With the economic impacts of the Covid-19 crisis deepening the challenge of reaching international energy and climate goals – according to the annual update on efficiency trends from the International Energy Agency – there are major hurdles standing in the way of the net zero carbon pathways being offered by governments in Europe and the US.
According to the IEA, global primary energy intensity – a key indicator of the energy efficiency of economic activity – is likely to improve by under 1 per cent this year, the weakest rate since 2010, well below what’s needed to achieve the goals for tackling climate change.
“Together with renewables, energy efficiency is one of the mainstays of global efforts to reach energy and climate goals. While our recent analysis shows encouraging momentum for renewables, I’m very concerned that improvements in global energy efficiency are now at their slowest rate in a decade,” said Dr Fatih Birol, the IEA executive director at the launch of the Energy Efficiency 2020 report, adding “the amount of resources governments that are serious about boosting energy efficiency is a litmus test in their economic recovery packages, where efficiency measures can help drive economic growth and job creation”.
The financing energy efficiency gap
Financing energy efficiency at scale is always tough. While it’s grown by over 40 per cent in the USA since 2014 to at least $7 billion annually, that’s chicken feed compared to the challenge, according to a new ACEEE analysis.
It finds that five major types of energy efficiency programs are responsible for most of this annual lending in the USA:
- Commercial and Residential Property Assessed Clean Energy
- State energy office revolving loan funds
- On-bill financing, on-bill repayment, and tariffed on-bill financing
- Utility financing programs (in which loans are not paid back on-bill)
- Energy savings performance contracting
Of these, Commercial Property Assessed Clean Energy (C-PACE) has increased the most rapidly. This method uses borrowed capital to pay for the upfront costs associated with energy efficiency or renewable energy improvements. It’s applied to the residential sector too, but less successfully. The financing is linked to the property rather than the property owner.
In the UK, where £50 billion will be needed to eco-retrofit its 28 million homes before 2050, the Green Finance Institute – a network of global experts and practitioners trying to liaise between the public and private sectors to unlock barriers to sustainable investment – has set up the Coalition for Energy Efficient Buildings with a similar property assessed finance tool.
It proposes using building renovation passports to identify the measures that should be taken to achieve the necessary energy savings. But as Transport for London’s Derek Wilson says, private sector landlords have very little incentive to upgrade their properties. Often, they just don’t care.
The Coalition’s green rental agreement proposes distributing energy bill savings for measures taken between the landlord and the tenant. Tenants would have lower energy bills and landlords receive a return on their investment.
This is one of the Coalition’s Zero Carbon Heating Taskforce’s 12 financial solutions and policy contained in the just released Financing zero carbon heat: turning up the dial on investment, an analysis of the investment barriers to widescale decarbonisation of the UK’s domestic heating.
That stubborn private rented sector
Unfortunately, most of these solutions won’t reach the majority of the private rented sector. Only well-enforced legislation will make landlords do the necessary work.
To see why, take a typical old street in Brussels, where architecturally interesting multi-occupancy apartment buildings often lie in a conservation zone. You’re lucky if one landlord owns an entire building – it’s not unusual to find that each apartment has a different owner – and each building has very different features to the one next door.
Currently, legislation forces landlords to do the necessary repair work to the facades, but this does not include external wall insulation, which would alter the appearance of these buildings, something that would be opposed by conservation wonks.
Internal insulation would require major disruption and alterations to the heating systems, and could only be done if the entire building was voided, which rarely happens.
Even if suitable legislation was passed, whatever was mandated would be incredibly expensive. And the law is currently more on the side of the landlord than it is on the side of the tenant in terms of energy efficiency.
Back in England, the recently announced Green Homes Grant scheme is meant to pay for heat pumps, solar thermal, biomass boilers and hybrid heat pumps, capped at £5,000. Low income households can receive vouchers covering all of the cost, up to £10,000.
This week’s Energy White Paper announces a widened scheme, but it’s been widely criticised for being too hard to access, and for there being insufficient contractors able to carry out the work because the required registration process is too expensive for them. Take-up has been low.
Green Transition criteria slammed
Moving away from just buildings, a group of 123 scientists last week wrote an open letter to the EU President criticising the criteria for the EU sustainable finance taxonomy, which attempts to classify investments that can be marketed as sustainable.
Its chief authors, Andreas Hoepner, a professor at University College Dublin, and Joeri Rogelj, a climate scientist at Imperial College London, slam it as “disconnected” from the EU’s target to reach net-zero greenhouse gas emissions by 2050 because of a “critical oversight in the European Commission’s legislative process: the thresholds that define the greenness of activities underlying the European Green Deal … go against the explicit advice of the relevant EU expert group”.
In particular, gas power plants are labelled as sustainable if they meet an emissions limit of 100 grams of CO2 equivalent per kilowatt-hour, which the signatories believe is too high and incompatible with the net-zero objectives. They say the threshold must be reduced over time to zero.
The heat pumps fallacy
The UK is relying heavily on heat pumps as a means of decarbonising heating. But heat pumps only work in a very well insulated house. Heating bills can easily more than double if an air source heat pump is substituted for a gas boiler in the absence of high levels of insulation, the cost of which no grant presently on offer will cover.
Where practicable, thermal storage is far more cost effective. Modern, well-insulated and fan-driven storage heaters are one option, as are large well insulated hot water tanks with immersion heating elements. Both can store cheap surplus network power, using remote switching.
Even better, or rather complementary to this, is a much-ignored, proven and cheap technology, phase change materials. These passively absorb heat above a pre-determined temperature and release it below that, which can help both cool and heat a building as required, without the need for any electrical controls or the huge investment in power generation, national grid and local distribution networks needed to power heat pumps.
Although this doesn’t work if the temperature never rises above that predetermined temperature – say, 20° or 25°C.
Neither is blue hydrogen an option for decarbonising the existing gas grid. Heating bills would have to rise threefold to pay for that too.
So, while energy efficiency first remains a logical option, aggregating the cost of retrofitting random collections of architecturally distinct houses to make them attractive to investors is currently beyond the reach of any green financing solution.
Perhaps this is a job for the new UK infrastructure bank, which will be able to borrow the capital at a close to zero interest rate and lend it on at similarly low rates with very long pay back periods tied to the savings on bills. But methinks the bank will be more interested in high visibility projects; energy efficiency is just too messy and invisible for the majority of gee-whiz eco-converts.
Local governments might be the most likely green financing cavalry to come riding over the hill to save us. They have a clear role to play to aggregate delivery to target the necessary spending at those who most need to have lower energy bills, in exchange for reduced local tax bills, or a landlord’s licence to let, that can be dangled as a carrot to tempt the reluctant majority.