Photo by Serg Bataiev on Unsplash

EUROPE: Financing building upgrades to make them more energy efficient is the subject of much research. It’s estimated it would need around EUR 100 billion (AU$163 billion) a year to meet the European target to tackle climate change.

Structures built since the 1960s comprise about 70 per cent of European homes. These buildings have poor energy performance, and are collectively responsible for about 40 per cent of Europe’s CO2 emissions.

Deep retrofits are needed but they can be expensive. New and innovative ways of financing are vital. Following are a few methods that do the job.

On-bill schemes

On-bill schemes, which are similar to Australia’s Environmental Upgrade Agreements, are one way of financing energy efficiency: they bring the up-front costs of energy efficiency upgrades down to zero by simply adding a periodical line item to a customer’s utility bill as the repayment vehicle.

This means that the upfront costs for energy improvements may be paid by the utilities or the financial institutions involved, and paid back by the customer over time through their utility bill.

During the payback period, the energy savings can offset the extra cost, allowing the bill to remain more or less unchanged; after the complete repayment of the energy efficiency improvements, the bill will be much lower.

They’ve been tried for more than 30 years, especially in the USA and Canada, where they significantly drive the building renovation market. In the USA, average OBS loans can be up to US$25,000 (AU$37,200), for hundreds of projects in one program.

In Europe, the UK’s Green Deal failed as it was incorrectly priced and home-owners had to borrow the cash first. Latvia’s SUNShINE project found that it wouldn’t work without a proper regulatory framework.


Now a new EU-funded project RenOnBill aims to promote the development and implementation of on-bill schemes to finance such retrofits.

RenOnBill aims to scale up investments towards deep energy renovations of residential buildings. It’s engaging stakeholders at the national level, to foster co-operation among the different players and jointly develop national roadmaps for the replication of OBS in four varied countries: Germany, Italy, Lithuania and Spain.

It will work only if there is close cooperation between energy utilities and financial institutions, however, so the project is developing viable business models.


But it can take a long time to repay such loans, especially with a deep retrofit. An EU-funded ABRACADABRA project found ways to reduce payback time and increase investor confidence with a new renovation strategy based on add-ons and renewable energy sources.

“That means one or more building additions that adapt the existing building to achieve the nearly zero energy target and to create a synergy between old and new,” says Associate Professor Annarita Ferrante, project coordinator.

Facade additions such as new sunspaces to provide energy efficiency, rooftop extensions, or new rooms can add energy-efficient spaces to buildings, increasing the real estate value.

A strategy whereby the building modifications can generate energy offsets the costs of doing the renovations. Owners might sell or rent the building additions, plus, the value of the building can be increased.

Professor Ferrante says: “In many cases the hardest barrier to overcome is urban regulations. To address this, we developed a set of policy recommendations for the adoption of AdoRES renovation strategies, which we shared and discussed with policymakers and market players at all European levels.”

ABRACADABRA eventually gained support from 53 public bodies. An online calculator has been made, which reveals the payback time required for various energy renovations and estimates the resulting increase to building value.

Energy Efficient Mortgages

Another solution for financing eco-retrofits is the Energy Efficient Mortgage. This aims to inspire borrowers to improve the energy efficiency of their buildings and/or acquire highly energy efficient properties with favourable mortgage financing conditions and/or an increased loan amount that results in a better Energy Performance Certificate rating, which in theory increases the property’s market value.

EEMs will finance the purchase/construction and/or renovation of both residential and commercial buildings where there is evidence of either energy performance that meets or exceeds relevant market best practice standards and/or an improvement in energy performance of at least 30 per cent.

An energy efficient mortgage label is being developed. According to Luca Bertalot, energy efficient mortgages initiative coordinator: “The EU mortgage industry is committed to supporting European efforts to achieve a climate neutral continent by 2050 under the EU Green Deal.”

He says that 47 lending institutions are “ready to take the lead to help the EU to meet its decarbonisation objectives, modernise the economy, revitalise industry and ensure long-term growth and employment. It will also help to secure healthier homes for EU citizens.”

These 47 institutions are joined by 32 supporting organisations throughout the EU, including the Official Monetary and Financial Institutions Forum. All have signed up to the Pilot Scheme.

Loans for energy efficiency

Loans are another option for financing. Energy efficiency loans are unsecured loans, which don’t require a property as collateral, being similar to personal loans.

They are an attractive option for building owners who cannot or don’t want to use an energy efficiency mortgage. In the event of the owner defaulting, they wouldn’t lose the property; instead it affects the owner’s credit rating.

Property-Assessed Clean Energy loans, on the other hand, differ from energy efficiency loans and EEMs, because financing doesn’t require a monthly loan payment to a creditor.

With a PACE loan to fund home energy efficiency improvements, the amount owed is repaid on an annual basis as an assessment on the property taxes.

This solution can offer lower interest rates than other energy efficiency loans because of the high security of repayments attached to the property tax bill.

Interest is generally tax-deductible and eligibility is determined by the value of the property.

Because all properties and owners are different there will never be a one-size-fits-all solution to this problem; it’s good to know instead that many solutions are out there.

David Thorpe is the author of Sustainable Home Refurbishment (the Earthscan Expert Guide).

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