Subsidy Schemes and Their Impact on the Assessment of the Energy Performance of Buildings

By tightening the requirements for buildings, with a vision of achieving a carbon-neutral building stock by 2050, subsidy schemes are planned to support vulnerable households. One of them is the Social Climate Fund (SCF), which aims to reduce the impact of the introduction of the new Emissions Trading System for Buildings and Transport (ETS2) on energy poverty. For such subsidy scheme, it will be necessary to realistically set appropriate requirements not only in terms of primary energy, but especially in terms of correctly determining the potential energy cost savings. A product approach, such as an isolated investment in replacing a heat source, may not achieve the desired effect, i.e. reducing energy costs. The article compares some heat sources for heating and hot water preparation in terms of global costs and annual energy costs.

Keywords: SCF, ETS2, NECP, EPBD, EED, heat pump, boiler, SCOP, energy costs, NECP, Slovac Republic, France.

As part of the Fit-for-55 legislative package to achieve the objectives of the European Green Deal, the emissions trading scheme will be extended to the buildings and road transport sectors under Directive EU No 2023/959 (ETS2) [2]. Households’ heating, cooling, lighting and cooking costs are likely to increase as fuel suppliers, subject to the buildings ETS2 obligations, pass on the cost of carbon emissions to consumers. This impact will be more significant for low-income households, as they spend a higher percentage of their income on energy.

To address the social impacts of the inclusion of emissions trading in the road transport and buildings sectors, the European Union Social and Climate Fund (SCF) was established, pursuant to EU Regulation 2023/955 [1], with a focus on vulnerable households, vulnerable micro-enterprises and vulnerable transport users.

The SCF will provide financial support to EU Member States to finance measures and investments. A maximum amount of EUR 65 billion will be provided for the implementation of the fund for the period 2026 to 2032. The maximum allocation for the Slovak Republic is EUR 1.53 billion, or EUR 1.28 billion (in the case of ETS2 only effective from 2028). Each Member State should submit its Social and Climate Plan (SCP) to the Commission by 30 June 2025.

The main form of support are measures and investments designed to increase the energy efficiency of buildings, decarbonize the heating and cooling of buildings, integrate renewable energy sources, and provide better access to zero-emission mobility and transport.

SCF is to be in line with the National Climate and Energy Plan (NECP) and also to contribute to the objectives of Directive 2023/1791/EU on Energy Efficiency (EED) [3] and the Energy Performance of Buildings Directive (EPBD) [4].

The definition of “vulnerable households” is important for understanding the SCF principles. These are households in energy poverty or households, including low income and lower middle-income ones, that are significantly affected by the price impacts of the inclusion of greenhouse gas emissions from buildings within the scope of Directive 2003/87/EC and lack the means to renovate the building they occupy.

The Social and Climate Fund allows for two types of financing to reduce energy poverty:

·         temporary direct income support for vulnerable households (max. 37.5% of the estimated total costs of the Social Climate Plan). This type of financing does not address the root causes of energy poverty and does not deliver energy savings and greenhouse gas emissions reductions,

·         measures and investments with lasting impacts, in particular building renovation, use of renewable energy and other measures leading to a long-term reduction in energy consumption, which should be translated into saved energy costs and contribute in the long term to reducing greenhouse gas emissions and energy poverty.

Energy poverty is broadly defined in Article 2(52) of Directive 2023/1791/EU on energy efficiency [3] and will be determined at the national level. The recast of Directive 2024/1275/EU on the energy performance of buildings [4] requires Member States in several articles to renovate the worst-performing buildings and to take a specific approach to vulnerable groups.

The SCF Regulation defines in Annex IV common indicators for indicative milestones and targets, for monitoring the implementation of the Social Climate Plan by Member States and for the assessment of progress towards the objectives of the fund by the Commission. The indicators of the results of the measures and investments are not only the reduction of greenhouse gas emissions, annual primary energy savings and final energy consumption, but also the reduction of the number of vulnerable households and households in energy poverty. An important aspect of the SCF is therefore the need to achieve real reductions in energy costs. A more accurate and realistic assessment of the energy performance of buildings is therefore needed.

There is a link between EPBD and SCF. EPBD requires specific solutions for vulnerable households in several articles and defines the buildings with the worst energy performance (Art. 3 National Building Renovation Plan and Art. 9 MEPS). On the other side the SCF Regulation requires in Annex IV that one of the result indicators for measures and investments is expressed in savings in annual final energy consumption. Energy savings in individual buildings shall be documented on the basis of Energy Performance Certificates or other criteria for determining the targeted or achieved energy savings set out in the relevant provision of the EPBD (recast).

Identification of target groups, beneficiaries of measures and investments from SCF

The identification of target groups should be based on the definition of vulnerable households. In the first step, these are households in energy poverty or households, including low and lower middle-income households, affected by the price impacts of the inclusion of greenhouse gas emissions from buildings. These are households that use coal, gas and other fossil fuels as fuel.

In the second step, these are households that lack the means to renovate the building they occupy. They must therefore have a relationship with the building, such as an owner, tenant, or social housing operator.

The third step is to identify households that will achieve significant cost savings through the investment, moving them out of energy poverty. The focus is therefore on buildings with the highest potential for energy cost savings, which are the worst performing buildings, or in colder climates.

There is a direct link here with the Energy Performance of Buildings (EPB) assessment. Member States are to identify the worst performing buildings in accordance with EPBD [4], for the national trajectory for the gradual renovation of the residential building stock in the National Building Renovation Plan (EPBD Article 3) with the aim of transforming the national building stock into zero-emission buildings (ZEB) by 2050. These buildings should be the main renovation target for the Social Climate Fund.

In colder locations, with the same investment, the cost-effectiveness of investing in improving thermal protection is higher, but for some technical systems, especially heat pumps, colder climate conditions have a negative impact on their efficiency.

Figure 1 shows the distribution of the population of the Slovak Republic in climatic conditions according to the heating degree days for each village in national annex to standard STN EN ISO 13790/NA [6].

Climatic conditions in the Slovak Republic are very different and a large part of the population lives in significantly colder conditions than those considered in the energy performance certificate (3422 K.day ).

Figure 1. Distribution of the Slovak population in climatic conditions according to heating degree days in STN EN ISO 13790/NA. (Source: Statistical Office of the Slovak Republic and STN EN ISO 13790/NA)

Proposal and assessment of appropriate measures and investments for the SCF

The SCF Regulation (EU) 2023/955 lists in Article 8(1) the eligible measures and investments to be included in the Social Climate Plan. For buildings, these are the following categories of measures:

·         Building renovation and energy efficiency improvement

·         Affordable housing, social housing

·         Decarbonization of heating and cooling – replacement of heat generator

·         Support through the provision of information, education, awareness and advice

·         Support public-private partnerships in designing and providing affordable improving energy efficiency solutions and appropriate financial instruments.

There are two possible approaches to building renovation:

·         product approach - isolated investment, for example just replacing the heat source (e.g. the French subsidy scheme MaPrimeRénov)

·         holistic approach - in-depth renovation of the building (thermal protection, then replacement of the heat generator and use of renewable energy), which can also be implemented in gradual steps in accordance with the building renovation passport.

It is essential to set appropriate criteria for subsidies to really achieve energy cost reductions for vulnerable households in energy poverty. The principle of energy efficiency as a priority and a holistic approach to building renovation should be preferred.

Decarbonization of heating and cooling – heat generator replacement

Measures aimed at decarbonising heating and cooling often take a product approach, i.e. an isolated investment, for example in replacing a heat generator. Measures must meet the requirements of the Do No Significant Harm (DNSH) principle, a key element in the EU Taxonomy that refers to Regulation [5] on a framework to facilitate sustainable investment. This means that it is not possible to finance the installation of gas boilers from SCF because they use a fossil fuel. Given the importance attributed to heat pumps in the renovation and electrification of building heating systems, the analysis focuses on this device.

The parameters affecting the instantaneous coefficient of performance (COP) of heat pumps are:

·         type of heat pump (air/water, water/water, etc.);

·         climatic zone (source temperature, temperature distribution, etc.);

·         heating system temperature (high temperature for radiators, low temperature for underfloor heating);

·         distribution temperature control (constant temperature, variable temperature depending on the outside temperature, etc.)

·         correct sizing (oversized, undersized heat pump)

Figure 2 shows the COP of the heat pump air/water pump depending on the operating conditions. The COP increases with the increase of the outdoor temperature (x-axis) and depends on the temperature of the heating system (see difference between the red line - average temperature and the blue line - low temperature in Figure 2) and on the heat load. The operating conditions strongly influence the COP, it varies from 0 to 6.

Figure 2. Heat pump COP as a function of temperatures and power. (Source: Heat Pump Expert Group EPB Standard)

A reliable method for calculating the seasonal energy demand for heat pumps is important. In real calculations for subsidy schemes, simplified procedures are often used. Tables 1 & 2 show the default values of the seasonal coefficient of performance (SCOP) in the French 3CL method for calculating the energy classes. The 3CL method is also used by the MaPrimeRénov building renovation subsidy program (France). The SCOPs vary from 2.2 to 4.0 depending on certain operating conditions (climate zone H1, H2, H3, floor heating / other, age). No other factors are taken into account. The assessment of the heat pump performance using the 3CL method is therefore approximate. For calculating energy performance, even simpler default values are available in the Slovak regulation, which distinguish only the type of emission (radiators or underfloor heating).

Table 1. Default SCOP values in zones H1 and H2 (3CL France method). [7]

Table 2. Default SCOP values in Zone H3 (3CL France method). [7]

Comparison of technical systems in terms of annual energy cost

Examples of systems that could be installed in a building and financed from SCF are compared in the terms of achieved annual energy cost savings in Figure 3 and 4. The following systems are considered for heating (H) and hot water preparation (DHW):

·         Gas boiler for heating and hot water preparation (H+DHW) (initial state)

·         Air-to-water heat pump (HP) for heating + electric hot water heating

·         Air-to-water heat pump (HP) for heating and hot water production

·         Biomass pellet boiler + electric hot water heating

Alternative 1 considers current energy prices and a heat pump operating in conditions where it achieves SCOP (H) = 3.6 for heating and SCOP (DHW) = 2.5 for hot water. For gas, the CO₂ emission costs due to the introduction of ETS2 are considered to be €60/t.

Global costs (investment and discounted annual energy costs over 30 years) are calculated, taking into account the increase in energy prices.

In this case, compared to the existing gas boiler, the annual non-renewable primary energy savings for the heat pump will be 42% or 49% and the annual energy and CO₂ emission cost savings will be €668 (36%) or €819 (45%). While the annual primary energy savings for the biomass boiler are 60%, the annual energy costs will increase slightly (by 1%).

Figure 3. Comparison of technical systems in terms of annual energy cost - Alternative 1.

Alternative 2 assumes a slight increase in the price of electricity to €0.21/kWh and a heat pump operating in worse conditions, for example in a building with worse thermal protection, in a colder climate location and with a high temperature of the heating system (radiators), in which it reaches SCOP (H) = 2.6 for heating and SCOP (DHW) = 2.5 for hot water preparation. For gas, the same costs of CO₂ emissions due to the introduction of ETS2 are considered, amounting to €60/t.

In this case, the annual non-renewable primary energy savings for a heat pump will be 28% or 32% compared to the baseline. A small annual energy cost saving of €52 (3%) will only be achieved with a more expensive heat pump with hot water preparation. A heat pump with electric hot water heating will increase annual energy costs by €56 (3%). Although the primary energy savings for a biomass boiler are 60%, the annual energy costs will increase by €160 (9%) after investment.

Figure 4. Comparison of technical systems in terms of annual energy cost - Alternative 2.

Replacing the heating system type alone will not automatically guarantee a reduction in annual energy costs, although the non-renewable primary energy savings are large. A holistic assessment of the building is needed with an appropriate calculation tool, taking into account the state of the building's thermal protection and the operating conditions of the heat pump.

Conclusion

Renovation subsidies with a “product” approach are based on a typology of installations completed by minimum performance criteria. The performance of the “product” is based on conventional operating conditions. The “product” approach is not suitable for installations such as heat pumps, whose performance depends to a large extent on operating conditions.

Product criteria are not a guarantee that the required savings will actually be achieved. Incorrectly set criteria for renovation subsidies can lead to an increase in public spending without a positive impact on vulnerable groups.

A more accurate assessment of energy performance is key to the efficient spending of public finances and to lifting vulnerable households out of energy poverty.

When implementing the revised EPBD [4] it is necessary to introduce into energy performance certificates the new indicators needed for the SCF. Subsidies should be conditional on a correct estimate of cost savings, calculated with reliable tools in line with European standards. In addition, the achieved results should be checked by measurements.

Literature

[1]     Regulation (EU) 2023/955 of the European Parliament and of the Council of 10 May 2023 establishing the Social and Climate Fund and amending Regulation (EU) 2021/1060.

[2]     Directive (EU) 2023/959 of the European Parliament and of the Council of 10 May 2023 amending Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Union and Decision (EU) 2015/1814 establishing and operating a market stability reserve for the greenhouse gas emission allowance trading scheme within the Union.

[3]     Directive (EU) 2023/1791 of the European Parliament and of the Council of 13 September 2023 on energy efficiency and amending Regulation (EU) 2023/955 (recast).

[4]     Directive (EU) 2024/1275 of the European Parliament and of the Council of 24 April 2024 on the energy performance of buildings (recast).

[5]     Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088.

[6]     STN EN ISO 13790/NA: 2010 Energy performance of buildings. Calculation of energy demand for heating and cooling (ISO 13790:2008). National Annex.

[7]     MaPrimeRénov, subsidy program, France.