It is now undisputed that investing in buildings is one of the most cost-effective and sustainable means of achieving climate goals.
In 2019, the European Commission published the European Green Deal (COM 2019), the EU’s new growth strategy, which sets a climate-neutral Europe by 2050, with a 55% emissions reduction by 2030. One of the cornerstones of the strategy is to increase energy efficiency, with buildings at the centre: “To address the double challenges of energy efficiency and affordability, the EU and Member States should launch a programme of modernisation of public and private buildings“, as a way to reduce energy costs, alleviate energy poverty, boost the construction industry, support SMEs and local jobs.
The renovation of the building stock is also a priority in the post-crisis socio-economic recovery, as it can accelerate economic recovery and job creation. Green investment can generate a surplus of up to 4% of GDP by 2030 (see IP/09/180). See Cambridge Econometrics’ analysis of the V4 countries in Budapest), where the cornerstone of this investment is to increase the energy efficiency of buildings. However, this strategic area is barely mentioned in the document, alongside increasing the share of renewable energy production and electrification of transport.
The energy-obsolete building stock is responsible for more than a third of Europe’s carbon emissions. Decarbonising the building stock is therefore the aim of the EU’s new Renovation Wave strategy, published in October 2020, which aims to double the rate of building renovation over the next decade. To achieve the EU’s 55% emissions reduction target and carbon neutrality by 2050, it is essential to step up building renovation while increasing the depth of renovation. This is partly financed by the EU through the resources made available to Member States through the RRF as part of the Next Generation Fund.
The energy renovation of buildings is one of the seven flagship areas that the Commission specifically highlights and strongly encourages Member States to include in their national recovery plans. This is no coincidence, as the significant economic stimulus, job creation, emission reduction and wealth creation effects of building renovation compared to other eligible activities are clearly demonstrated. A number of studies show that large-scale renovation of the building stock can also bring economic and social, energy and non-energy benefits to the Hungarian economy that outweigh the costs of investment.
The Commission’s October 2020 assessment of Hungary’s National Energy and Climate Plan (NECP) clearly shows that Hungary needs to increase its ambition in terms of energy efficiency targets. There is a clear expectation to reduce primary and final energy use more than planned and to increase energy savings through appropriate policies. To achieve the 331 PJ cumulative energy savings committed in the NECP for the next decade, the savings potential of buildings, which is about one third of this amount, needs to be exploited. The target can only be achieved by at least doubling the domestic renovation rate and increasing the proportion of deep renovations, with a particular focus on the most cost-effective energy savings potential of family houses.
Hungary’s 2050 climate neutrality target cannot be achieved without energy efficiency renovation of the 3.7 million Hungarian dwellings, which would require the renovation of about 130,000 dwellings per year. This pace, i.e. a large-scale domestic renovation wave, is unthinkable for the time being without a comprehensive and well-designed incentive scheme. Its elements do not seem to be adequately reflected either in the National Recovery Plan (NRP) or in the Cohesion Fund programming document (Cohesion Fund plus).
Among the plans for the energy sector in the RRF, decarbonisation of the energy sector and the decarbonisation of electricity generation are clearly mentioned. The plan also places a strong emphasis on the promotion of residential renewable energy investments and investments to increase the necessary grid capacity. Decarbonising the electricity sector and increasing the use of renewable energy are important strategic objectives, but they are not sufficient to achieve the decarbonisation targets: the end-use sectors, in particular buildings, which are almost half responsible for energy use and carbon emissions, should be given much more prominence in the plan.
There is ample research to show that without energy efficiency, decarbonising heat generation can eat up huge costs. It would be difficult and wasteful to heat rooms to a comfortable indoor temperature in an energy poorly performing residential building just by changing the heating system, and the investment and running costs would be significantly higher compared to a low heat demanding house. Moreover, such an approach would also impose costs on the energy system as a whole, as it would unnecessarily require the installation of new generating capacity. A combination of low carbon heating technologies and energy efficiency improvements is needed to decarbonise heat.
One of the types of investment to be supported is the electrification of residential heating systems. Incentivising the installation of solar systems and the electrification of their heating and DHW production systems with non-repayable subsidy to reduce energy costs is only reasonable if the heat demand of the building or dwelling has been reduced beforehand. Energy efficiency interventions should first aim at reducing heat demand by insulation, replacing windows and doors, reducing cooling energy demand in summer by shading, and the remaining energy demand should be met – if possible – by renewable energy technologies (e.g. solar panels, heat pumps). Solar panels installed on energy-inefficient buildings are not expected to reduce consumption significantly.
This is also justified by the ‘Energy Efficiency First’ principle of the European Green Deal, which aims precisely to ensure that any major investment decision in the energy sector is preceded by an assessment of the potential of energy efficiency. There is no systematic enforcement of this in the plans. Hungary’s energy intensity and the specific energy consumption indicators for the population clearly show that energy use in buildings, especially for heating, is wasteful. The conditions for a lasting, long-term reduction in energy use should be created first, i.e. it makes sense to reduce the size of the ‘pie’ first, and then to decide on the scale of greening, electrification and the necessary network upgrades. It is therefore a serious missed opportunity that the plan does not sufficiently take into account the reduction of energy use in the end-use sector, in particular in the residential and building sectors, either in the strategic objectives or in the proposed measures.
Based on the above, it is therefore proposed that energy efficiency should be included in the strategic objectives of the National Recovery Plan, and that the planned measures should include:
– Large-scale renovation of the building stock, encouraging complex, deep renovations with financing solutions to maximise savings potential and avoid lock-in effects. There are successful international examples of coupling public and EU funds with private capital. A combination of grant-backed subsidies and soft loans, managed and offered to renovators by an intermediary organisation, complemented by technical assistance, has led to a boost in renovation in several European countries (e.g. KfW in Germany, Kredex in Estonia, or VIPA in Lithuania).
– Support for capacity building and technical assistance – without which a doubling of the renovation rate (at least) cannot be achieved. For example, one-stop-shop renovation offices can be supported to assist the population in the complex planning and management of the renovation process and to ensure quality implementation and thus the expected energy savings. For example, both the Czech Republic and Belgium are using their recovery funds to strengthen the role of regional and local consultancy offices for the planning, administration, implementation, monitoring and reporting of the renovation wave. In Germany, the state-owned KfW bank employs more than 10,000 accredited energy specialists who are involved in the preparation and implementation of renovation plans.
– To carry out building renovations, steps need to be taken to address the shortage of construction professionals. The training and availability of good skilled workers and energy engineers and technicians is key to the success of a renovation wave, as only when renovations are carried out professionally will the expected energy savings be achieved.
