Energy plan needed for success of Net Zero Energy refurbishments

The E=0 project aims to scale net zero energy retrofits * in North West Europe. The E=0 project allows housing organisations to refurbish their housing stock to net zero energy levels by combining the future energy cost savings with future maintenance costs and investing that in a performance guaranteed retrofit. This way, residents get a refreshed, warm and comfortable home at the same (or lower) cost of living. An approach that was successfully tested and proven in the Netherlands and has started to been deployed to the UK, France, Germany and Luxembourg.

Energy plan to remove split incentive

In order to make the model work in the social housing sector (which is our launching market for these retrofits), the split incentive problem between landlord and tenant needs to me solved. This means housing organisations have to be able to collect the energy cost savings from their tenants in the form of an energy fee or energy plan in exchange for providing them with a warm house plus some sort of energy bundle for heating, hot water and electricity for their appliances. This scheme gives housing associations the opportunity to invest this new incoming cash flow in the refurbishments, together with the savings on maintenance costs. In this way there is no need to increase the tenants’ rent.

In the UK, France and Luxembourg (and Germany) housing associations are not able to collect an energy plan from their tenants on top of the rent. This means that in order to make net zero energy living a possibility at scale, regulatory changes enabling the charge of an energy plan, will be needed.

Other regulatory challenges

Besides the challenges around the energy plan, there are other obstacles that have to be tackled, before the wider roll out of this programme will be possible and successful. We’ve asked the different market development teams what other regulatory challenges they’re currently facing.

United Kingdom
“In the UK one of the biggest problems is to get a viable business case for net zero energy solutions. The challenges with the business case starts with the very low feed-in tariffs that we have here in the UK”, says Arno Schmickler, member of the UK Market Development Team. “The business case in Holland is based on a net metering scheme where it is possible to have equal exchange of power with the electricity grid. For the Dutch business case this means that the houses have to be net zero over a year. During the summer the houses will generate more electricity than will be needed, the overcapacity flows right back into the national grid. During the winter the houses need more energy than produced by the solar panels, at that moment the house will use energy from the grid. At the end of the year there is no electricity charge as long as the house delivered the net zero energy requirement. This exchange mechanism puts renewable energy generated on site at parity with other sources of energy in the national grid and thus strongly supports the Dutch business case. In the UK, however, such a free exchange with the grid is not possible. In the UK feed-in tariffs are significantly below the retail electricity price, which means the use of solar PV is almost penalised: to receive the monetary equivalent of 1kWh of grid electricity in the UK almost twice as much has to be generated by the solar PV installation, even if 100% of solar PV is exported. That means residents will have to use as much as possible of the energy that they are generating at the same time which is not achievable (day/night, summer/winter cycles) unless significant energy storage is installed.”

“The demonstrators that will be delivered under the E=0 project give us a great opportunity to assess and improve the emerging solutions, not just in terms of their energy and comfort performance but also in relation to the business case for investment going forward. A smart combination of technologies and potentially a higher investment in energy storage could overcome some of the regulatory barriers that we are facing in the UK. However, it is clear that it is definitely not going to be easy here in the UK to replicate the Dutch success unless we find a supportive government that is prepared to work with us for better solutions that will deliver significant investment in our ailing housing stock, create new employment in advanced manufacturing and reduces health expenditure due to much improved air quality and eliminated fuel poverty.”

France
After having spoken to Pierre Lévi, from the French team, it becomes clear that their biggest challenges lie in the French building component validation system. “Every new innovation has to go through a validation process which can take up to a couple of years before new solutions get approved. When you’re working on net zero energy solutions you’re constantly looking for better products and therefore experimental room is necessary.” “For the realization of the demonstrators, this spring, we don’t really have a good solution yet. We’re trying to combine existing solutions in the smartest way to get the first pilots of the ground for a reasonable price. But if you want prices to come down and quality to get better, innovation is necessary!”

Luxembourg
In Luxembourg, the missing of the energy plan currently forms the biggest obstacle. In Luxemburg the Ministry of Housing pays 70% of the renovations costs that are being carried out by housing associations and therefore have a lot of influence on the daily business of these organisations. “For example, The Ministry of Housing sets the bar for rent, that’s why it is not possible to increase the rent and therefore an energy plan is needed,” explains Nicolas Zita from the Luxembourgish team. “Housing organisations really want this energy plan, because that would give them more autonomy and flexibility over their business”.  “For the demonstrators we may have found a solution. An article of the RGD (Réglement Grand-Ducal allows the housing associations to charge the tenants for the extra-services provided by the refurbishment. The comfort brought by the refurbishment could be interpreted as a service. The demonstrator team is working on this now.”

Short-term solutions no option

The necessary law changes won’t be made for the first demonstrators that come to the market. The objective is to develop a market towards a non-subsidised business case that is attractive for both customer/housing association as builder and/or supplier. The key to developing a successful retrofit market that will attract investment and innovation is certainty and consistency over a long term (20yrs-30yrs). By their very nature retrofit programmes can take a long time to develop and deliver and any changes or threats of changes prevents these programmes from being planned. Long-term regulation is therefore very important to stimulate the market development. Short term subsidies, periodic feed-in tariff structures or temporary permit-exceptions are not stimulating the building sector to do the large investments in innovation and production that are necessary to grow a mature market.

Under the Interreg NWE project E=0, different countries experimented with getting this solution to the market, but these law changes would be necessary to make a business case that doesn’t rely on subsidies.

Over the next period we recommend developing a framework for European regulation to create not only protection for consumers, tenants and social housing companies, but also to stimulate Net Zero Energy refurbishments by removing the split incentive.

* Net Zero, what does that mean?

Annually, a Net Zero Energy house generates sufficient energy to heat the house, provide hot water and power its household appliances. A refurbishment comes with a 30-year performance warranty on both the indoor climate and the energy performance.