Renewable heating in rental housing

High upfront costs, limited financing options, and a lack of awareness among landlords and tenants are some of the barriers for renewable heating adoption in the rental sector. In a recent briefing CAN Europe proposes solutions to facilitate the transition.

The rental sector has various market barriers to the accelerated adoption of renewable heating technologies. These can be high upfront costs, limited access to financing options, and a general lack of awareness among both landlords and tenants. CAN Europe has recently published a briefing which highlights this dilemma and proposes solutions.

Thirty per cent of Europeans reside in homes which they do not own, a percentage that escalates notably in major European cities, such as 63% in Brussels and 76% in Berlin. These tenants often lack control over the heating systems in their homes, as such decisions are made by the property owners. But owners, do not reap the benefits of adopting renewable heating systems. This situation frequently leads to suboptimal decisions from both economic and environmental perspectives, creating what is known as the landlord-tenant dilemma.

While many policy measures incentivise renewable heating for homeowners, they often fall short in encouraging landlords to renovate their properties. Grants, rebates, loans, and tax cuts predominantly target property owners, neglecting the energy poor tenants.

Recent initiatives aim to make renewable heating accessible and affordable for vulnerable families. Example of these measures include grants covering the full system cost without upfront payments and state-backed or low-interest loans. With energy poverty affecting one in ten Europeans and the threat of more individuals in the middle class slipping into energy poverty due to high inflation, these efforts are crucial.

However, in most cases, these measures primarily benefit energy poor homeowners and overlook energy poor tenants.

CAN Europes briefing investigates the necessary steps to make renewable heating viable for tenants in Europe. The report emphasises the importance of an inclusive heating decarbonisation transition that considers individuals' income and tenancy status. The four main recommendations are:

1. Build on what already exists. Increase efforts to promote renewable heating across the entire building stock, even if they do not specifically target the rental sector. It is important to set clear targets towards a rapid phase-out, as well as ending support for fossil-fuel heating. It is also important to have appropriate taxation of environmentally harmful fuels used for heating (oil, gas,coal and biomass). This approach creates a market for renewable heating, reducing costs through economies of scale and changing social perceptions. This would also improve the economics of investment decisions for all owners, including landlords.

Member states should plan to implement Minimum Energy Performance Standards (MEPS). Special priority should be dedicated to addressing the worst-performing buildings . The development of a supportive framework, inclusive of financing, technical assistance, and social safeguards, must prioritise the needs of the most vulnerable households and those already grappling with energy poverty.

National Building Renovation Plans must incorporate well-defined policies and initiatives to ensure the decarbonisation of heating and cooling in buildings, with a complete phase-out of fossil fuel boilers by 2040.

These strategies should encompass all forms of tenures, including rental arrangements.

2. Address supply-side barriers while prioritising the most vulnerable. Leverage social housing providers and rental agencies to overcome supply-side barriers and offer affordable, quality housing with renewable heating solutions for the most vulnerable populations. Analysis from Housing Europe, the European Federation of Public, Cooperative & Social Housing, shows that the share of social housing varies from no social rental housing sector in Greece, to 29 per cent of the total housing stock in the Netherlands.

Social rental agencies help to identify vulnerable tenants. In Flanders, landlords are excludeds from subsidies and subsidised loans unless they lease a house or apartment through a social rental agency for a minimum duration of nine years. Landlords meeting this criterion are entitled to the highest subsidies, equivalent to those provided to vulnerable homeowners, irrespective of their income. This approach serves to promote both affordable housing and renovation efforts, including measures related to heating.

There are notable instances of effectively consolidating demand for energy retrofits within the public, cooperative, and social housing sectors, with a specific focus on prioritising the most vulnerable. One example is The EnergieSprong initiative, which stands as a testament to the significant role of social housing in fostering a mass market for extensive energy retrofits. Originating in the Netherlands, the EnergieSprong concept aims to deliver net-zero energy retrofits, commonly involving features such as solar rooftops, heat pumps, and enhanced thermal insulation.

With the support of financial institutions, the retrofit is financially viable, with repayment facilitated through savings in energy costs and reductions in the budget allocated for planned maintenance and repairs over a span of 30 years

EnergieSprong’s “market development teams” strategically position themselves amidst various retrofit stakeholders, including landlords, tenants, retrofit providers, financial institutions and public authorities, ensuring optimal outcomes.

These entities can also play a key role in developing innovative solutions, aggregating demand for deep renovations, and addressing supply-side obstacles.

3. Fill the gaps. Adjust existing renewable heating policy tools to suit the rental sector and create new measures while ensuring social safeguards are in place to protect tenants. When it comes to regulation, Minimum Energy Performance Standards (MEPS) state that existing buildings in an area must either meet a set performance level or help lower the average energy use by a certain amount. Renovation can be carried out when certain events occur, such as signing a new rental agreement or selling the property, or as part of a bigger renovation plan. These rules can apply to all buildings or just certain parts of a building.

For example in France, a ban on renting has been put in place for the Worst Performing Buildings (WPBs). It begins in 2025 for buildings with energy performance certificates in class G, and will be gradually expanded to include those in class E by 2034. If effectively enforced, this measure gives landlords a reason to consider renewable heating to enhance their property’s energy rating.

Another important gap to fill is the need for financial safeguards. These are necessary to safeguard vulnerable tenants from potential increases in housing costs that may result from renovations and to guarantee housing accessibility for all residents. These can take the form of rent ceilings. for example. In the French MEPS example above, since 2023 owners of buildings in classes F and G have been banned from increasing the rent between two lettings without undertaking energy renovations.

Governments can also mandate that rents should not increase, even if there’s a renovation. In France, the “Denormandie scheme” offers tax cuts to owners who purchase and renovate an unoccupied dwelling, which they subsequently rent out for an extended period (six, nine or twelve years) at a fixed price per square metre. The renovation must result in at least a 20 percent improvement in efficiency (30% for houses).

4. Information is power. Facilitate access to and proactively provide independent information on existing tools for transitioning to renewable heating. Ensure that both landlords and tenants understand the added value of renewable heating in their properties and provide support to reduce administrative burdens.

Energy Performance Certificates (EPCs) are central to various regulations. They establish the performance standards for MEPS, such as requiring a minimum level of E in order to rent out a dwelling. Additionally, EPCs set thresholds for financial support, stipulating that renovations must achieve a minimum energy class, such as A, to qualify for financial assistance. Because EPCs consider heating systems in their methodology, they play a role in promoting the use of renewable heating. Moreover, they serve as a useful shared language for landlords and tenants to discuss energy-related matters.

One-stop shops can play a crucial role for both landlords and tenants by providing reliable and easily accessible information about energy efficiency improvements. This includes details on available support, existing regulations, and more. Landlords can also be informed about the potential increase in the value of renovated properties that incorporate renewable heating systems.

Another important participation opportunity is community-led projects, specifically Community Heating and Cooling (CH&C) initiatives, in which thermal energy systems are collectively owned by participating citizens, municipalities and small to medium-sized enterprises (SMEs). CH&C projects prioritise social and environmental benefits, such as thermal well-being, over profit maximisation, making them cost-effective and durable solutions for heating and cooling.

In conclusion, there are several ways to address the challenges in the rental sector for renewable heating and it is important to highlight and tap into their potential now.