EU Commission’s Joint Research Centre report: Energy efficiency, the value of buildings and the payment default risk

A new report by the European Commission’s Joint Research Centre (JRC), shows that higher energy efficiency is becoming more important for how buildings are appraised and also clearly linked to lower payment default risks

The report evaluates existing literature that discuss the impact of energy efficiency improvements on the value of buildings, as well as the methodology that can be applied to quantify property value linked to energy performance. It also demonstrates the impact of energy efficiency on the payment default risk – the link between energy efficiency investment and ability of borrowers to repay their loans.

Current demand for housing and location are still the main drivers to a building’s appraisal value and for a tenant’s selection of housing, but energy performance is becoming increasingly important across all reviewed countries, according to the report.

Today, buildings account for 40% of Europe’s total energy consumption, and around 75% of the building stock is considered to be energy inefficient. According to the European Commission, the current 1% annual renovation rate it would take around a century to decarbonise the building stock to modern, low-carbon levels.

In November 2016, the European Commission launched the Smart Finance for Smart Buildings initiative. The aim was to unlock private financing for energy efficiency investments in buildings, of which an important objective initiative is to “de-risk” investments.

The main findings of the report include:

  • Energy efficiency improvements seems to result in an increase of about 3–8% in the price of residential assets, and an increase of around 3–5% in residential rents compared to similar properties.
  • For commercial buildings, the premium seems to be over 10%, and in some studies even over 20% of sales price increase compared to similar properties has been reported. Rental prices of commercial buildings have also been positively affected, by 2-5%.
  • There are differences across regions and countries, as well as different property types (e.g. apartments vs. houses).
  • A change over time is also seen, as labels and schemes become more well-known and understood. As higher energy performance is becoming the norm, higher values are associated with better performance.

Energy efficiency upgrades change the basic characteristics of the buildings affected and has therefore an impact on other value drivers, such as comfort, safety and maintenance. According to the report, the lower default risk linked to energy efficiency should also be considered and reflected in financial products.

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Energy-Water nexus in the Recast of the Drinking Water Directive

I am writing to you on behalf of the European Alliance to Save Energy (EU-ASE). We are a multi-sectoral business organisation whose members operate across the 28 Member States of the European Union, with an aggregated annual turnover of €115 bn, directly employing 340.000 people in Europe.

We welcome the Council’s ongoing work on the recast of the Drinking Water Directive. The recast of the Drinking Water Directive is a unique opportunity to include a missing dimension in the current water regulatory framework, which is the energy-water nexus. There is a huge energy savings potential in the water sector and measures to improve the better management of drinking water from Member States can avoid unnecessary loss of water and contribute to reaching the 2030 Sustainable Development Goals (Goal 6) and the Paris Agreement objectives on climate change.

Information to the public on performance of energy consumption and leakage rates

Given the scale of water leakages and the energy consumption of the water sector, we believe that providing information to the public on the performance in terms of energy consumption and leakage rates would incentivize the optimization of energy use by preventing waste energy lost through leakage throughout the entire water value chain.

In particular, we welcome the Romanian Presidency’s re-inclusion of measures which provide information to the public on the overall performance including leakage rates and energy consumption in Article 14 and Annex IV of the latest compromise text.

We regret that information to the public on the performance of water leakage rates and energy consumption is not mandatory and would therefore suggest removing the word ‘for instance’ as outlined in the text below. 

Annex VI, (7)

The overall performance of the water system in terms of efficiency, including for instance leakage rates and energy consumption per cubic meter of delivered water.

Additional measures to tackle water leakage and address water scarcity

Current leakage rates at EU level are too high. According to the Commission’s impact assessment, 23% of treated water is lost in public water supplies in Member States. This means that 23% of the drinking water for the public must be treated again to enable access to clean drinking water for human consumption, adding to the high energy consuming profile of the drinking water sector.

As example, one leak of 8,3 mm has emission of 3454 kg CO2 eq/a or equivalent to 75% of a car running all year[1]. In Brussels, based on this calculation and on the assumption of real water losses of about 23%, water leakage produces a total volume of drinking water lost per year of 11,1 Million m3/a which determines 634,4 Mtoe/a CO2-emissions equivalent to the emissions of 138 cars running non-stop for the whole year.

In light of the above, we would like to underline that more ambitious measures are needed in order to effectively tackle the scale of Europe’s water leakage problem. We would recommend reinserting the Recital 21 – including mandatory Member State action plans to be developed in order to deal with the growing issue of water scarcity – and consider that investments are needed to incentivize Member States to upgrade their water infrastructure in order to better adapt to climate change and water stress. As such, for Recital 21, we suggest to consider the text outlined below.

Recital 21: The principles to be considered in the setting of water tariffs, namely recovery of costs for water services and polluter pays, are set out in Directive 2000/60/EC.  However, the financial sustainability of the provision of water services is not always ensured, sometimes leading to under-investment in the maintenance of water infrastructure. With the improvement of monitoring techniques, leakage rates – mainly due to such under-investment – have become increasingly apparent and reduction of water losses should be encouraged at Union level to improve the efficiency of water infrastructure. In line with the principle of subsidiarity, that issue should be addressed by increasing transparency and consumer information on leakage rates and energy efficiency. Furthermore, Member States should be recommended to develop action plans that deal with the growing issue of water scarcity, including measures to deal with water leakage.

We trust you agree that reducing energy waste in the water sector makes economic and environmental sense as it delivers tangible, multiple and collective benefits to European citizens, households and local authorities.

We remain at your disposition for further discussion on this important topic.

 

Yours sincerely,

Monica Frassoni


[1] Energy for disinfecting by UV and distributing the water under 6,9 bars pressure in Brussels:  0,15 kW/m3 or 0,033 kg CO2 equivalent/m3.  Considering 23% of water losses in Brussels, we waste 1,77 Giga Watts or 634,4 metric tons of CO2 eq per year, equivalent to 138 cars running non-stop on gas for the whole year (Source: Xylem Inc. based on International Energy Agency: World Energy Outlook 2016, Brussels Environment, Eurostat, US Environemental Protection Agency).

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Op-ed: The pathway to sustainable cooling

Jürgen Fischer, President, Danfoss Cooling

Jürgen has broad leadership experience from global industrial companies within IT, telecommunication, and machine-building. He is passionate about the digital transformation in the cooling sector and constantly challenges innovation to leverage e.g. the potential of energy storage across Danfoss. In 2008, Jürgen joined Danfoss as Vice President for Industrial Automation, and since 2015, Jürgen Fischer has been President of Danfoss Cooling.

Jürgen holds a master’s degree in Economics from the University of Augsburg. In addition, he holds several degrees from executive education programs at INSEAD and IMD.

As the global temperature rises, sustainable space cooling solutions are more important than ever. The IEA Future of Cooling report estimates that the energy demand for air conditioners is expected to triple by 2050; leading to a space cooling energy growth of 30% in Europe by 2050. The increase in demand for space cooling can put severe pressure on the power grid and challenges to achieve the Paris agreement goals if nothing is done, warns the IEA.

Luckily, the report also estimates a saving potential for today’s space cooling by 50%. If we use the best available technology, we will secure cooling that is both sustainable and provides comfort for millions of citizens.

Success hangs on how quickly we can deploy this technology at scale. Five key areas can make a difference and help the EU Commission delivering actions of the “A Clean Planet for All” strategy:

  1. Roll-out appropriate energy standards and labelling schemes

Minimum Energy Performance Standards (MEPS) are the easiest and most efficient way to ensure that only energy efficient cooling devices are placed on the market. The roll-out of labelling schemes across the globe ensures that we use cost-effective technologies. This reduces the total cost of ownership for the devices and benefits of the end-users. However, the use of MEPS needs to be combined with strong market surveillance and enforcement to realize its full potential and ensure all stakeholders are complying with the same rules.

  1. Implement a system approach and secure maintenance of energy efficiency over time

Cooling systems need constant maintenance to ensure that they deliver the promised energy savings over time. According to the European Commission, 75% to 90% of the EU building stock is inefficient. But only 1% of it is renovated each year. There are two priorities for policy makers: one is to accelerate the retrofit of existing buildings and their cooling systems and the other is to improve their maintenance routines over time. The Energy Performance of Buildings Directive (EPBD) goes into the right direction and addresses these two priorities. The stronger focus on the renovation of the existing buildings, e.g. via the long-term renovation strategies and on the optimization of technical buildings systems, such as cooling, heating and ventilation systems are identified. The next critical step is to ensure a good implementation of the EPBD at national level.

  1. Combining heating and cooling with renewable energy

With today’s technology we can use supermarkets as giant batteries which allows us to store fluctuating renewable energy sources and balance the energy system. Is heating the future of sustainable cooling? Using excess heat coming from cooling applications, i.e. in supermarkets, we can re-use it to heat our water or warm up our buildings — saving energy and money and reducing the pressure on our energy systems. We need to break down silos to unleash the benefits derived from connectivity across sectors.

  1. Leverage the potential of district cooling

In a district cooling system chilled water is being used to cool down buildings and therefore save energy. Copenhagen is a great example, where a district cooling system was established to service hospitals, office buildings, and schools. The result was win-win, with CO2 emissions reduced by about 65% and consumer savings of 80% on energy costs. Looking at the benefits, it is essential to unlock its full potential with new heating and cooling renewable targets. The new national energy and climate plans must be adopted according to the new Governance Regulation on the Energy Union.

  1. Build a framework for the development of new business models

To unlock the full potential of energy efficiency and meet the future energy demand, we need to enable new business models and demand-side management. Energy storage is the key to unlocking flexibility in our energy systems, which can ultimately turn energy consumers into prosumers. We need policies to encourage the re-use of heat that would otherwise be released into the air.

Together we can deliver “A Clean Planet for all”

Looking at today’s best available technology, the next step needs to be the implementation of ambitious legislation and regulations to increase energy efficiency across sectors. The industry is ready and, together with policymakers and governments, we can unlock the full potential of energy efficiency and open the pathway for a lower energy demand. Let’s join hands across sectors and work towards a cooled and environmental-friendly future together.

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Three leading companies join the European Alliance to Save Energy to unlock the energy efficiency potential of the energy-water nexus

The European Alliance to Save Energy (EU-ASE) is very pleased to welcome Nalco Water – an ECOLAB Company, Orbital Systems, and Xylem Inc.  among its current group of industrial members.

The drinking and waste water sector is a high energy consumer, yet none of the water-related directives in the EU – the Water Framework Directive, the Drinking Water Directive, and the Urban Waste-Water Treatment Directive –covers energy efficiency. Nonetheless, a broad range of solutions are available to reduce energy consumption across the EU water value chain. According to the IEA World Energy Outlook[1], with the right set of water policy measures, global energy savings of 270 TWh by 2040 are possible. This is achievable with today technologies and know-how and could free valuable resources for the needed investments in water infrastructure in the short, medium or long-terms.

Monica Frassoni, President, EU-ASE: “Energy efficiency is a key driver to a carbon neutral economy by 2050 and there is huge energy efficiency potential across industrial sectors, regions and cities. In the water sector, by saving water, one also saves energy and this is why we have decided to create a dedicated water working group within the Alliance. Our current and new members will work together on the water energy-nexus which has been overlooked in current regulatory framework. We want to make sure that policy makers understand the win-win situation and the need to integrate an energy efficiency dimension across the EU water policies and legislation”. 

David Martin, VP Marketing, Europe & MEA, Nalco Water:Nalco Water, an ECOLAB Company, is pleased to join progressive partners to promote energy efficient solutions and unlock the potential of the energy-water nexus. Together, we can make energy efficiency a priority in EU water legislation and promote water efficiency as a natural solution to achieve energy savings. Because what’s good for Water is good for Business.

Simon Goldschmidt, Chief Commercial Officer, Orbital Systems:We are very pleased to join the EU-ASE. This strategic membership will hopefully help us to create a paradigm shift in daily water usage and speed up the market uptake of our innovative domestic water saving solution.”

Alexis de Kerchove, Vertical Marketing Manager, Water Utilities, Xylem Europe:Xylem is looking forward to building a strong and active water group with the EU-ASE to strengthen innovative positions on water policies and demonstrate how efficient technologies and smart solutions can benefit the water sector in its current challenges through the optimization of energy use.


[1] IEA, World Energy Outlook 2016

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Cross-sectoral alliance of businesses support strong climate-proof ERDF and Cohesion Fund to leverage the necessary private investments to deliver the Paris Agreement.

Dear Members of the REGI Committee,

I am writing to you on behalf of the European Alliance to Save Energy (EU-ASE). EU-ASE is a multi-sectoral business organisation whose members operate across the 28 Member States of the European Union, with an aggregated annual turnover of €115 bn, directly employing 340.000 people in Europe.

The Multi Annual Financial Framework (MFF) post 2020 is a unique opportunity for the EU to demonstrate coherence with its long-term energy and climate objectives and show commitment to deliver tangible benefits to European citizens. Our businesses see the MFF as a necessary trigger for outlining the much-needed long term political direction for mobilizing private investments towards a decarbonized European economy. Public EU funds alone are not sufficient to finance the energy transition and alone cannot address the urgent call from IPCC scientists to limit temperature increase to 1.5°C[1] and decarbonise our economy by 2050 at the latest.

According to a recent report of the European Commission, the EU budget contribution to mitigation finance covers as little as 5-7% of the total resource required[2]. However, the EU budget has an important leveraging role to play in attracting private investments necessary to fill the gap. The investments in clean technologies, and in particular in cost-efficient energy efficiency projects, will only get unlocked if the EU provides long term certainty to the private sector.

Our position papers “A climate-proof  budget to drive the EU clean energy transition to a low carbon economy” (released in March 2018) and a “A climate-proof budget to leverage the necessary investments to deliver the Paris Agreement (released in November 2018) outline in greater detail our views and call for a full application of the Energy Efficiency First principle, increased climate mainstreaming and improved climate proofing.

With specific regard to the ERDF and Cohesion Fund, which are currently discussed in the REGI Committee and should be voted next February, we strongly believe the Regulation must:

  • Increase to 40% the overall target of expenditure supporting climate objectives. Such increase is necessary taking into account the magnitude of the climate change challenge and the level of support required to achieve the EU climate and Paris Agreement objectives.
  • Prioritize investments in energy efficiency and promote the integral energy saving technological uptake (both on the energy demand and supply sides) in sectors with high potential. To prioritize energy efficiency investments, ERDF and Cohesion Fund Regulation should fully apply the Energy Efficiency First principle and therefore embed the principle to first assess the economic opportunity to reduce consumption through cost effective energy efficiency solutions before investing in sustainable new supply capacity. In our view, all investment decisions in the field of energy and climate change must be guided by long term decarbonisation objectives. Public resources should be spent in an intelligent, efficient and effective way, with attention to a just transition and on priorities with the highest economic, societal and environmental value. It does not make economic and environmental sense to invest in new fossil fuels infrastructures and misuse public resources that could lead to the creation of stranded assets.
  • Ensure strategic alignment with the National Energy and Climate Plans (NECPs) which are set to outline Member States’ strategies and the necessary financial resources to implement the new energy efficiency framework for 2030 (EPBD and EED) and unlock the growth and job potential of these important directives.
  • Include a clear link between investments and the EU’s sustainability taxonomy. This is the right approach – already adopted by the Parliament for the InvestEU programme – and should be embedded across all EU funding instruments post 2020.
  • Support investments in projects that at least comply with the minimum legislative requirements. For example, in the building sector, ERDF and CF resource should be used only for energy efficiency improvements that are aligned with – or go beyond, in case of new build projects – the minimum energy performance requirements for buildings.

Dear Members, ahead of the vote in February, we urge you to support an ERDF and Cohesion Fund Regulation which considers our views and envisages a much smarter, carbon emission neutral,  energy and resource efficient society.

We remain at your disposal for further discussion on this strategic topic.

Yours sincerely,

Harry Verhaar


[1] Global Warming of 1.5°C https://www.ipcc.ch/sr15/

[2] Climate Mainstreaming in the EU Budget: preparing for the next MFF. European Commission, Directorate General for Climate Action, https://publications.europa.eu/en/publication-detail/-/publication/1df19257-aef9-11e7-837e01aa75ed71a1/language-en

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