Financing building renovation to support Integrated Home Renovation Services (Part I)

On 9 October 2024, the Ēku saglabāšanas un energotaupības birojs (Ēkubirojs) joined the International Conference on Energy Efficiency in Domestic Appliances and Lighting (EEDAL’24) in Japan—virtually, of course! Representing the EU Peers project consortium, they showcased insightful findings on financing options for building renovation projects tailored for Integrated Home Renovation Services (IHRS). In light of this, we’re excited to present a two-part series that dives into the analytical results of this important research!

The literature on the state of IHRS development and provision of building renovation project facilitation services identifies two main areas: funding of the IHRS model and funding of the building renovation projects facilitated by the IHRS. While there are two different financing dimensions, they are intertwined and together significantly impact an IHRS's delivery capacity to provide its services for building residents.

Expanding Integrated Home Renovation Services (IHRS) is more important than ever, especially with the upcoming deadlines for the transposition of the Energy Performance of Buildings Directive (EPBD) and the Energy Efficiency Directive (EED). Both directives set the ambitious target of decarbonizing our building stock by 2050 and emphasise the vital role of private finance in achieving these objectives. With member states required to enact these directives by mid-2026, the urgency to develop effective financing mechanisms is paramount—these must support both renovation providers and property owners. Without sustainable financing solutions, particularly those driven by private investment, reaching these goals will remain a significant challenge.

Two Dimensions of the IHRS Financing Challenge

Financing of IHRS Entities

IHRS, or one-stop shops, provide homeowners with technical, administrative, and financial assistance for building renovations. These entities, however, are still largely reliant on public funding (Bagaini et al., 2022). With a reliable stream of projects, they can reach self-sufficiency, limiting their ability to operate at scale. For IHRS to become sustainable, the market needs to incorporate more private investments (Milin & Bullier, 2021), which could reduce the dependency on government grants and improve competition between different service providers.

Financing for Owners and Tenants

The upfront cost for residents and building owners is a significant barrier to increasing renovation rates. Adding to this challenge is the split incentive problem: landlords often hesitate to invest in energy-efficient upgrades while tenants continue to shoulder the energy expenses. The Energy Performance of Buildings Directive (EPBD) now mandates targeted renovations for the worst-performing buildings, aiming to combat energy poverty and enhance energy efficiency throughout the EU. According to the European Commission, private finance should account for at least 45% of the total costs for these projects. This blend of private and public funding is crucial for achieving climate goals and ensuring affordable renovation solutions are accessible to low-income households.

Private Investment and the Role of Financial Innovation

The EPBD and Energy Efficiency Directive (EED) underline the need to mobilise private financing to meet these targets. There must be more than traditional grants to finance the required renovation scale. Instead, innovative financial models—like on-bill schemes and energy efficiency mortgages—are increasingly necessary. Programmes and initiatives such as third-party financing providers within the Serafin Association and LABEEF on-bill financing are good examples of financial instruments mobilising private financing into building renovation.

Policy Requirements and Opportunities

The EPBD mandates that all new public buildings meet zero-emission standards by 2028 and that the worst-performing residential and non-residential buildings be renovated to higher energy standards. The National Building Renovation Plans developed by each Member State will guide these efforts, requiring public consultation and the active involvement of stakeholders to ensure equitable and effective implementation. These plans must identify key financing instruments and strategies, balancing public and private investment while targeting support toward vulnerable populations. To this end, the Social Climate Fund will provide additional resources to Member States, but these efforts must be matched with complementary private sector initiatives to achieve meaningful impact.

What’s Next!

In summary, the success of the EU’s renovation wave depends heavily on achieving both the financial sustainability of IHRS entities and the ability of homeowners to access affordable financing. With less than 20 months to implement the directives, collaboration between governments, financial institutions, and service providers will be crucial. 

The assessment of the theoretical status quo in both realms of financing enabled a deeper examination of the structures and features of particular financial instruments that the IHRS may use to facilitate building renovation. While privately funded entities such as LABEEF and Serafin exemplify how innovation can help blend public and private finance, expanding these models across the EU will be key to achieving climate and social objectives.

Part two of this series will dive deeper into the analysis results by comparing eight financial instruments! Coming soon.

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