With the recent passing of the EU Energy Efficiency Directive (EED) comes tangible hope that the EU might be turning a corner where environmental protection is concerned.
Though it remains to be seen just how vigorously this directive will be implemented, hopes are that this piece of legislation will provide a lifeline to the target (first enunciated back in 2009) of achieving a 20% improvement in energy efficiency from a 1990 baseline.
The cornerstone of the EED and prime reason for optimism is the stipulation that 3% of energy-serviced floor space owned and occupied by central governments must be renovated each year to meet strict energy efficiency performance requirements. Given that central government building stock accounts for some 20% of total European building stock, the environmental rewards ought to be significant.
And so too should the financial benefits. Tenants of the affected buildings stand to make very appealing long-term energy bill savings of 30% or more once renovations have been carried out. As the market grows, competition should increase, further compounding the savings and rewards customers can expect to receive.
Certain business sectors – foremost among them, the Energy Service Companies, or ESCOs for short, who will undertake the bulk of retrofitting work – are in line for a significant uptick in contracts.
The upshot in work will create a raft of new specialist jobs. The French Ministry for Ecology, Energy, Sustainable Development and Spatial Planning estimate that for every $1 million invested in property-related thermal renovation, 14.2 jobs will be created. So, with an estimated 60 billion Euros in line to be spent over the upcoming years, an estimated 850,000 jobs are set to be created, many of which will be highly skilled roles such as architects, designers, financiers and lawyers.
Elsewhere, though, the EED may spell a period of doom. The already squeezed European utility sector will likely endure more suffering given the directive’s mandate that cumulatively government buildings should be purchasing 1.5% less per annum. On the other hand, if utilities choose to flex their muscles in the EPC space – something a few market leaders such as RWE and British Gas are already beginning to do – there might yet be hope of a revival in fortunes. However, a question mark will hang over this for the time being in the form of anti monopoly rules that might yet force a separation between generation and other downstream activities.
It is not just the utilities who detect clouds on the horizon. Governments themselves fear the financial burdens of the enforced renovations may prove to be unsustainable. Though there are finance models in place designed to help de-risk and flatten the cost curve, these are not universally on offer. Private lenders, who might normally step in, have their own reservations about operating in a space that is so new and lacking in empirical data, so it may be left to the likes of the European Development Bank to take up the slack. Whether or not they have the necessary financial muscle is yet to be seen.
For all the obvious and potentially destabilizing obstacles concerning implementation of the EED, strong criticism is still being leveled at a directive that many believe is not sufficiently far reaching. Far more could be made of it if it chose to go beyond government-owned properties to encompass all building stock, the argument goes.
But, that might have been more than politicians were willing to stomach. It is the view of this publication that given the intense and fraught political wrangling that preceded the implementation of this ruling, we should be grateful that the EED has been passed into law at all. But, don’t let that sound like complacency. Now that we have the EED, it falls to the various industry bodies and industry press to remain vigilant on its enforcement and intervene if momentum starts to diminish. Only a strict adherence to the spirit of the directive is going to deliver the cuts in emissions that the EU has targeted itself with achieving. Even a 15 or 10% cut is better than nothing.