Energy Retrofit of London’s Commercial Building Stock

Written by Mikele Brack on 11 February 2013

Buildings consume about 40% of the world’s primary energy and they are responsible for 40% of global CO2 emissions. In London, nearly 80% of emissions come from buildings, including 42% from workplace buildings. New buildings are more energy efficient; however only 2% of the UK’s building stock is less than five years old. Therefore achieving energy efficiency in the existing stock is a key challenge. 

ESCos and EPCs

In some countries, such as the US and Germany, there is a long history of Energy Service Companies (ESCo) upgrading and replacing energy-consuming equipment in buildings with savings guaranteed over a set pay-back period under an Energy Performance Contract (EPC) and that has proven an effective method of reducing energy costs and emissions. To date, the ESCo model has not enjoyed significant popularity in the UK and, given the energy and CO2 emissions to be saved, there is significant un-tapped potential

Success stories

London enjoys many of the enabling factors that have led to a successful ESCo market in other cities and countries: legislation and policies conducive to ESCo activity, Government support and demonstration projects to de-risk the sector, financial models provided by independent financial institutions and energy market conditions that allow/encourage ESCo activity.

So what needs to be done to establish the ESCo model in London and gain the critical mass required to deem it a success? Looking at the countries with an established and growing ESCo market, the phenomenon was sparked by a specific event:

EPCs in the USA

Oil shocks in the US in the 1970s spawned the emergence of ESCos in response to rising energy prices. Equipment manufacturers began marketing their products as energy management solutions and offered shared savings as a financial model to overcome customer scepticism. In the 1980s, EPCs slowly became established as a viable business activity as the players came to understand the risk profile of collaborations between multiple parties in one transaction: service provider, equipment supplier, financier etc.

EPCs in Germany

The ESCo market emerged in Germany in the 1990s but it was insignificant until the Energy Saving Partnership in Berlin bundled 100 municipal buildings together to reduce transaction costs to a framework of ESCos, triggering market development. The subsequent restructuring of the electricity industry further stimulated ESCo activity which developed into a strong market through the early-2000s.

Progress in London

The GLA’s RE:FIT programme, now on its second framework, is providing a positive model for the development of an ESCo market. Participation in the framework provides contractors with the opportunity to learn how to manage and share the risk of a model that is still quite new to them.

However, as in other places, the model will take time to become truly established and expand beyond the public sector. In the absence of a major market-changing event, London’s challenge is to accelerate the progress. Energy retrofit is happening in London’s commercial buildings, albeit mainly limited to self-funded, single product contracts, such as lighting.

Accelerating progress

Keeping it simple

One option for London is to encourage, on a large scale, retrofit activity in the form it is currently taking. Replacing commercial lighting with LED and adding one or two directly related technologies, such as building control up-grades for example, into the contract would produce significant reductions in energy consumption. As the market becomes accustomed to the model and the players become familiar with the risks and rewards, they will naturally begin to bundle more products in to increase the value per transaction.

Permitted Development Rights

Another opportunity for large-scale retrofit of London’s building stock might emerge from the new permitted development rights allowing, for a three year period, change of use from B1(a) office to C3 residential. This change will provide opportunities for developers to build in energy efficiency measures during the conversion. By definition, in the short term, the residential sector will be the main benefactor of CO2 and cost efficiencies; however, the commercial sector will benefit from the removal of some inefficient buildings from its emissions calculations, and should an institutional market for large residential blocks develop in London (facilitated by the new permitted development rights), it will be easier to convert buildings back to commercial use in the future.

Categories: Energy and water, London