Tomáš VIMMR, Andreas ENSELING, Thomas LÜTZKENDORF, DECISION SUPPORT TOOLS FOR ECONOMICALLY VIABLE ENERGY EFFICIENCY RETROFITTING IN THE EUROPEAN RENTAL HOUSING STOCK Tomáš VIMMR, Andreas ENSELING, Thomas LÜTZKENDORF, Iris BEHR, Martin VACHE, Alexandra BEER STÚ-K, a.s., t.vimmr@stu-k.cz

INTRODUCTION EU project financed by HORIZON 2020 Topic: EE-19-2014 - Improving the financeability and attractiveness of sustainable energy investments Call for proposal: H2020-EE-2014-3-MarketUptake Funding scheme: CSA - Coordination & support action

EU POLICY CONTEXT Article 19 of the EU directive 2012/27 on energy efficiency of 25th October 2012 states, that “Member States shall evaluate and if necessary take appropriate measures to remove regulatory and non-regulatory barriers to energy efficiency, without prejudice to the basic principles of the property and tenancy law of the Member States, in particular as regards the split of incentives between the owner and the tenant of a building (…)”with a view to ensuring that these parties are not deterred from making efficiency-improving investments that they would otherwise have made by the fact that they will not individually obtain the full benefits or by the absence of rules for dividing the costs and benefits between them (…)”.

OVERVIEW Available: Standardised EU-wide cost optimality approach on energy saving measures/costs (Art. 5 2010/31/EU, EN 15459) European residential building typologies and energy saving measures/costs Ongoing (national) research on green value issues Missing: Successful example of standardised integrated cost side/return- side approach on EU-level Good knowledge of split-incentive/investment barriers and green value drivers Transnational knowledge of best practices and regulatory issues in the EU rental market

Cost optimal or EN 15459 Approach COMPARISON RentalCal Cost optimal or EN 15459 Approach Rental housing perspective Yes No Focus on owner occupier perspective LCC Approach as basis for investment analysis Present value Yes (income and costs) Yes (but only costs) Differentiate between costs and benefits accruing to tenants and owners Account for direct income and uncertain income changes for investors Account for indirect income streams such as “green rental premium” extracted from renting out an energy efficient property Account for income taxes and other overheads Account for lifetime of the retrofit investment Yes (10 Years DCF) No (lifetime approach or e.g. 30 Years) Account market derived yield for discounting Incorporate only specific well-defined preferences of investors Incorporate subsidies and other governmental incentives calculations scheme Risk analysis regarding uncertain input parameters. E.g. future energy prices or new technology Yes (only energy prices) Incorporate national and EU regulatory requirements such as energy labelling and carbon proofing Account for other investment alternatives such as cost-sharing schemes between landlords and tenants Derivation of an exit value of the property Estimated resale price / market based Final or Residual value

METHODOLOGY Knowledge dissemination and stakeholder involvement Inventory: Reports Statistical data Empirical data Energy certificates Own database On site surveys Framework Conditions: Technical Legal and institutional Financial Other data Processing: Data classification Factsheets Calculation basis Critical discussions Knowledge dissemination and stakeholder involvement

EFFECTS OF IMPROVED ENERGY PERFORMANCE BEFORE: Economic goals of investors focus on profit maximisation, cash flow, value stability, and performance of the buildings contained in their portfolio. NOWADAYS: Social and environmental responsibility added

EFFECTS OF IMPROVED ENERGY PERFORMANCE Economic Environmental Social Technical Reduced consumption of non-renewable resources X Reduced GHG emissions and emissions of airborne pollutants Improved thermal comfort during winter and summer Reduced risk of black mould formation and structural damages Reduced heating costs and therefore stable cost of living Value stability and performance of property market Reduced risk of rent decrease Improved image Extended technical life spans of outer walls Extended life cycles and consequently conservation of the embodied energy and resources

CHALLENGES Split of incentives - calculation schemes that are able to calculate with non-deterministic relations incorporating both legal, institutional and market based factors that influence the causal relation between benefit for the beneficiary and economic advantage for the investor.

TOOL ARCHITECTURE

TOOL DEVELOPMENT CHALLENGES Split of incentives - calculation schemes that are able to calculate with non-deterministic relations incorporating both legal, institutional and market based factors that influence the causal relation between benefit for the beneficiary and economic advantage for the investor. Some benefits are difficult to measure - use of empirical evidence and qualitative assessments and suggest parameters where possible, but leave the final decisions to the user

CHALLENGES Split of incentives - calculation schemes that are able to calculate with non-deterministic relations incorporating both legal, institutional and market based factors that influence the causal relation between benefit for the beneficiary and economic advantage for the investor. Some benefits are difficult to measure - use of empirical evidence and qualitative assessments and suggest parameters where possible, but leave the final decisions to the user Modelling of national legal and institutional settings that may influence the assessment of economic advantages.

Framework Conditions Technical Framework Legal Framework WP2 Technical Framework WP3 Legal Framework WP4 Institutional Framework WP5 Market and Financial Framework

Tool and Online Platform Creation WP6 Methodology for profitability assessment WP7 Testing for compatibility with different user groups (case studies) WP8 Methodology available to the public through a Web Tool

TECHNICAL FRAMEWORK

TYPOLOGY APPROACH What is a TABULA /EPISCOPE typology? A set of model buildings (types) with common energy-related characteristics Building types are selected to image substantial part of the building stock Main Elements Building type matrix Sub-typology construction elements Sub-typology supply systems Energy performance calculation procedure Software implementation

LEGAL FRAMEWORK INVESTOR TYPOLOGY

Financial and Market Variables Overview of Variables Property Variables Investor Variables Legal Variables Financial and Market Variables 1 Ex-Ante Energy Consumption Investment Horizon (Calculation Period) Deductibility Amount of Energetic Measure Direct Subsidies 2 Energy efficiency Measure Impact Loan-to-Value ratio Tax Rate on Rental Income Credit Interest Rate 3 Ex-Post Energy Debt Service Coverage Ratio Value Added Tax Rate Interest Rate on Bank deposits 4 Property-specific energy mix Type of Repayment Permissible Rent Increase Interest Rate for Subsidized Financing 5 Total Area of the Building Role of Value Added Tax / Deduction of Pre-Tax Property-related Depreciation Rates Projection of Interest Rate 6 Lettable Spaces of the Building Risk-return ratio (perception) Reclamation Procedures Green Premium (on Exit Value) 7 Investment Cost (related to Retrofit Measure) Cap Limits of Rent Increases Empirical Market Rental Premium 8 Portion of Non-Energy Related Investment Costs (“Anyway Costs”) 9 Changes in Running Costs (ex-ante vs. ex-post) 10 Vacancy Rate

Conclusions Development and promotion of an innovative standardised methodology for assessing retrofits in the rental housing Improvement of transparency in the investment conditions within the EU housing industry. Dissemination of key insights into the 'Green Value' proposition to specific target groups.

PROJECT CONSORTIUM

THANK YOU