only a meager 1% of existing stock. The EU has taken some positive steps to improve regulation, but ambiguity regarding definitions of what constitutes a “deep retrofit” and a “nearly zero-energy building” affects implementation at national levels. Indeed, 29% of the EU survey respondents identified regulatory uncertainty as a barrier to pursuing energy efficiency investments. Also, implementation of energy efficiency-related directives varies by country, which limits the ability of property owners to achieve economies of scale across the region.

Retrofit & finance

The report stresses that “Regulatory uncertainty should not be an excuse as waiting on the sidelines in anticipation of better laws exposes companies to the risk of asset depreciation.” Large property owners are starting to audit their portfolios to identify where they can achieve the most cost-effective energy efficiency measures. The deeper the retrofit, the lower the asset depreciation risk. Attracting large institutional investors in retrofit finance will require energy efficiency project aggregators. Aggregators can be public or private and can appear either as a result of regulation or client demand. To be effective, however, they require clear energy performance objectives, standardized contract structures that allocate responsibility for performance, and data collection and transparency about results.


This article may be reproduced according to our terms of use with attribution (and link, if online) to To be cited as: “Innovative financing needed to spur energy-efficient retrofits & meet EU emission targets”,, May 6, 2013.

  1. The Economist Intelligence Unit. Energy efficiency and energy savings—A view from the building Sector. October, 2012.

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The EIU report
The Economist Intelligence Unit

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