Renovation of commercial buildings in Estonia does not ensure the expected energy efficiency. Why? Although the renovation of buildings is considered important in Estonia, it has been revealed that two thirds of commercial buildings, including office and other commercial buildings, do not achieve the expected energy efficiency through renovation, and do not meet the goals set in the long-term strategy for building renovations.
Helena Kuivjõgi (in collaboration with Aivar Uutar), Kalle Kuusk, Martin Thalfeldt and Jarek Kurnitski, researchers at Tallinn University of Technology, explained why this has occurred and what the solutions to the problem could be.
The results of the survey revealed that the renovation of the buildings included in the sample under market conditions had marginally improved energy efficiency – only about a third of the office buildings achieved the nearly zero-energy level, i.e. energy label class C through renovation. The main reason for the poor indicator turned out to be a market failure: energy is cheap, pollution is not taxed, and owners show little interest. Under these conditions, the depth of renovation is modest, as there is currently neither pressure nor motivation to increase the investment. Whereas the average renovation cost of the studied buildings was about €10 per sqm, in reality the cost of renovation corresponding to the requirements of a nearly zero-energy building should be somewhere around €130–150 per sqm.
Lack of motivation
Jarek Kurnitski, Professor at Tallinn University of Technology, emphasised that because energy is cheap, and no carbon levy is imposed on final consumption, attention is not paid to the energy efficiency of commercial real estate. “Although the buildings are being renovated to improve their functionality and indoor climate, energy costs account for less than 1% of the turnover of most property owners, therefore energy waste is not surprising. The goals of the strategy are not realised in the current market conditions, so one possible solution could be to introduce a carbon levy on final consumption to finance renovation subsidies,” Kurnitski noted.
The reason behind the modest investments is the long payback period of 20–30 years, as well as uncertainty regarding major renovation measures. For example, a real estate company that prefers a maximum payback period of 10 years would consider the investment risk too high and therefore not take it. Sources interviewed for the study also pointed out that tenants show little interest, as the savings of 2–3% on rent and energy achieved through renovation are not sizeable enough.
What might the solution be?
The interviewees agreed that the main obstacles for real estate companies are the lengthy payback period of the renovation, and the indifference of tenants. One possible solution that the owners of commercial buildings pointed out could be to introduce a carbon levy on final energy consumption, which should go hand in hand with benefits – incentives, subsidies, etc. – that would provide motivation for the renovations. At present, no renovation subsidies or other financial incentives are provided for commercial buildings in Estonia.
Another proposed idea is to oblige building owners to prove the energy efficiency of their buildings every 20 years, for example. In addition, real estate companies would like to be informed more in advance about changes in energy efficiency requirements. The levels of energy labels should also be defined and described in more detail to make it clear what needs to be done to achieve each one. The regulations and requirements are currently changing so rapidly that assessing the investment risk on energy renovation is very difficult. Other solutions were related to raising the awareness of owners and tenants of commercial buildings.
In summary, the following proposals can be highlighted:
1) develop detailed sets of measures to improve energy efficiency and reduce investment risk in order to provide building owners with the necessary peace of mind. With renovation grants, companies will potentially also accept a longer payback period of 12–15 years;
2) introduce a carbon levy on final energy consumption, and use the tax revenue to finance renovation grants;
3) set up incentives for monitoring or auditing buildings by providing real estate companies with comprehensive information on building energy consumption and energy efficiency solutions;
4) provide more detailed energy audits, including regarding finances, implementation of renovation measures, and so-called social sustainability of the buildings;
5) focus on the remote monitoring of energy consumption and indoor climate quality assurance systems, and greater automation of the operation of technical systems and other systems that consume energy; increasing the awareness of building owners on the functionality and energy use of the buildings.
The energy consumption of commercial buildings is ever increasing
The aim of the study was to collect information on the links between the renovation of commercial buildings and energy efficiency as an input to Estonia’s long-term renovation strategy. As is known, non-residential buildings account for 25% of total real estate in Europe (most of which are various commercial buildings (28%) and office and commercial buildings (23%)); however, non-residential buildings account for 40% of total energy use. In Estonia, the final energy consumption of non-residential buildings has increased by 50% over the last 15 years.
Requirements for nearly zero-energy buildings
The energy efficiency requirements for buildings have been established by a regulation of the Minister of Entrepreneurship and Information Technology. As from 2020, all new buildings must be nearly zero-energy buildings that comply with the Class A energy label. Buildings undergoing major renovation must comply with the Class C energy label. The long-term strategy for building renovations aims to renovate all buildings built before 2000 to the level of the Class C energy label within the next 30 years.