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The regulatory drive to accelerate the clean energy and circular economy transitions in the European building stock is currently failing to overcome systemic implementation barriers. These barriers include high initial investment costs, misaligned financial incentives among stakeholders, and the relatively low cost of less sustainable energy and materials. A Product-Service Systems (PSS) approach could successfully overcome many of these barriers by (1) outsourcing capital investment, as well as financial and technical risks, (2) providing shared economic incentives to collaborating stakeholders, and (3) retaining extended producer responsibility and ownership over materials and products. However, PSS is still not seen as a viable business model when compared to both a standard “ownership” contract and a “no-retrofit” scenario. This paper proposes a Total Value of Ownership (TVO) method to evaluate the financial performance of a building energy retrofit in terms of Net Present Value, comparing a matrix of scenarios. Results show that – when accounting for capital and opportunity costs tied to alternative investments, internalising externalities, and monetising soft values such as user productivity and property value – a PSS model can deliver the highest NPV. Furthermore, results show that a PSS alternative can act as a positive future-proofing strategy to safeguard the building owner’s position in the face of uncertain future market indicators and carbon taxation. Recommendations for policymakers, investors, financiers, building owners, and end-users are presented to identify the economic value of PSS contracts, leading to better-informed decisions which can accelerate deep energy retrofit of the building stock.
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The regulatory drive to accelerate the clean energy and circular economy transitions in the European building stock is currently failing to overcome systemic implementation barriers. These barriers include high initial investment costs, misaligned financial incentives among stakeholders, and the relatively low cost of less sustainable energy and materials. A Product-Service Systems (PSS) approach could successfully overcome many of these barriers by (1) outsourcing capital investment, as well as financial and technical risks, (2) providing shared economic incentives to collaborating stakeholders, and (3) retaining extended producer responsibility and ownership over materials and products. However, PSS is still not seen as a viable business model when compared to both a standard “ownership” contract and a “no-retrofit” scenario. This paper proposes a Total Value of Ownership (TVO) method to evaluate the financial performance of a building energy retrofit in terms of Net Present Value, comparing a matrix of scenarios. Results show that – when accounting for capital and opportunity costs tied to alternative investments, internalising externalities, and monetising soft values such as user productivity and property value – a PSS model can deliver the highest NPV. Furthermore, results show that a PSS alternative can act as a positive future-proofing strategy to safeguard the building owner’s position in the face of uncertain future market indicators and carbon taxation. Recommendations for policymakers, investors, financiers, building owners, and end-users are presented to identify the economic value of PSS contracts, leading to better-informed decisions which can accelerate deep energy retrofit of the building stock.
German residential multi-family buildings in the 1950s–1970s age group are a relevant case study to assess the degree of certainty in meeting climate targets for the built environment. This research evaluates the contribution of traditional strategies, and whether innovative strategies perform environmentally and economically better for this purpose. We use LCA to define a benchmark for the environmental impact, expressed as lifecycle GWP, and LCC to assess the economic impact, expressed as Internal Rate of Return (IRR). The two indicators are evaluated in a Pareto optimal method. We consider combinations of strategies for the thermal envelope, the building services, and the integration of locally available renewable energy in five existing buildings. Results show that accelerating the implementation rate of traditional strategies contributes only partially to raise the degree of certainty in reaching climate targets. For this purpose, innovative building services strategies as well as the extensive integration of local energy generation from renewable sources is required, even if the GWP reduction target of electricity from the main grid is met. The use of renewable energy has a much bigger impact on the overall GWP balance than the choice between a standard renovation and a minimal renovation of the building envelope. IRR tends to sink with GWP. We conclude that a regulated benchmark for the environmental lifecycle impact of residential building projects will help to introduce the trade-off assessment necessary to identify economically sustainable strategies that increase the level of certainty in meeting climate targets.
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German residential multi-family buildings in the 1950s–1970s age group are a relevant case study to assess the degree of certainty in meeting climate targets for the built environment. This research evaluates the contribution of traditional strategies, and whether innovative strategies perform environmentally and economically better for this purpose. We use LCA to define a benchmark for the environmental impact, expressed as lifecycle GWP, and LCC to assess the economic impact, expressed as Internal Rate of Return (IRR). The two indicators are evaluated in a Pareto optimal method. We consider combinations of strategies for the thermal envelope, the building services, and the integration of locally available renewable energy in five existing buildings. Results show that accelerating the implementation rate of traditional strategies contributes only partially to raise the degree of certainty in reaching climate targets. For this purpose, innovative building services strategies as well as the extensive integration of local energy generation from renewable sources is required, even if the GWP reduction target of electricity from the main grid is met. The use of renewable energy has a much bigger impact on the overall GWP balance than the choice between a standard renovation and a minimal renovation of the building envelope. IRR tends to sink with GWP. We conclude that a regulated benchmark for the environmental lifecycle impact of residential building projects will help to introduce the trade-off assessment necessary to identify economically sustainable strategies that increase the level of certainty in meeting climate targets.
