Deep energy efficiency renovation of Germany’s residential buildings: is this as economically viable as Germany’s policymakers and popular promoters often claim?

Abstract

Germany needs to steeply increase the rate of deep energy-efficiency renovation of its old buildings, to meet climate goals. The government has long maintained that deep renovation to a specified “minimum” energy efficiency standard is economically viable: that the costs are paid back, through energy savings, over the technical lifetime of the energy-efficiency measures. Many private and public organisations support and promulgate this view. It accords with a stream of academic literature which suggests that the under-adoption of energy efficiency measures is a paradox indicating market failures and economically irrational behaviour by property owners. This paper offers cost–benefit analyses of 44 case study scenarios to test whether deep renovation in Germany pays back in monetary terms. These include both specific buildings and Germany-wide averages of classes of buildings. It uses current construction, finance and energy costs, and takes account of inflation, discount rates and opportunity costs. None of the scenarios are economically viable in monetary terms, and the average payback after 25 years is around 22.5%. Sensitivity analyses suggest payback would only be achieved using improbable parameter values. Energy-efficiency renovation is necessary but promoting it needs to take account of these realities.