Spotlight On: Why building renovations are an essential part of the energy transition - Karin Huizinga
The Challenge: Net Zero
The increase in global greenhouse gas (GHG) emissions is primarily driven by the rising energy consumption, which is a direct consequence of growing economies and populations[1]. Renewable energy production emerges as a potential solution. The production of renewable energy is on an upward trajectory, signifying a positive shift towards sustainable practices. However, there still is a large gap to fill: 82% of global energy consumption is currently linked to fossil fuels. The path to a sustainable energy future involves a dual approach: increasing the production of renewable energy and enhancing energy efficiency. The acceleration of both factors is essential: It is not just about augmenting the renewable energy production, but also about managing the total energy consumption. To achieve net zero by 2050, the global average annual rate of energy efficiency improvements must double from the current 2% to over 4% every year[2].
The Potential: Reduction of energy consumption
According to the IEA, energy efficiency measures have the potential to achieve 50% of the needed GHG emission reductions by 2030[3]. Colesco aims to contribute to realising this potential. Therefore, energy efficiency is included as one of the target outcomes of its sustainable investment strategy. An investment relating to energy efficiency, important considerations include;
- Lifecycle impact: Energy efficiency projects can involve inputs associated with negative harm on the environment. Think for example about the production of insulation, solar panels or batteries. An important metric to look at – next to e.g. safeguarding human rights in the supply chain - is the carbon payback period, which compares the project related carbon emissions to the annual carbon emissions savings.
- Economic impact: Energy efficiency solutions usually come with an upfront cost but have the potential to combine economic gain (lower energy cost) with environmental gain (lower GHG emissions & consumption intensity). With return on investment being a key adoption driver, it is important that financial components align with positive environmental impact to further accelerate adoption.
- Measurability: Companies should generate data on their contribution to energy efficiency, for example by measuring the GHG emissions avoided. This helps to compare different energy efficiency solutions and fosters improvement.
The Solution: Increase the energy efficiency of buildings
Sustainability improvement services enhance the energy efficiency of buildings by combining a wide array of energy efficiency solutions. With 30% of global energy usage and 26% of global energy related GHG emissions being attributable to buildings[4], the increase of the reach and adoption of these measures help solve some of the biggest challenges of the energy transition. Additionally energy efficiency improvements also help reduce energy and grid dependency as a way to cope with grid capacity issues and volatile energy prices.
Sustainability improvement services include for example, the installation of insulation, heat pumps and alternative energy sources, and redesigning buildings to be self-sufficient. In doing so, environmental impact (lower carbon/energy footprint, more efficient resource management) is coupled with economic impact (lower energy cost) in a measurable way (energy intensity of the building). Backed by supportive legal developments and new innovations, the sector is perfectly positioned to deliver societal, environmental and economic benefits.
The Example: Financing of building renovations and sustainability improvements
Colesco has recently provided a sustainability-linked unitranche financing solution to Circreate Group B.V. (“Circreate”), a Dutch real-estate renovation, maintenance and sustainability improvement (“RMI”) provider for social housing corporations and semi-public organisations such as schools and hospitals. The financing facility supports Circreate’s ambitious growth plan in providing more households with sustainability improvement services.
Circreate’s core activities are strongly and intentionally focused on sustainability, and they generate real-world impact. Their services contribute to the reduction of the environmental footprint of buildings and houses and also reduce potential energy poverty of tenants in social housing corporations. The company measures its scope 1 and 2 carbon emissions and strives to improve its sustainability footprint through an ESG improvement plan. As part of the agreement, Colesco has structured a sustainability-related ratchet, meaning Circreate will benefit from more attractive financing terms by meeting sustainability linked key performance indicators.
Through Circreate's acquisition of Willems, the combined company will become a leading player in the Dutch RMI market and contribute directly to the improvement of energy efficiency in both residential and non-residential real estate, helping to mitigate climate change.
Conclusion: Building renovations hold great potential in the transition to Net Zero
Energy efficiency measures hold great potential and could contribute significantly to the success of the transition towards a net zero economy. The coming years should be used to capitalise on this potential and demonstrate that it is possible to achieve material progress. Sustainability improvement services are a tangible way of doing this.
[1] World Energy Consumption Statistics | Enerdata
[2] Home | Statistical Review of World Energy (energyinst.org)
[3] https://www.iea.org/reports/energy-efficiency-2023/executive-summary