The report, How Deep to Go:  Remarks on How to Find the Cost-Optimal Level for Buildings Renovation, is published by eceee, Europe’s largest membership-based organisation dedicated to promoting energy efficiency, is following the approval process of the Commission’s proposed recast of the Energy Performance of Buildings Directive.  The issue of understanding and defining “cost optimal” investments is a contentious one in these discussions because many Member States, experts and individuals define it differently.

Life-cycle costing based on net present values, the report states, provides a sound basis for the development of a common methodology for calculating cost-optimal levels of renovation.

The author, Andreas Hermelink of Ecofys, states that “taking sustainability seriously, a space heat consumption between 25 and 40 kWh/sq. m. should be aimed at” in renovation.  This represents savings of between 80 and 90 per cent.

The report details distortions that arise from a number of assumptions and practices commonly used in calculating optimal levels of investment in energy efficiency.  Methods that make investments look better than they should include static calculations and using exponential energy price increases over the time period. Those that make investments look worse than they are include payback methods that tend to suggest cheap and short-term investments while missing the profit maximum for the investor; using high interest rates instead of real mortgage interest rates; and questionable alternatives when energy efficiency investments are integrated into improvements that are going to occur anyway, including non-energy efficiency investment costs when calculating cost-effectiveness. Using lifetimes that are too short, given the lifetime of the technology deployed, will also distort the true value of such investments.

What does this mean?  Individual measures can have impact but their level easily risks being sub-optimal if not analysed correctly. The report also shows that a basket of measures taken at the same time (often referred to as “deep” renovation), can be analysed with a similar approach, allowing for the measures to be compared to each other to reach an optimal, financially attractive package.  In the example presented in the report, savings of 58 per cent can be achieved at a cost less than the assumed energy price, thus making it of interest to the individual investor.  However, savings of 82 per cent can be achieved through government support.  And there is a way of “visualising” the results graphically to allow the investor to reach the best solution, which the author presents in his report.

The report discusses mainly private investments but mentions that there are many co-benefits that can make investments beneficial from a societal viewpoint.  These include:  reduced energy imports, impact on global climate change, higher quality energy services (including health benefits) and lower risk in terms of increased poverty during periods of escalating energy prices. These societal considerations often justify government support.

This means that the costing methodology that is developed for the recast Directive is extremely important to the overall impact of the Directive.  There can be sub-optimal energy and CO2 emissions reductions without cost-optimal investment in technologies.  The report states that the current recast proposal of the European Commission and “especially the amendments proposed by the European Parliament . . . provide a sound basis for a subsequent development of a common methodology for calculating cost-optimal levels of renovation.”

The main conclusion is that the “major pre-condition to achieve such levels is to replace commonly used inaccurate methods for calculation of cost-optimal levels of renovation by more accurate ones.”

This report follows discussions that the eceee initiated at its biennial summer study in June 2009.  It is timely, since both the Council of Ministers and the European Parliament are anxiously trying to reach agreement on the proposed Directive in time for the UN Climate Change Conference in Copenhagen in December.

The report is available on the eceee buildings pages
Download report (pdf)

For further information, contact:
Nils Borg
Executive Director
+46 70 585 31 74
eceee@eceee.org