Greening existing buildings is a focus area for the EU’s ambitions to reach climate-neutrality by 2050. EU data suggests that buildings are responsible for roughly 40% of the EU’s total energy consumption. A high percentage of European buildings are of a mature age; about 85% of the buildings were built before 2001. Thus, in order to stimulate a renovation wave, the Commission has announced a EUR 250 billion-investment plan related to deep refurbishment and energy-efficiency related reforms across all member states. Such efforts will help reach the EU’s goal to cut greenhouse gas emissions caused by buildings by at least 55% by 2030.
Key principles and actions
The Commission has proposed the following key principles and actions related to the green renovation wave:
- introducing mandatory minimum energy performance standards also for existing buildings with a focus on public administration buildings;
- tightening obligations related to Energy Performance Certificates (EPC);
- increasing the affordability of green renovation through adequate funding (including incentives for more attractive private financing and grants);
- implementing digitalisation and integration of renewable energy (e.g. smart readiness indicator);
- fostering decarbonisation of heating and cooling and
- introducing Digital Building Logbooks that will integrate all building-renovation related data in order to ensure an optimized renovation and will enable stakeholders to achieve mandatory minimum energy performance standards yet to be legislated.
In addition, the Commission has initiated, as described in an earlier blog, a public consultation on how competition law and sustainability policies can best work together in order to achieve climate-neutrality by 2050.
If implemented wisely, the set of actions outlined by the EU Commission will be a driving force for the real estate sector in the upcoming years. Alongside public subsidies related to green renovation projects, tax and rating benefits for green investments may facilitate access to the required funds. The effects may generate opportunities for a wide group of stakeholders including:
- real estate owners tapping the full potential of their buildings (e.g. by integrating renewable energy solutions);
- forward-thinking construction and sub-construction firms ready to roll-out efficient solutions;
- asset managers aware of the potential of modern technology for the benefit of the property owner;
- tenants saving ancillary costs (leading to a competitive advantage of products adhering to stricter performance standards); and
- financial institutions tailoring their green loan offerings.
Steps to Consider Now
Bearing the upcoming developments in mind, some strategies should be considered already for being better positioned for a changing legal and commercial environment:
- making use of green-renovation products and technologies in order to be perceived as a go-to expert before the renovation wave arrives;
- adapting pending renovation projects or otherwise improving energy performance standards of existing buildings pro-actively rather than risking asset-devaluation due to more sophisticated tenant demands in the near future as more and more buildings are being modernised. This will be a priority for the owners of buildings used for public administration, such as schools, hospitals or healthcare facilities. The obligations provided in the Energy Performance of Buildings Directive (which has already been incorporated into national law) could serve as benchmarks for pending all kinds of renovation projects (not only deep renovations of more than 25% of the building shell);
- focusing on the development of energy-efficient and sustainable smart buildings, as such buildings will be favoured by the market and the public grant scheme – in order to ensure the liquidity of such public grants the EU Commission is focusing on adjusting State-aid regulations;
- taking advantage of investing into (i) entities that will either drive change on the real estate market or (ii) real properties that are attractive from an energy-efficiency viewpoint without need of a green renovation in the upcoming years; and
- de-investing or refraining from investment into buildings likely to be at stake when mandatory minimum energy performance standards are introduced.
A comprehensive set of policy and regulatory actions to break down existing barriers holding back renovation is on its way:
- By June 2021: revision of the Energy Directive and the Energy Efficiency Directive by the Commission (including a proposal of mandatory minimum energy performance standards by the end of 2021) and issuance of guidance on the Energy Efficiency First Principle.
- By June 2022: the Commission will look into the possibility to develop green public procurement criteria for public buildings.
We are observing the developments closely and are looking forward to supporting our clients on their way to green investments, energy-efficient development and sustainable financing.