Supercharging EU energy efficiency: nine policy proposals from the innovation community
February 10, 2022
In times of volatile electricity costs, energy efficiency renovations can lower energy bills and help households to maintain a comfortable living environment. Buildings account for 36% of EU GHG emissions and 40% of its energy use: energy efficiency is the most cost-effective method of reducing their emissions. In the words of Fatih Birol, IEA Executive Director:
"We consider energy efficiency to be the ‘first fuel’ as it still represents the cleanest and, in most cases, the cheapest way to meet our energy needs."
Innovative SMEs based in the EU are developing a range of solutions for a more energy-efficient building stock. These include:
Software and integrated software/hardware solutions to monitor and reduce energy consumption in residential, commercial and industrial buildings
Marketplaces to digitise and accelerate the deployment of energy-efficient installations
Quiet, small-scale heat pumps for cost-efficient decarbonisation of heating
Advanced low-carbon materials, including high-performance, unobtrusive insulation techniques
The EU’s 2016 ‘Clean Energy for all Europeans’ package set ambitious energy efficiency targets. In spite of this, the topic is still not a top priority for EU Member States. When compared to renewable energy or carbon pricing, progress towards targets is slower, measurement is harder and targets set by EU member states are indicative and not binding. This makes it harder for EU citizens to afford their heating bills, harms the chances of delivering a renovation wave, and could increase energy poverty and vulnerability to high inflation.
In this position paper, we propose nine legislative opportunities to accelerate energy efficiency-related innovation through a recast Energy Efficiency Directive which works in tandem with other legislation such as the Energy Performance of Buildings Directive (EPBD). These recommendations are informed directly by Cleantech for Europe affiliates, together with some of the EU’s top innovative SMEs specialised in home renovations, commercial buildings and industrial efficiency. Three leading EU energy efficiency innovators contributing are:
Vit Javůrek, CFO of Woltair, a Czechia-based digital platform connecting homeowners to installers for energy efficiency renovations and solar installations
Vincent Bryant, CEO of Deepki, a France-based platform to analyse the energy consumption of tertiary buildings
Artur Hanc, CEO of Elmodis, a Poland-based company specialised in industrial energy efficiency
Getting serious about energy efficiency
Proposal 1: Member state energy efficiency targets must be binding Despite significant emissions reduction opportunity, the energy efficiency potential of buildings and industrial factories is far from being achieved; in fact efficiency gains have slowed significantly since 2015. The EU’s weighted energy renovation rate (the rate at which the building stock improves its energy performance) is just 1%, when EU policy goals require this figure to triple between now and 2030. Insufficient policy ambition and support measures are one of the main causes. Policies supporting upscaled deep energy renovation of buildings and a fuel switch from gas and solid fuels to renewable heat will allow Europe to decarbonise faster and move away from an unstable and expensive dependence on gas imports.
Energy efficiency and renewable generation are highly complementary, but they are separate areas with different market characteristics. While clear mandates have led to a substantial increase in renewable production, energy efficiency targets for Member States remain indicative. Their non-binding nature means that in practice energy efficiency is not considered first by most buildings owners and businesses. Energy efficiency must have at least the same level of commitment from EU policymakers as renewable generation.
Stronger action by member states has a demonstrated impact on energy efficiency and renovations. For example, since Czechia implemented its obligation to replace solid-fuel boilers, the heat pump installation rate increased steeply to reach 25,000 installations per year.
Financing remains problem #1
Proposal 2: Prioritise subsidies which are paid upfront to the installer, accelerate reimbursements and permit accredited installers apply on behalf of consumers Energy efficiency equipment such as heat pumps and boilers represent significant upfront expenditure for installers, usually small outfits, who must pay for inventory and get paid after completion of the work.
Subsidies vary by Member State, but even when generous support schemes exist, progress is hampered by cumbersome applications and slow processing:
Innovators who try to facilitate the process for their customers often need to go through complex procedures like powers of attorney to act on their behalf;
Reimbursement can take six months or more; in the interim the equipment must be financed either by the installer or the customer.
The reliance on the balance sheets of the smallest businesses is why energy efficiency progress is limited and renovation finance is overly expensive.
Proposal 3: Provide loan guarantees to installers to finance their inventory of energy efficient equipment
Woltair is a Czech start-up founded in 2018. The company operates a digital platform to connect consumers, suppliers and installers of residential solar PV, heat pumps and other energy efficiency equipment. Woltair works actively with technicians to help them adopt technology tools, and with consumers to support them in financing energy efficiency improvements. Woltair facilitated close to 1,000 installations in Czechia during 2021, a 4.8x increase versus 2020.
In markets where subsidies do not exist, or where there is a delay in payment, installers must pay for inventory before the installation, invoicing customers and receiving payment afterwards. This can lead to sizable working capital requirements, which would normally be financed by bank loans.
Woltair reported that the installers they work with face difficulties obtaining working capital loans and this limits the scope of their activities. Guarantees allowing these small installers to receive bank loans would allow them to finance more inventory and complete more installations.
Proposal 4: Support “infratech” funds, which can finance innovative asset fleets and enable the “as-a-service” model, including with vehicles from EIB / EIF Innovative SMEs in the energy efficiency space are employing new business models which help make improvements more attractive to their customers. These include:
Energy as a service: where the installer pays for and retains ownership of the equipment, charging a monthly subscription fee to customers
Share as you save: where the installer pays for the equipment, ongoing energy savings are calculated using previous bills as a reference, and the installer gets a pre-agreed percentage of the real savings.
These innovative business models are popular with customers and are economically attractive for installers since payback periods can be as low as three years. However, installers face significant difficulties obtaining debt financing for these models. Share as you save models are particularly difficult to finance, as revenues depend on future savings and therefore cannot be predicted with certainty.
Reduce red tape and include innovation in procurement criteria
Proposal 5: Review and streamline permitting procedures for energy efficiency renovations and equipment Regulations have not kept pace with market developments in energy efficiency. For example, Czech regulations still require a construction permit for heat pump installation, although modern heat pumps are no longer large and noisy. Imagine if changing a boiler or the installation of an air conditioner required a city permit.
Proposal 6: Increase regulatory pressure on all public-owned and -occupied buildings to undertake deep renovations and change public procurement criteria to overall lifetime benefit rather than lowest upfront cost Our operators report that in another section of the market, the so-called exemplar public buildings, in reality cumbersome red tape extends the already long timelines for public building renovations, where decision processes often take years.
Innovative SMEs with solutions which lower building energy consumption report routinely losing out in public tenders to higher polluting solutions, which often have longer payback periods. In many municipalities public procurement criteria are based on upfront cost only, and do not factor in the fuel costs over the lifetime of the equipment (with rapid increases of gas recently) nor environmental concerns (such as direct emissions costs) or proper lifetime payback calculations.
Wider access to buildings data
Proposal 7: Mandate open and unrestricted, direct access to building systems data for building owners, tenants, managers, and to trusted third parties on request by owners For software-based energy efficiency innovation, access to real building energy consumption data is essential to be able to analyse and recommend operational improvements. Innovative start-ups report that in many countries, they face difficulties in obtaining access to the data they need.
In the residential sector, overly rigid interpretations of GDPR hinder data flows between tenants, owners and technicians. In some cases, innovators are barred from accessing data – even when building tenants or owners have given permission – because of complicated classification systems which specify that only certain company categories may access data.
In the commercial and industrial sectors, data resides with energy providers, who are not incentivised to share, even though they are required to keep years of energy usage data. Many companies hoard data as a source of potential future competitive advantage. This is an issue throughout the EU.
Small, innovative SMEs lack the resources to tackle the administrative hurdles necessary to challenge the situation which prevents them from capturing value, and risks rendering high climate-impact solutions commercially unviable.
Improved security for sensitive industrial data inside EU
Proposal 8: Require big tech companies trading in the EU to physically locate industrial data within the EU
An industry in need of qualified workers
Proposal 9: Promote the attractiveness of energy efficiency careers and build up training to current and prospective technicians The problem of labour scarcity is set to deteriorate, as many technicians are approaching retirement and young people are not entering the trade.
As demand for renovations soars, the availability of architects, builders and technicians with energy efficiency expertise is severely lacking. Installers may be reluctant to recommend unfamiliar solutions, and may not be aware of recent performance and cost improvements.
To deliver an EU renovation wave, policymakers need to guarantee long-term markets and exciting careers with renovation innovators and in skilled tradecraft. The certainty of these new markets will accelerate the visibility and certainty of these career paths for the next generation of innovative technicians and engineers.