(The author is a Reuters market analyst. The views expressed
are his own.)
By Gerard Wynn
LONDON Feb 28 Efficiency upgrades of
commercial buildings offer quicker paybacks than homes meaning
diverging challenges for government programmes aimed at
overcoming homeowner and business indifference to saving energy.
The challenge boils down to encouraging businesses to carry
out upgrades that may deliver bigger returns than at first
glance, while convincing homeowners suspicious of benefits from
Buildings account for about a half of all energy
consumption, according to the European Commission which is
driving for tougher European Union efficiency laws to curb
rising fuel bills and carbon emissions.
On Tuesday, a panel of EU lawmakers approved new binding
efficiency measures in member states, paving the way for
European Parliament approval.
Member state ministers must agree on a similar text, far
from certain, but Tuesday's vote was a stepping stone.
The main proposal was to force all European energy utilities
to spend at least 1.5 percent of their revenues helping
customers cut their fuel bills, by retrofitting their property,
money they can claw back through higher fuel bills.
But public and business appetite is lagging.
Uptake of retrofits is partly driven by the payback on
investments, in other words how long it takes to get the money
back through energy savings. Risk is also important.
Emerging data from pilot programmes and private investments
suggest rapid payback in the commercial sector, where economies
of scale are greater than homes.
The UK investment firm Climate Change Capital over the past
three years has acquired four prime commercial properties for
about 150 million pounds ($238 million), and aims to extract
higher returns through efficiency upgrades.
In theory, lower fuel bills and carbon emissions could see
higher rents, capital values and occupancy rates.
In a forthcoming audit the company reports rapid paybacks
including systems to switch off machines like air conditioning
outside office hours (less than six-month payback), to track
energy use (1.3 year payback), and review and automate lighting
(2.3 year payback).
They calculated even faster paybacks on raising occupier
awareness of efficiency, at about 2 months (a 6,000 pound annual
energy saving on a 1,000 pound outlay).
The findings echo those of Britain's Carbon Trust, which
advises businesses on how to cut CO2 emissions.
It found commercial property payback periods were generally
less than two years: for example, about one month on
awareness-raising; 11 months on installing light sensors; 14
months on more efficient cooling equipment; and 18 months on
changing light bulbs.
A common sceptic complaint, however, is that fuel bills are
a small part of total revenues in the commercial sector (on
average 3 percent, according to the Carbon Trust), meaning such
savings don't entice boardroom attention.
Climate Change Capital was coy about returns on their first
property sale last July (for 43.5 million pounds compared with a
purchase price of 35.9 million pounds a year earlier).
Evidence of high returns, beyond mere quick paybacks on
investment, could drive wider investor and corporate appetite.
Homeowners may struggle to make such significant savings
beyond basic insulation and changing light bulbs.
The Energy Savings Trust advises the British government on
residential retrofits and is gathering data on savings including
Such data includes cavity wall insulation, which plugs the
gap between the inside and outside of a building fabric (one to
three years); lagging lofts (four or more years for thicker
layers); internal wall insulation, cladding an extra layer to
the inside walls of the house (12 to 19 years); double-glazing
windows (20-40 years).
In the case of double glazing that's a long wait to get your
money back, longer than the expected occupancy, and ample
Part of the trick is accounting for timing and risk,
however, say experts at the U.S. Rocky Mountain Institute (RMI)
which has a long history of trumpeting the benefits of
The incremental cost of installing efficient windows or
appliances can be negligible compared with standard equivalents,
meaning paybacks are much shorter if the job is timed to the
natural replacement cycle and lease turnovers.
In addition, the cost of individual items are trimmed if the
whole home is addressed. For example, the cost of more efficient
walls can be offset by downsizing the size of a new boiler
required to heat the home.
Another consideration is risk.
According to the RMI's Director of Sustainable Finance,
Scott Muldavin, a big hurdle is homeowners' distrust in the
system supplying the upgrade, including data on savings, the
reliability of suppliers and the robustness of contracts.
Britain and the United States are each embarking on similar
initiatives to drive residential upgrades, called the Green Deal
and Property Assessed Clean Energy (PACE) respectively, each
relying on low rates of government borrowing for funds.
Their success will depend as much on how well they secure
homeowners' confidence in utilities and builders, as finance.
($1 = 0.6313 British pounds)
(Reporting by Gerard Wynn; editing by Jason Neely)