Worth the risk? An evaluation of alternative finance mechanisms for residential retrofit

Abstract

Improving energy efficiency, de-carbonising heating and cooling, and increasing renewable microgeneration in existing residential buildings, is crucial for meeting social and climate policy objectives. This paper explores the challenges of financing this 'retrofit' activity. First, it develops a typology of finance mechanisms for residential retrofit highlighting their key design features, including: the source of capital; the financial instrument(s); the project performance requirements; the point of sale; the nature of the security and underwriting the repayment channel and customer journey. Combining information from interviews and documentary sources, the paper explores how these design features influence the success of the finance mechanisms in different contexts. First, it is shown that a low cost of capital for retrofit finance is critical to the economic viability of whole-house retrofits. Second, by funding non-energy measures such as general improvement works, finance mechanisms can enable broader sources of value that are more highly prized by households. Thirdly, mechanisms that reduce complexity by simplifying the customer journey are likely to achieve much higher levels of uptake. Most importantly we discuss how finance alone is unlikely to be a driver of demand for whole-house retrofit, and so instead should be viewed as a necessary component of a much broader retrofit strategy.

Low‐carbon transition risks for finance

“…In such a case, Fremstad and Paul (2019) estimate that US households in the poorest deciles would incur 50% more additional costs as a fraction of their expenditure than households in the highest decile. Strict low‐carbon building and appliance regulations, while not “stranding,” may affect the value of residential housing unequally, and disproportionately impact the financial position of households struggling to raise the capital for retrofitting existing houses (Brown, Sorrell, & Kivimaa, 2019; Cabrera Serrenho, Drewniok, Dunant, & Allwood, 2019; Schleich, 2019). Since poorer households are at a higher risk of defaulting on loans, such regressive impacts can create further risks for the financial sector.…”

Culture and low-carbon energy transitions

“…98 Retrofits can also produce private benefits to households, including improved property values, and result in major savings on energy bills along with enhanced thermal comfort. 99…”

Determining retrofit technologies for building energy performance

“…Decision-making support towards sustainable renovation would cause dialogues between stakeholders, but it also contributes to facilitating communication between practitioners from various professional fields and property owners, which is necessary to identify and balance all the values (Thuvander et al 2012). The retrofit process produces a range of environmental, social and economic benefits (D. Brown, Sorrell, and Kivimaa 2019). It has been shown to improve not just energy efficiency but as well the occupant health and wellbeing (Willand, Ridley, and Maller 2015).…”