Energising the Renovation Wave Strategy. What does is mean for Poland?

Karolina Zubel | CASE Economist

A Renovation Wave for Europe — Greening our buildings, creating jobs, improving lives’ (COM(2020)662) is new strategy aimed at doubling the renovation rate of existing building stock across the European Union (EU) in the next decade that was announced earlier (October 14th) this year. By improving energy efficiency refurbishments and installation of zero-emission heat sources, as well as ‘smart home’ technologies and appliances, the Renovation Wave strategy is to be one of the ways for the EU Member States (MS) to achieve climate neutrality by 2050 in accordance with the broader European Green Deal objectives.

According to the strategy’s authors, European residential and commercial buildings are responsible for 36% of greenhouse gas emissions across the EU. Hence, putting the building stock at the centre of climate action will help to meet the 2030 targets for reducing carbon dioxide (CO2) emissions, increasing energy efficiency, and developing renewable energy sources (RES). This will lead to a change in the energy mix i.e., in the district heating. For the heat pump industry this is an equivalent of becoming a leader in the generation of heat and cold for buildings as the Commission is set to increase the RES target to approximately 40% by 2030. The requirement for a minimum level of RES in buildings will probably be established as well. In Polish conditions, this will mean a fast greening of our individual and system heating.

It is worth noting that the Commission’s plan also includes extending the operation of the mandatory CO2 emission allowance under the EU Emissions Trading System (ETS) to the entire heating sector. This will increase energy production costs from fossil fuels (i.e., coal and natural gas) for individual buildings. In the end, the Renovation Wave is a result of the strategy to integrate the energy sectors in order to increase the EU’s CO2 reduction target by 2030.

The Challenge

As much as 75% of buildings in the EU are energy inefficient. As a result, single-family houses, blocks of flats, office buildings, industrial plants, schools, hospitals consume 40% of final energy in the EU. In its strategy, the EC estimates that the reduction of CO2 emissions from 2015 reference year is possible by up to 65% and up to 61% for residential and commercial buildings, respectively. Moreover, investments as part of the Renovation Wave could boost the post-pandemic economic recovery as the construction sector accounts for almost 10% of the EU’s GDP and provides around 18 million jobs, while renovation will result in tangible savings for building users. In fact, it is estimated that the appropriate implementation of the strategy could directly create up to 160 thousand new jobs by 2030 as the EC plans to increase the current renovation rate at least twofold. As a result, about 35 million buildings could be renovated by 2030.

New Legal Framework

The implementation of the new strategy will be based on the new legal framework and funding provisions. Specifically, among many legislative actions, the EC plans primarily to increase the targets for energy efficiency and RES, as well as to extend the EU ETS system to the building sector. The most important legislative activities in the area of buildings include:

  1. EU ETS Directive. Currently around 30% of the heat consumed by buildings comes from installations covered by the EU ETS (e.g., utility combined heat and power [CHP] plants, or heat pumps supplied with electricity from the national power grid). The Commission points to the need for the EU ETS to cover all emissions from fossil fuel combustion units that provide heat and cold to buildings. These revenues from the EU ETS could finance national programmes to combat energy poverty.
  2. Energy efficiency directive, which aims to increase the energy efficiency target for the EU for 2030 from the current level of 32.5% to 39–41% reduction in primary energy consumption[1] and 36–37% reduction in final energy consumption. Moreover, energy audits will have to be conducted in non-residential buildings as well and include e.g., hospitals, schools, and office buildings.
  3. RES directive, which aims at increasing the EU RES share target for 2030 from 32% to 38–42% (which will result in an increase in the share of RES in heating and cooling to approx. 40%), the heating and cooling sector target (currently 1.3 pp per year, or 1.1 pp including waste heat or cooling), as well as additional greening targets for (1) district heating, (2) heating and cooling of buildings, (3) industry.

The Polish Landscape

To some extent, the Renovation Wave in Poland is already being implemented, including through instruments such as the thermo-modernisation tax relief, which allows to deduct expenses on energy efficiency works, ecological heating and photovoltaics from ones taxable income. After first calculations of the PIT tax returns for 2019, it turned out that over 200,000 people benefited from such a tax relief writing off over PLN 3 billion from their taxable income.

According to the Statistics Poland, the Polish building stock consists of over 15 million buildings. While modern buildings are characterised by relatively high energy efficiency, older ones have a high energy demand and typically require deep renovation. The condition of houses built before 1945 accounting for one fifth of residential buildings is particularly worrying.

What will the Renovation Wave Bring to Poland?

Polish energy transformation, as in most EU countries, has so far failed to recognise the role of buildings in the greening of the economy. The topic is typically related to a poor air quality, which is the result of many years of green infrastructure development and the lack of incentives to replace coal heating with clean technologies or improve energy efficiency. The otherwise much needed Clean Air priority programme has, however, not focused on climate goals when fighting smog. As a result, taking care of the buildings under the new programme will not only allow Poland to solve the local problem of air pollution, but also to reduce CO2 emissions and develop RES. The government’s focus on buildings and synergy with the planned activities of the EC will significantly reduce the costs of implementing clean heat and reduce the financial burden that would be otherwise placed on Polish families. At the same time, it is still necessary to develop programs to eliminate energy poverty, using large EU funds for this purpose.

Source: Forum Energii. The calculations are based on the amounts established by the European Council on July 21, 2020, at 2018 prices.

The implementation of the tasks set out in the strategy is associated with high costs. It is estimated, in particular, that the implementation of the plans adopted by the end of 2030 will require EUR 275 billion additional funds per year (see Table 1). For this purpose, special funds will be made available for the Member States.

Recommendations

There is no doubt that Poland can benefit greatly from the Renovation Wave. This, however, will occur under condition that actions necessary to meet the objectives and reach for the EU funds are undertaken by the Polish authorities. The following suggestions of the Forum Energii can serve as a starting point.

1. Prepare long-term national and regional strategies while, among others, considering the topic of ​​clean heat in buildings as strategic at both national and local levels. These strategies should take into account the awaiting increase in climate ambitions, which will enter into force in the next two years in the form of new legal provisions on energy efficiency and RES.

2. Effectively use the EU funds while prioritising clean heating in the National Plan for Reconstruction and Resilience and eliminate subsidies for fossil fuels, including gas.

3. Protect citizens from the energy poverty i.e., by using revenues from CO2 emission allowances for this purpose.

4. Build intellectual capital and strengthen green skills on the labour market i.e., by supporting local activities related to the modernisation of buildings, which will create a huge positive impulse for the jobs creation; by supporting national and local knowledge centres to ensure the quality of thermal modernisation and selection of heating devices; education of employees of construction and renovation sectors, on the energy efficiency, use of RES for heat and electricity production, digital solutions for modern buildings as well as on the potential to reduce emissions in buildings.

5. Construct national industry of modern technologies for the purpose of building renovation in order to support domestic producers of cutting-edge zero-emission technologies.

6. Support research and development of zero-emission building technologies while increasing the scale of support for research and development of new technologies related to energy efficiency, digitalisation of buildings, innovative infrastructure for charging electric cars in buildings, and clean heating technologies.

Our Role

With these recommendations in mind, in the past couple of years CASE has been actively involved in delivering research and pilot projects to boost energy efficiency refurbishments in Poland and other EU Member Stater. Developing, piloting and standardising on-tax financing for residential energy efficiency retrofits in European cities and regions (EuroPACE) project implemented by a consortium coordinated by CASE thanks to funding from the EU’s Horizon 2020 programme is an innovative financial platform for home retrofits to improve existing buildings with energy efficiency equipment. The platform is financed through private capital and repaid in a form of on-tax financing scheme. In 2020 we were also actively involved in Establishment of Energy Efficiency Experts Platform for the National Fund for Environmental Protection and Water Management (NFEP&WM). Despite significant progress in energy efficiency indicators, a lot still remains to be done. Thankfully, we have recently found out that a GREEN HEAT — towards collaborative local decarbonization project in which CASE is a major partner received funding from the National Centre for Research and Development IdeaLab competition ‘Cities for the Future: Services and Solutions’. This three-year project will be implemented in a Polish-Norwegian transdisciplinary consortium. Its purpose is to develop and test a methodology for the process of replacing coal stoves with heating systems powered by renewable sources, so keep your fingers crossed!

[1] Consumption reduction represents improvement of energy efficiency.

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