‘Up the pace’ of investment in residential buildings

There is an urgent need to increase the pace and scale of investment into the energy efficiency and resilience of UK residential buildings.

Financing energy efficient buildings – the path to retrofit at scale, released by the Coalition for the Energy Efficiency of Buildings, sets out a portfolio of financial solutions to catalyse take-up on a national scale, with the potential to contribute substantially to a post-Covid-19 green and inclusive economic recovery.

Formed of global experts from financial services, local and national government, energy and construction industries, academia and civil society, the CEEB has, since its formation in December 2019, established the case for retrofitting buildings to high-energy efficiency standards, analysed the current barriers to take-up, and used its unique combined knowledge of the finance and building sectors to generate a portfolio of 21 ‘demonstrator’ financial solutions that are commercial, scalable and mobilise capital flows towards the retrofit of UK homes to improved energy performance standards.

The Coalition found that each housing tenure analysed – owner-occupied, private-rented and social-rented – had distinct decision-makers with specific barriers to retrofit, many of which connect to the lack of attractive or available finance. For example, owner-occupiers can experience long payback periods on investment and a limited impact on property valuations, which can hold households back from expending the upfront costs required. In the private-rented sector there is an incentive split, as the landlord pays for energy efficiency improvements and yet tenants accrue the benefit through reduced energy bills. In the social-rented sector, the short-term nature of grant schemes can prevent more ambitious retrofit projects, and private leaseholders and occupiers within blocks of flats and terrace rows can prevent social housing providers from undertaking large-scale retrofit projects. As well as access to financing, better data, trusted measurements of effectiveness, a depth of supply chain and incentives and regulation for both borrowers and lenders to act are also needed. For low income and fuel-poor households, public capital and government guarantees have a larger role to play.

The 21 ‘demonstrator’ solutions that were co-designed by the Coalition include financial, data and standards-based solutions to overcome barriers to scaling up finance, as well as assessment and policy levers that could bolster the commerciality and scalability of these solutions. The Coalition will now take forward a selection of these pilots, enabling a practical demonstration of their viability with their launch later this year. The demonstrators fall into six groups:

• lending products – including Property Assessed Clean Energy (PACE) loans, equity release mortgages;

• savings and investment products – including community municipal bonds and ISAs;

• guarantee mechanisms – backed by the Government or by insurance companies;

• tenancy agreements – green leases;

• energy service products – enabling housebuilders to recoup investment; and

• data and enabling frameworks – including building renovation passports and standardised energy saving methodologies.

The UK’s building stock is responsible for approximately 30per cent of the country’s total greenhouse gas emissions, and the failure to decarbonise our built environment could result in a 40 per cent shortfall to our economy-wide decarbonisation targets by 2030. Meeting the UK-wide target for as many homes as possible to achieve an Energy Performance Certificate (EPC) rating of C by 2035 will require a total investment in energy efficiency upgrades of up to £65bn. The Green Finance Institute is confident, however, that a synergy can be forged between the parallel needs of lowering emissions and rebooting the economy in response to the coronavirus pandemic. First, the scale of works necessary will support more than 150,000skilled and semi-skilled workers across the hard-hit construction supply chain, especially in areas already facing higher levels of unemployment and higher energy bills. Second, energy efficiency upgrades are relatively quick to install, meaning investment can be stimulated rapidly. Third, the resulting household energy cost savings can translate into increased consumer spending, thereby supporting the wider recovery.

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