The economic losses of energy-efficiency renovation of Germany's older dwellings: The size of the problem and the financial challenge it presents

Abstract

Germany has ambitious goals to steeply increase the thermal energy efficiency of its older residential buildings, to reduce CO2 emissions and bring heating costs down, especially for low-income households who are over-represented in such dwellings. However, existing scholarship suggests it is doubtful whether the costs of renovation are offset by energy cost savings, even when renovating to only the most basic energy-efficiency standard. Renovating to more ambitious standards further increases the gap between costs and savings. This study offers a first attempt to quantify the dimensions of the problem and what it means for financing this ambitious goal. It analyses publicly available data on case studies of three of Germany's typical 1940s-1970s-era multi-apartment building types and three typical 1900s–1970s house types, retrofitted to a range of energy-efficiency standards in 2020–2021. It updates these for 2023 construction costs, energy prices, carbon prices and interest rates, and shows how rebound and prebound effects exacerbate the situation. Using cost-benefit analyses based on net-present values, payback is not achieved within 75 years in any scenario. The study concludes that Germany's goal can only be achieved through large financial inputs, i.e., sunk costs which will not be fully returned through energy savings.