Energy renovation of non-residential buildings: essential element for a zero-emission objective

In France, emissions from the building sector amounted to 62 Mt CO2eq in 2022. Non-residential buildings were responsible for 37% of these emissions [1]. In addition, according to the International Energy Authority (IEA), building operations represent 30% of global final energy consumption and 26% of global energy-related emissions [2]. The agency emphasizes that "...the sector needs faster changes to stay on track for the Net Zero Emissions (NZE) scenario by 2050. This decade is crucial to implement the measures that will make it possible to achieve the objectives of having all new buildings and 20% of the existing building stock ready for carbon neutrality by 2030" [3].

Mandatory standards are growing globally

Progress has already been made in the transition to smarter and more energy-efficient buildings. Global investment in energy efficiency by the building sector increased by around 16% compared to 2020, reaching a total of around USD 237 billion (IEA 2022 [4]).

Still, even greater government pressure is widely seen as key to accelerating progress. Mandatory standards for energy efficiency in buildings already exist in Europe, the UK and China, with strict enforcement rules and penalties for non-compliance.

In addition, in April 2024, the European Commission formally adopted a directive requiring Member States to reduce emissions and energy consumption in buildings. For non-residential buildings, Member States must renovate 16% of their worst-performing buildings by 2030 and 26% of their worst-performing buildings by 2033.

In France, standards are also being put in place to improve the energy efficiency of buildings. The tertiary decree imposes ambitious targets on owners and operators of tertiary buildings of more than 1000 m² to reduce their energy consumption. These targets, aligned with the European directive, aim to reduce the carbon footprint of the French real estate portfolio. To achieve these targets, the BACS decree makes it mandatory to install energy consumption measurement and analysis systems in order to identify avenues for optimization.

In November, the government unveiled its new "Low Carbon Strategy" plan. The renovation of non-residential buildings plays an important role in it. The main points of this plan are: transition to low-carbon heating - tertiary areas will no longer consume fuel oil from 2030, development of the heat pump sector and heat networks, but also reduction of energy consumption of the tertiary eco-energy system (tertiary decree)[5].

Apart from these legal obligations, initiatives aimed at reducing carbon emissions through lower energy consumption are commercially compelling on two counts.

Ethical and business benefits of decarbonization

First, companies are increasingly raising funds on capital markets by issuing green and sustainable bonds. To do so, they must present initiatives that significantly reduce their carbon footprint. At the same time, professionals and individuals want to buy from more environmentally friendly companies, so green certificates are becoming a competitive differentiator in global markets.

Second, in a world that has recently experienced a major fuel crisis, energy reductions save money. Reducing energy consumption, through digital technologies, has become a major driver of investment in “smart” buildings, such as commercial buildings, hospitals, campuses, and public buildings.

Many elements of the smart building also underpin the reduction of energy consumption. The main factors contributing to the reduction of energy consumption and decarbonization are efficient thermal insulation, door control systems, intelligent HVAC controls and LED lighting controlled[6] by management systems[7].

Flexible financing as a catalyst

Decarbonizing the non-residential building sector requires significant investment. For example, building renovation is a major challenge because less than 40% of the floor space of buildings in developed economies was built before 1980, when the first thermal regulations came into force.

Lack of available capital, or concerns about the risks associated with energy investments, can prevent many building owners from reducing their operating costs, reducing their carbon emissions and enjoying security of supply. However, flexible financing solutions can reduce operating costs without putting pressure on resources, avoid putting this capital at risk and ensure that the expected savings are achieved. This type of financing typically comes from specialist financiers, such as Siemens Financial Services (SFS), who have in-depth knowledge of the technology and its practical applications. Clearly, public sector initiatives need to be accompanied by private sector support, particularly private sector financing.

Tailor-made financing solutions

Financing for “smart” buildings takes a variety of forms, depending on the business processes that need to be implemented. 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, financing terms can be tailored and adjusted to align costs with the rate of benefit derived from the energy efficiency technology.

At the most complex level, “as a service” financing arrangements provide the solution: the expected savings from improved energy efficiency are harnessed and used to pay for the capital investment and more. Often, these arrangements can be made budget neutral for the building owner, avoiding any capital expenditure. So-called “energy efficiency as a service” arrangements have already enabled the transition to energy efficiency for many organisations, even in difficult economic conditions.

Evaluate the opportunity

For CFOs managing a real estate portfolio, it is useful to assess how sensitive the decarbonisation of existing buildings is to energy efficiency as a service techniques. The chart below presents very conservative estimates8 of the annual baseline emissions reductions that EaaS solutions could deliver by the end of the decade – the target date for the first phase of most climate plans around the world. Our model is based on official emissions data and only calculates 50% of the available emissions reduction potential.

Financing solutions could help the existing non-residential building stock in the United States, Europe, China and India reduce emissions by more than 210 MtCO2e per year by 2030.

Decarbonization: An absolute priority

40% of global greenhouse gas (GHG) emissions come from buildings and, if left unchecked, they are expected to double by 2050 [9]. This means that energy efficiency in the built environment is essential to meet the 2030 and 2050 climate targets.

Public and commercial buildings are more energy intensive per m2 than residential properties, making energy efficiency initiatives for non-residential buildings a high priority to achieve decarbonisation targets. In challenging economic times, flexible and specialised financing solutions are essential tools to help energy efficiency investments maintain the required momentum.

[1] https://ressources.citepa.org/Comm_Divers/Secten/Citepa_Secten%202024.pdf

[2] https://www.iea.org/energy-system/buildings

[3] https://www.greenbiz.com/article/heres-how-scale-energy-saving-commercial-building-retrofits

[4] https://globalabc.org/sites/default/files/2022-11/ENGLISH_Executive%20Summary_Buildings-GSR_1.pdf

[5] https://concertation-strategie-energie-climat.gouv.fr/les-grands-enjeux-de-la-snbc-3

[6] https://store.accuristech.com/ashrae/standards/is-your-building-operating-at-net-zero-energy-or-zero-carbon?product_id=2904844

[7] IEA, Energy Efficiency: Buildings, 2020

[8] Methodology: Data from national and regional statistical offices on the annual energy consumption of non-residential buildings constructed before 2010 were used to model the CO₂ emissions of buildings likely to benefit from a deep energy renovation. This figure was then reduced by the highest likely implementation levels of such a deep renovation. The likely energy savings from a deep renovation were calculated using the lower end of the official average ranges. The resulting figures provide a very conservative annual estimate of the energy savings achievable through deep renovations, which can be financed through energy efficiency as a service financing techniques.

[9] https://www.theclimategroup.org/built-environment

Tribune by Zakaria Jghab, CEO Siemens Financial Services France (LinkedIn).