Policy Paper 03/2017

Economic impact of new energy performance standards for buildings

The Energy Performance of Buildings Directive 2010/31/EU (EPBD) and the Energy Efficiency Directive 2012/27/EU (EED) will require a significant adjustment of Georgia’s energy efficiency policies with a profound effect on the building sector. Among the numerous measures which both directives contain, the requirement to set new legal minimum energy efficiency standards for newly constructed buildings and also buildings undergoing major refurbishment is the single measure with the largest economic impact.

The current standard for thermal transmittance (“heat losses”) for the building envelope of around 1.7 W/m2K is less strict compared to other European countries with similar climatic conditions. While the EPBD does not prescribe a certain level for standards, the current level is unlikely to meet the criteria of being at a “cost-effective” level. This suggests that the implementation of the EPBD will see stricter minimum energy efficiency standards introduced.

We estimated the economic impact for three hypothetical minimum efficiency levels in order to assess the impact of stricter standards in case of new construction as well as for buildings undergoing major refurbishments. The results suggest that a lowering of the legal standard to about 1 W/m2K
would only cause a moderate construction cost increase of between 2% (for multi-family homes) and 4% (single-family homes). However, with 8% return on investment due to the energy cost savings,
the economic case of stricter standards is acceptable but not yet that convincing. The economic case is much better for stricter standards in case of major renovations with the return on investments due to energy cost savings reaching 14%.

The results suggest that stricter minimum energy efficiency standards for building are economically viable. To reduce the adjustment costs and increase the economic benefits, a phased introduction of the new minimum standards could be beneficial. Such a phased approach would see an early introduction of the new minimum requirements for large buildings (such as multi-family homes) and public buildings. Here the economic case is already good and many developers already voluntarily build according to higher standards. Such a phased approach has the benefit of providing valuable experience to both the construction sector and the public administration prior to the full roll-out. Additionally, it may lead to a decline of the cost of materials and labour ensuring that the new minimum standards can be successfully extended to smaller buildings in 2019.

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