Buildings account for approximately 40% of Europe’s final energy consumption, the total of which can be significantly reduced by implementing energy efficiency (EE) measures in households. Despite the direct benefits related to these measures, renovation rates still remain low due to the difficulty of attracting investments to fund retrofits.
To help solve this issue, the SENSEI project has developed a model based on the Pay-for-Performance (P4P) approach depicting how individual renovation projects can be aggregated to attract interest from financial institutions and indirect beneficiaries of renovation measures, thereby facilitating their investment in large-scale renovation projects. For example, Power System Operators could benefit from the system benefits associated with reduced network and capacity extension costs brought on by large energy renovation programs, while public entities could be attracted by the possibility of reaching their carbon emission reduction goals. As more energy efficiency finance projects become ‘bankable’ through aggregation due to (i) the derisking of EE investments through guarantees of financial payback for investors or public subsidy providers at the programme level; and (ii) the generation of income from benefits to the power system thereby improving the business case of energy retrofits in buildings; innovative energy efficiency contracting and financing options such as P4P may find fertile soil.
A P4P programme can be found in many configurations, but in essence, is a multi-actor arrangement in which financial compensation is rewarded based on metered energy savings. The figure below depicts the P4P model suggested by SENSEI.
The SENSEI project also proposes a process for establishing the first EU Pay-for-Performance pilots using a stepwise approach. To learn more about these steps, the model, or the benefits and opportunities of Pay-for-Performance schemes in the EU, please contact SENSEI’s project coordinator Filippos Anagnostopoulos at firstname.lastname@example.org. You can also read more in the summer edition of the European Energy Innovation.