- Home »
- Insights »
- DWS Research Institute »
- Energy efficiency policies & investments
Overview:
- Europe’s goals for energy security, net zero emissions, competitiveness and to address cost of living pressures, require higher levels of investment in energy efficient technologies, especially in buildings.
- To #JoinUpTheDots, we describe how energy efficiency is a cross-asset class opportunity for Europe’s Transformation through real estate (private & listed), infrastructure, direct lending, project finance funds, tech commercialisation, investor and lender engagement with companies, and policymakers.
- We analyse the Energy Performance of Buildings Directive (EPBD) which will become European law in Q2 2024. The following provisions [1]will be put into national law over the next 2 years:
- Minimum Energy Performance Standards: buildings must meet an energy use standard when undergoing a major renovation, or when a building is sold, leased or has a change of purpose.
- Phase-out date for fossil fuel boilers by 2040 or earlier
- Mandatory roof-top solar if “technically suitable, economically and functionally feasible”
- EV charging in buildings; Future mandatory Smart Readiness Indicator for commercial buildings
- Mortgage Portfolio Standards: first ever voluntary regulation to improve portfolio energy efficiency
- New buildings in 2030 must be zero emissions and have embodied carbon targets for construction
- The parallel Energy Efficiency Directive[2] sets public sector building renovation targets, requires data centre disclosures, utility companies to achieve energy savings & companies to carry out energy audits.
- Enhanced cooperation and dialogue between policy-makers and financial institutions is necessary for policy implementation to be as effective as possible to help reach climate, energy, and financial goals.
- Enhanced dialogue is the aim of the EU Energy Efficiency Finance Coalition, an evolution of the Energy Efficiency Financial Institutions Group (EEFIG) where DWS was an active, founding member.
- Participating in the Coalition is a way to help meet asset owners’ expectation for asset managers to undertake sector & policy engagement.[3] However, politicisation of retrofit/heat pump policies is growing. Clear public messages and financing partnerships are needed to meet EU retrofit goals.
- We will publish a parallel report with policy recommendations, but in summary[4] we believe there should be better alignment between efficiency policies and: sustainable finance policies, electricity market reform, and energy tax reform; an EU supported Renovation Loan incentives; a ‘trusted data’ sharing strategy to reduce ‘green red tape’ for companies and to address real estate stranded asset risk.
- Efficiency related investments could contribute to the 2030 EUR 2.5trn green & digital investment gap and help countries improve their ranking on our recent European Transformation Scorecard[5]
1 / Energy efficiency across asset classes
Illustrating the financial, climate, and policy relevance of a cross-asset class approach
Despite Europe drastically cutting its dependence on Russian energy imports, since 2022, European countries have spent four times as much on Russian energy imports (US$187bn) as on military aid to Ukraine[6]. However, energy efficiency and electrification in transport (i.e electric vehicles), buildings and industry (i.e. heat pumps), could provide ~33% of a net zero scenario’s carbon reductions, support industrial competitiveness, improve energy security and create wider health benefits[7]
. With many fossil fuel companies largely continuing with their current business models, some asset owners[8] are stating that they will increase their focus on energy demand and energy efficiency. Our report therefore serves as an investor guide to public policy developments to inform capital allocation and the use of investor influence to improve energy efficiency.
The first section of our report presents how energy efficiency is a cross asset class opportunity. The second section explains the investor implications of the updated Energy Performance in Buildings Directive while the third section focuses on the updated Energy Efficiency Directive.
The updated laws aim to double the EU’s efforts to cut energy use compared to 2007-20 when energy use fell by ~9%.
- ~11% of buildings are renovated/year but only 1% of buildings have a renovation impacting energy performance and 0.2% optimise for energy efficiency. The EU aims to double renovations: 35m by 2030 requiring EUR 275bn+/year.
- Even though energy prices have declined over the last two years, millions of Europeans cannot afford to keep their homes warm with healthy indoor environments[9] . Buildings are thus also a social cohesion/equality policy priority.
Different asset classes as shown in Figure 1, involve different types of financial institutions, market rules/practices and regulations that have different abilities and maturities and examples of sector initiatives to support create real world change such as contributing to improving society’s energy efficiency. The shading from dark green to red, illustrates that within specific asset classes financial institutions/funds are evolving their approach to net zero and energy efficiency. All institutions can continue to improve. Figure 2 illustrates the ways in which energy efficiency are relevant to major asset classes.
