Markets

market for building retrofitting

The market for retrofitting has been growing steadily over the past couple of years, although this has not been happening at the same rate and speed globally. According to a report from Pike Research, this global market will expand from $80.3 billion in 2011 to $151.8 billion by 2020.1 

In the same report, retrofitting is identified as one of the most cost-effective ways to reduce operational costs and the variety of financial instruments being set up to support the process of energy efficiency retrofitting will enable the market to grow. Western Europe is identified as the biggest market of retrofits for energy efficiency but it will experience a drop in the global share it currently occupies, dropping from 41% in 2011 to 37% in 2020 in global revenues in EE retrofits. Asia and the US will increase to $54.6 billion and $35.3 billion respectively by 2020.

Market barriers for building retrofitting

Market barriers must also be taken into account when addressing the deployment and uptake of retrofitting practices. Uncertainty in the market is a key barrier for building retrofitting.  As is the case in other subsidised and publically supported schemes, consistency in the support offered as well as guarantees that the support will not be abruptly interrupted would enable stakeholder to have confidence in their investments and support received over time, thus continuously supporting the successful emergence of the market.

The BPIE report identifies market barriers that can give rise to “latent risks”. These risks are the type that can emerge in case the demand for building retrofitting increases and these risks are not accounted for. They are important to take into consideration, as they may inevitably rise once the other barriers have been bypassed successfully. Examples of a latent risk that may emerge in case the uptake of retrofitting practices increases are shortages that technologies may encounter relating to materials, components and human resources. Additionally, the supply chains and delivery systems can face problems to increase their efficiency to cope with the demand.

Overall, the ability of markets to respond to changes and mitigate risks is related again to confidence in the markets and appropriate signals that are given in consistent ways and with a long-term vision.

However, as pinpointed in the THINK report3 , even if a well-functioning market is operating in all Member States, not all building owners will find it economical to renovate their properties. To deliver the renovation targets, the authors therefore suggest putting in place regulatory policies to remove distorted energy prices, provide standards and harmonize energy performance certificates, but also to coerce some actors to renovate by policy.

Market players and emerging financing models

The main stakeholders in retrofitting projects are public building owners, private building owners, the occupants, energy utility companies and other financing bodies, retrofit providers and governments. For a business model to work, each of these stakeholders’ interests must be considered, as well as addressing all the barriers that were listed in the section above.  
There is a variety of financing models that have emerged over the past couple of years which go beyond traditional ESCOs which mainly related to public markets.

The tables below summarise the different types that are currently emerging as well as the ones that are more established. The models below are based on the situation in the US market. They give a good overview of the process of how the US is approaching retrofitting in their own market, where strong private sector involvement is envisioned. Each of the business models addresses a different size of retrofitting project.

The study, commissioned by the Rockefeller Foundation, points out that the Property Assessed Clean Energy (PACE) model has a strong potential but requires involvement of the public sector through regulation as well acceptance by the building and mortgage industry. They then identify the Energy Service Agreement business model as the one that has the most short term potential to achieve significant impact because when implemented correctly it can meet both the needs of real estate owners and financing bodies with minimal legislative intervention and public subsidies4.

 

The other big market currently for energy retrofits is Europe.

The EURACE estimates that capital for Europe’s buildings renovation will come from just six sources: Government, Building Owner, Building Occupier, Bank, Renovation Contractor or Energy Supplier.
The amount of capital that is made available by each of these sources to renovate Europe’s buildings depends on four factors:

  • the source’s access to and cost of funds
  • its perception of the risk/ return 
  • characteristics of the renovation investment
  • other competing investment priorities

 

Financing models in Europe are also diverse and there are currently three main approaches:

  • The first approach is to have the owner finance the renovation where the building owner is the actor that takes charge of the process of designing, implementing and financing the retrofitting.
  • The other model is the utility fixed repayment model, where the utility company is in charge to subsidise the up-front investment, with the cost being reimbursed through monthly payments that are fixed and not related to performance. 
  • The third option followed is the energy performance model where the retrofit provider finances the project and gets repaid through the savings achieved. The EURIMA report also brings forth another business model option; the “aggregated investment model” where they identify key features such as “the creation of a standardised energy efficiency asset, multi channel origination, on-bill repayment and the potential for securisation with (or without) government credit enhancement.

 

It has also been reported that overall the market for energy efficient building retrofitting is shifting away from one-time retrofits to models where upgrades are continuous and the use of ICT and real-time monitoring enables these projects to be implemented in a smarter way, thus successfully reaching the expected (simulated) cost savings and emission reductions5.  

Overall retrofitting will play a crucial role in allowing Member States in Europe to achieve their goals in terms of energy efficiency targets. The financing models for these projects thus become crucial in order to allow the deployment of retrofitting practices and technologies effectively and at a good pace in the European market.

 

Click here to read the full report Markets and Policy.

 

References:

1- http://www.navigantresearch.com/newsroom/the-market-for-energy-efficiency-retrofits-in-commercial-buildings-will-nearly-double-by-2020-reaching-152-billion-worldwide

2 - http://www.europeanclimate.org/documents/LR_%20CbC_study.pdf

3 - THINK – Topic 7 final report : How to Refurbish All Buildings by 2050, June 2012

4 - http://www.rockefellerfoundation.org/uploads/files/791d15ac-90e1-4998-8932-5379bcd654c9-building.pdf 

5 - http://www.dvirc.org/business-opportunities/eebhub/

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