Introduction

Buildings play a crucial role in modern society, but they also contribute significantly to greenhouse gas emissions through energy use, heating, and cooling. Achieving the necessary renovations to reduce these emissions requires substantial financial investment, especially in upgrading outdated infrastructure and incorporating sustainable technologies. However, European and national funds alone will not be sufficient to cover the investments necessary to meet the EU’s ambitious energy and climate targets for 2030 and 2050. To reduce greenhouse gas emissions by 55% by 2030 (compared to 1990 levels), European countries need an additional €392 billion annually in energy system investments.

Energy efficiency, particularly in building renovations, faces one of the largest investment gaps, estimated at €165 billion each year. Yet, energy efficiency investments encounter numerous barriers, including fragmented markets, complex decision-making processes, data uncertainty, and split incentives. Furthermore, a lack of social awareness about the benefits of energy efficiency and the financial hurdles—such as the lack of understanding of energy efficiency financing by banks and financial institutions—compound the problem, hampering large-scale retrofitting efforts.

The revised Energy Performance of Buildings Directive (EU/2024/1275)  and Energy Efficiency Directive (EU/2023/1791)  aim to decarbonise the EU’s building stock by 2050, requiring significant renovations. However, financing this monumental transition remains a major challenge, as the investment gap must be filled by both public and private resources. The EU’s climate goals hinge on overcoming these financial and market barriers to achieve widespread energy-efficient renovations and ensure that all new buildings are nearly zero-energy by 2030.

Advantages for building renovation

Improving the energy performance of buildings offers numerous benefits that extend beyond energy savings and reduced bills, such as:  

• Health and wellbeing: energy-efficient buildings provide better indoor air quality, thermal comfort, and overall healthier living environments. This is particularly important for vulnerable populations, such as the elderly and children, who are more susceptible to the negative impacts of poor housing conditions. Upgraded buildings ensure that everyone can enjoy a comfortable and healthy living space, contributing to improved public health outcomes across Europe.  

• Economic stimulation and job creation: investments in energy efficiency stimulate the economy by driving demand for construction and renovation projects. The EU's construction industry, which contributes approximately 9.6% of the EU's value-added and employs nearly 25 million people across 5.3 million firms, stands to gain significantly.  

• Support for SMEs: small and medium-sized enterprises (SMEs), which constitute 99% of EU construction companies and account for 90% of employment in the sector, particularly benefit from the increased demand for building renovations. These enterprises are often more agile and can rapidly adapt to the growing market for energy-efficient solutions, thereby securing a vital role in the green economy.  

• Green jobs and industrial support: energy efficiency investments create a substantial number of green jobs, which are crucial for a sustainable economy. These jobs span various sectors, including construction, manufacturing of energy-efficient materials and technologies, and professional services such as architecture and engineering. By supporting these sectors, the EU not only boosts its industrial base but also fosters innovation and competitiveness on a global scale.  

• Environmental impact: upgrading the energy performance of buildings plays a critical role in reducing greenhouse gas emissions. Energy-efficient buildings require less energy for heating and cooling, thereby decreasing primary energy demand for and lowering overall carbon emissions. This is a significant step towards meeting the EU’s climate goals and achieving carbon neutrality by 2050. 

Financial opportunities for building renovation in the EU

At the European Union level, numerous funding streams are available to finance building renovations, reflecting the EU's commitment to enhancing energy efficiency and sustainability in the built environment. Key funding sources include:  

• European Structural and Investment Funds (ESIF): These funds support a wide range of projects aimed at economic development and cohesion, including building renovations to improve energy efficiency.

• European Fund for Strategic Investments (EFSI): Known as the ‘Juncker Plan,’ EFSI leverages private investment for strategic projects, including infrastructure and energy efficiency upgrades in buildings.

• ELENA (European Local Energy Assistance) Facility: This facility offers grants for technical assistance to prepare large-scale sustainable energy investments.

From 2021 to 2027, additional specific financial instruments will be developed under the Invest EU program to further support building renovations. Moreover, the new LIFE programme, which includes a sub-programme dedicated to clean energy transition (CET), will also provide targeted funding.

The Sustainable Energy Investment Forums also play a crucial role in this policy landscape. These events facilitate dialogue and the exchange of best practices among stakeholders, fostering the development of investment projects and programs in sustainable energy.

A pivotal component of the European Green Deal, the Renovation Wave Strategy aims to double the rate of building renovations over the next decade. This strategy includes a robust financing component designed to mobilize the necessary investments at scale. By prioritizing energy efficiency and the use of renewable energy in building renovations, the EU aims to significantly reduce carbon emissions and achieve its climate neutrality goals by 2050.

Overcoming financial and market barriers to achieve EU climate goals

European and national funds alone will not be sufficient to cover the investments necessary to reach the energy and climate objectives in 2030 and 2050. To reduce greenhouse gas emissions by 55% by 2030 (compared to 1990 levels), the European countries need to invest an estimated €392 billion more each year in the energy system than we did in the period 2011-2020. Energy efficiency faces one of the largest investment gaps, estimated at around €165 billion annually.  

Moreover, energy efficiency investments face several barriers – such as, a fragmented market, complex decision-making processes, data uncertainty, and split incentives are amongst the key one – which together with the lack of social awareness on the benefits of energy efficiency improvements can hamper the widespread deployment of building energy retrofitting strategies envisioned by the EU.

In a report published by the United Nations Economic Committee for Europe, it has also been highlighted the lack of understanding of energy efficiency financing by banks and other financial/ investing institutions, the lack of technical expertise and capacity to evaluate and implement energy efficiency projects as well as administrative barriers and bureaucracy.

SHERLOCK project: tackling the lack of knowledge and technical expertise

According to the Energy Efficiency Financial Institutions Group (EEFIG), establishing a clear valuation process for energy efficiency investments is crucial to attracting private financing. Financial institutions often lack the capacity and expertise to accurately assess the technical aspects of these investments, leading them to overestimate risks and consequently deliver negative evaluations. Conversely, developers of energy efficiency projects, such as ESCOs and engineering companies, frequently lack the skills to produce detailed, quantitative risk analyses. This gap results in a failure to adequately measure investment risks, which is essential for de-risking these investments.  

A misjudgement of investment risks hampers the widespread use of energy efficiency financing instruments, such as Energy Performance Contracts (EPCs), limiting them to simple projects like LED lamp replacements. These challenges underscore the cultural and skill differences between financial institutions and technical firms. Financial institutions often struggle to comprehend energy efficiency estimations that drive cash flow, while developers, typically from engineering backgrounds, find it difficult to present detailed financial analyses with appropriate risk appraisals.  This scenario highlights a significant skills mismatch: financial operators lack knowledge of energy efficiency fundamentals, and developers lack financial expertise. Furthermore, EEFIG recommends a shift from a deterministic to a probabilistic approach in risk analysis, which would encompass both technical performance and financial risks more comprehensively, to consider the uncertainty associated with the techno-economic assessment of energy retrofitting projects.

In response to this need, the SHERLOCK project aims to bridge the skills gap in energy efficiency evaluation by creating and piloting a microprogram based on micro-credentials. The project's general objective is to develop a set of green and digital skills tailored for financial institutions and technical companies involved in energy efficiency investments.

More specifically the project aims to:  

• Build a lasting alliance for education & training between universities, businesses, and other stakeholders by creating a pan-European Knowledge Centre

• Enhance professionals' skills and public awareness in building energy transition, aligning with European Green Deal goals

• Promote a multidisciplinary approach for building energy transition on a European scale

Throughout the project’s duration,  two micro-credential programs will be developed aimed at enhancing the skills of energy experts by helping them understand the needs and requirements of the financial sector. Simultaneously, we will upskill financial experts to make more informed investments in energy efficiency projects. Additionally, we will create two shorter training courses: one tailored for VET (Vocational Education and Training) experts and another for the general public.

These micro-credential programmes will provide specialised training, equipping energy professionals with the knowledge needed to navigate the financial aspects of energy efficiency. Financial experts will gain insights into the technical requirements and potential returns of energy efficiency investments, bridging the gap between these two critical sectors.  The shorter training courses will serve to spread awareness and foundational knowledge. The course for VET experts will ensure that vocational trainers are well-equipped to educate future professionals, while the general public course will empower citizens with the understanding needed to make sustainable energy choices.

Conclusions

The EU's ambitious targets to decarbonise buildings and achieve carbon neutrality by 2050 highlight the critical role buildings play in the region's climate strategy. The revised directives and the Renovation Wave Strategy are pivotal in this endeavour, focusing on improving energy efficiency, reducing emissions, and enhancing the overall quality of life for citizens. Energy-efficient buildings not only lead to significant energy savings and reduced costs but also improve public health, stimulate economic growth, and create numerous green jobs. The support for SMEs and the construction sector underscores the broader economic benefits of building renovations.  Despite the substantial financial investment required to meet these goals, the EU's commitment is evident through various funding streams and strategic initiatives aimed at mobilising private investment. However, the success of these efforts hinges on bridging the skills gap between financial institutions and technical developers. Initiatives like the SHERLOCK project play a crucial role in bridging this gap by providing targeted education and training, thereby facilitating a comprehensive and accurate evaluation of energy efficiency investments.  

In conclusion, the EU's integrated approach to building renovations, combining policy directives, financial support, and skill development, is essential for achieving its climate goals. By fostering collaboration across sectors and enhancing the capacity for energy efficiency evaluations, the EU can pave the way for a sustainable and energy-efficient future.