Monday, December 05, 2016

Wanted: a serious business model for eco-retrofitting homes

[NOTE: A version of this article appeared on The Fifth Estate on 29 November.]

A new approach is needed to retrofit the UK’s housing stock to allow it to contribute to a cost-effective decarbonisation strategy, according to a report published by the Energy Technologies Institute.

But the report does not make it really clear what this approach might be.

Although deep retrofits of houses for energy efficiency are technically feasible, as detailed in my book the Earthscan Expert Guide to Sustainable Home Refurbishment, at present doing it to the proper standard might cost around the same as rebuilding the entire UK housing stock.

New homes built to modern UK Building Regulations standards will cost approximately half as much to heat as a Victorian home, according to the British NHBC Foundation. These new or refurbished homes mean reduced bills for heating, hot water and electricity bills, due to better standards of insulation, draught-proofing and improved airtightness, double glazing and efficient controls (programmer, room thermostats and thermostatic radiator valves).

Graphic: The difference in heating costs between a new and Victorian home.
The difference in heating costs between a new and Victorian home. Source: NHBC

Housing Retrofits – A New Start, written by the ETI’s chief engineer Andrew Haslett, looks at the role of housing retrofitting when seeking to tackle the 20 per cent of emissions that comes from heating the UK’s 28 million homes.

Its conclusions come from a two-stage process. The ETI first identified two particular retrofitting approaches that were the most cost-effective in terms of getting the most from time and materials by industrialising the planning and execution of projects. They followed this up by testing them out on five typical UK dwellings (terrace, semi-detached, detached) built from pre-1919 to post-1980, to work out what might be deliverable in the real world. Here are the results:

Retrofits were successfully completed on four of the houses, with gas usage reduced by 30-50 per cent. But the costs ranged from £32,000 to £77,000. The experience led the team to conclude that proper investment in supply chain and training might reduce this by about half to £17,000 to £31,000.

Building retrofit infographic

The incentive gap

That’s still a lot. So how do we persuade someone to spend the money? The report highlights that most consumers are not motivated to spend money on efficiency measures because efficiency savings are a very weak driver. That is the “incentive gap”.

Instead, the report recommends that improved comfort, health and amenity should be the main incentive to fill this gap, with saving money on bills as a secondary benefit.

Meanwhile, at the back end, finding savings in the supply chain by scaling up manufacture and supply, and rewards to investors or installers, and/or legally binding targets for carbon savings (carrots and sticks), would seriously help, both in the social and private sectors.

The ETI has made a video about the project:

But the route to market is still fuzzy.

The need for investment

UK Government spending on grants for home energy efficiency is currently languishing at a 20-year low.

This year has seen a massive fall in the number of households helped by government to become more efficient, with the annual number of major energy efficiency measures installed in homes declining by 80 per cent from 1.74 million to 340,000 between the height of delivery in 2012 and 2015, according to the Association for the Conservation of Energy.

The government seems to lack any sense of the value of energy efficiency compared to investing in large scale energy projects. The ETI reckons that with carbon prices at such a modest level one way to improve housing efficiency lies in more effort to tackle the approximately four million hard to treat cavity walls across the UK. But governments have been trying for years to incentivise this and not even all the “easy wins” have been fixed.

Wanted: a serious model

Although the ETI wants to make eco-retrofits “an integral part of improving the amenity and value of the dwellings”, rather than seeing them as a series of independent measures, it does not present a financial model for doing this.

The only hope it offers is a vague one for “a new kind of service provider (integrator)” to replace existing energy providers, on a franchised basis (local teams), “that aims for a much higher level of service provision, starting with existing energy supplies”.

Such companies would have “a plan for the decarbonisation of supply of each dwelling” but “only if a market environment can be created over the next five years”.

Given the current preoccupations of the UK Government – Brexit – and the lack of any mention of climate change or social care in the government’s budgetary spending plans announced last week, that’s a big ask.

It’s not as if the ETI is asking for a lot of cash compared to the scale of the task. It says: “£10 billion of private and public funds over the next 10 years would provide a platform that would enable investment of roughly £100bn out to 2050″.

Financial Disclosure

The incentive gap is to be addressed by yet another report, soon to be released, this time from the UK Financial Stability Board’s Task Force on Climate-related Financial Disclosures.

It will contain their first set of recommendations about how to help close the gap between the climate/sustainability world and traditional finance thinking.

It will say that all infrastructure projects – not just housing retrofits – have a climate-related element to them, be that energy efficiency (mitigation), resilience against adverse weather events (adaptation) or others.

Therefore policy to encourage the reporting of more information on these topics will help to bring more visibility to the benefits.

And standardising how this information is reported would ensure that it can be used for investor analysis, enabling investors to set targets, and the creation of more products that are attractive to investors.

Well that’s what the Investor Confidence Project is doing. I wonder if the FSB knows about it.

The ETI is conducting important research. What they have done is expose the difficulty of the task but they have only begun to chart a path to accomplishing it.

David Thorpe is the author of:

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