3. Finance, Regulation and law

This topic will tackle several important issues related to the retrofit challenge such as the high upfront investments, the cost sharing problem, and the high heterogeneity in local regulations in Switzerland. Financial and regulation issues will be handled in terms of supportive building standards, support programs for the building retrofit and the switch to renewables. Based on new forms of a public-private partnership, complementary instruments for financing energy renovations and switch to renewable heating will be developed, tested and evaluated. Necessary adjustments of the regulatory framework will be indicated.

3.1 Innovative financial instruments for building retrofit

Recent years have shown that existing subsidy programs and mortgages with preferential interest rates are not sufficient to significantly accelerate energy renovation. Energy-efficient renovations can be profitable over the lifetime of the building components, but there is a lack of financing instruments that would enable repayment with a time horizon of 20-40 years.

As a solution for covering of these long-term risks, this subproject investigates following proposals and issues:

• Development and analysis of a new financing instrument for long-term energy renovation loans in which the public sector provides a guarantee.
• Design structure and governance of this public-private partnership, involving financial institutions, SMEs in the construction sector, and the public sector
• Clarify regulatory design and show necessary legal adjustments
• Risk modeling to assess potential risks, to provide appropriate pricing models and to allow for a transparent portfolio and risk management
• Specify appropriate energy renovation strategies that could make use of the energy loans
• Define lean, data-based processes for assessing and granting loans, integrating appropriate quality control measures
• Assess feasibility, acceptance, costs and benefits in a pilot project
• Identify new business models for SMEs enabled by a simplified access to financing.

Potential, effectiveness, costs and limitations of this model will be evaluated, to assess how it can be used as a complement to existing policy instruments in the energy sector.

3.2 Innovative business models for renewable heating in urban areas

Envelope retrofitting measures often do not pay off for the owners, due to current owner/tenant regulations. Therefore it is also necessary to accelerate the switch from fossil fuels to renewable energies. As district heating is not in all cases appropriate, solutions for the replacement of heating systems in the individual buildings are necessary. As high upfront costs and financial risk are major barriers for investment by homeowners, contracting can offer a solution. However, innovative approaches are needed, relying on a public-private partnership in which the public sector takes on a guarantee (e.g. ownership of the heating assets, financial guarantee against risks), while installation and maintenance is provided by the market.

This subproject will result in the following:

• Develop and evaluate a new approach for a public-private partnership in which the public sector acts as an enabler as a complement to existing policy instruments (e.g. subsidies) as well as to traditional roles of the public (e.g. ownership of a public law institution).
• Analyse institutional design and regulatory framework
• Demonstrate and assess feasibility, acceptance, costs and benefits of this approach in a pilot project in order to describe in the sustainability of the proposed approach
• Derive and analyse business model options based on this public-private partnership

3.3 Supportive legal frameworks

The current policy framework to address the decarbonization of the Swiss building stock is a mixture of national and regional regulative and financial policies. In terms of financial instruments, the main policies are the national and regional subsidy programs.

To reach the ambitious reduction targets by 2050, two regulatory measures will be needed:

• Further innovative policy measures: We will evaluate an extension of the regulatory framework through the imposition of RES requirements or the introduction of a ban of fossil-fuel heating systems or greenhouse gas emission limits for new and existing buildings. Furthermore, the emission-reduction targets set for the Swiss building sector shall be achieved through the introduction of further financial and/or regulatory measures.
• Reduced legal uncertainties for retrofit envelops and switch to renewable energies: These uncertainties exist at the level of legal requirements and official approvals, especially in the case of new technologies. Furthermore, major hurdles and drivers exist in financing, such as the possibility of passing on costs to tenants. When switching to sustainable energy sources, there is a need for legal clarification on similar issues; as well as the question of how the connection to the energy supply is legally managed and structured in the long term (regulations on connection, network monopoly). If different landowners join forces, the question of the form of organization arises.

3.4 Triage of value-preserving and value-adding investments

A major obstacle to comprehensive renovations is the insufficient cost and legal certainty.

The profitability analysis of construction projects, generally performed according to the Swiss norm SIA 480, are usually lacking with respect to qualitative factors that cannot be directly quantified in monetary terms. By defining the value-enhancing portions and identifying the investment costs that can be passed on to the rents, renovation incentives can be created for building owners.

The present subproject is based on the study «Wertvermehrende und werterhaltende Investitionen bei umfassenden Sanierungen», which was developed by HSLU in collaboration with the Swiss Homeowners Association (Hauseigentümerverband HEV) and the Swiss Tenants Association (Schweizerischer Mieterinnen- und Mieterverband MV).

The aim is to develop a model allowing:

• a qualitative classification of the costs for the planning and implementation of renovation projects (assessment of the financing needs)
• an assessment of the legal certainty
• the calculation of the portion of investment costs that can be shifted to the rent.

The results of the subproject will be integrated into an existing calculation tool.