The energy renovation of private housing and public buildings is therefore a privileged target for energy efficiency initiatives, in particular the France Relance plan which devotes 6,2 billion euros to it over two years.[2], and will largely contribute to achieving carbon neutrality by 2050.
In order to achieve these goals, greater attention should be given to the existing commercial and public building stock. In Europe, for example, almost 75% of the building stock is energy inefficient.[3] This means that much of the energy consumed is actually wasted. Renovating existing buildings could reduce total energy consumption in the EU by 5-6% and cut carbon dioxide emissions by around 5%. However, on average, less than 1% of the national housing stock is renovated each year. To meet climate and energy targets, experts say current renovation rates would need to at least double.[4]
Throughout the EU, the amendment to the Energy Performance of Buildings Directive[5] encourages an acceleration of the transition to energy-efficient buildings. Government policy is beginning to advance the reform of public buildings.
For example, the Energy Efficiency Directive requires an annual renovation rate of 3% for buildings in which national central administrations are both owners and tenants. [6]
At the local level, there are also mandatory requirements to upgrade building management systems. Examples include France's ELAN law, which requires commercial buildings to meet certain energy efficiency targets. In addition, since 2021, the tertiary decree obliges players in the French tertiary sector (owners and tenants of buildings hosting tertiary activities) to gradually reduce the energy consumption of their buildings in three stages: a reduction of 40% by 2030, 50% by 2040, and 60% by 2050.[7]
The International Energy Agency (IEA) estimates that to achieve a zero-carbon building stock by 2050, direct CO2 emissions from buildings must decrease by 50% and indirect emissions from the building sector by 60% d 'by 2030.
In particular, an announcement from the Global Alliance for Building and Construction noted "The pace of renovation in all affected countries is insufficient, remaining well below potential. Indeed, annual renovation needs to pass in countries industrialized has an average of 2% of the existing stock per year by 2025, and 3% by 2040.[8]
However, a more recent study by Siemens Financial Services[9] calculates the financial volumes of this overall investment target until 2040. The emerging question addressed in this study, however, is to estimate the gap between the current rate of investment in energy-efficient smart buildings and the accelerated rate that, must be achieved to meet sustainability and climate change goals, say experts. It is in this deficit that smart finance can intervene to allow the investment which should be made but which is not yet.
To close the investment gap estimated in this study, building owners and managers should consider changing the way their buildings operate, their business models, and how they will fund necessary upgrades.
When it comes to operational technology, commercial and public buildings are going to have to get smarter to meet these new decarbonization demands. Smart buildings enable flexible working, whether from the point of view of mobile office (hot desking), changes in use, security and safety, greater efficiency and flexibility or adaptation to volatile circumstances.
While there is broad consensus on the need to make buildings smarter, every country and every sector needs a way to make this conversion financially viable. But how to do it in practice? The starting point is the use of smart technologies to reduce the energy consumption of buildings. This leads to substantial savings which, thanks to smart financing mechanisms, can be exploited to significantly subsidize the energy renovation of existing buildings. In some cases, energy savings can even pay for the entire conversion. This can be done at the enterprise level or in small incremental steps, each of which proves its return on investment. Typical building energy efficiency savings are typically at least 20% [10] (often much more), which represents very significant operating savings.
New models for smart financing
Smart finance takes various forms, depending on the business processes that need to be enabled. At the technology component level, financing tools are available to help sellers and distributors add value through cash flow capabilities for their buyers. For larger installations or systems, smart financing arrangements can be adapted and adjusted to align costs with the rate of benefit derived from energy efficiency technology. At the most complex level, Smart Buildings as a Service provides the financing solution, with expected future savings from energy efficiency being harnessed and used to pay for capital investment and more.
conclusions
Retrofit projects aimed at decarbonizing buildings by transforming them into smart, energy-efficient environments are falling behind climate targets set by governments around the world. Many experts have said that the annual investment rate should be multiplied by three or more to achieve the set goals.
In order to bridge the gap between current investment rates and required volumes, smart financing methods are being offered by the private sector. They all seek to make it affordable for owners to convert to low-carbon, energy-efficient and smart buildings. At a minimum, these financing tools facilitate cash flow and align costs with the rate of benefits achieved. In the best-case scenario, smart financing makes the transition to decarbonization budget-neutral, leveraging future savings to pay for current investments.
Op-ed by Thierry Fautré, President of Siemens Financial Services France (LinkedIn).
[1] Ministry of Ecological Transition, Energy Renovation, June 22, 2021
[2] Ibid
[3] European Commission, In focus: Energy efficiency in buildings, 17 Feb 2020
[4] Ibid
[5] EU Directive 2018/844/EU
[6] European Parliament, Boosting Building, 2016
[7] Siemens Financial Services, Closing the investment gap: Smart financing for building decarbonization, Sept 2021
[1] Global ABC, COVID-19 response: Global ABC is encouraging massive renovation wave, Sep 24, 2020
[2] Siemens Financial Services, Smart Buildings: Driving Value Addition in Adopting the "New Normal", 2020
[3] IPF Research Program, Costing Energy Efficiency Improvements in Existing Commercial Buildings, Oct 2017