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Article Glossary

Retrofit Technologies We Need at Scale

By
Catriona Hyland
December 2, 2021

The construction and operation of buildings accounts for 36% of the world’s energy use and 37% of all carbon emissions. With roughly 75% of buildings in the EU classed as energy inefficient, and as much as 90% of today’s buildings estimated to be in use by 2050, decarbonising existing building stock will be key to meeting climate targets.

Shallow retrofits vs Deep retrofits

Broadly speaking, retrofit strategies fall into one of two categories. Shallow retrofits, which achieve a limited energy demand reduction of up to 30%, entail minimal upgrades such as draught proofing, efficient lighting and upgraded heating controls. Comparatively, deep retrofits target a minimum of 60% energy demand reduction. According to Sarah Lewis, research and policy director for the UK Passivhaus Trust, it is the combination of HVAC demand reduction and electrification that is key: “just decarbonizing the energy supply doesn’t solve the problem. You need to cut demand”.

Despite guidance to increase the annual deep retrofit rate to 2.5% in advanced countries and 2% in emerging countries, the average annual global retrofit rate sits at around 1%. Worryingly, a large majority of these retrofits are shallow retrofits, with deep retrofit rates as low as 0.2% per annum in Europe. While shallow retrofits are typically financed through annual maintenance budgets, a deep retrofit is a capital expenditure with large upfront costs. For this reason, asset managers might be inclined to opt for shallow retrofits today, and wait for large government subsidies to carry out portfolio wide deep retrofits further down the line.

Retrofit Tech

Why is this a problem? The decision to delay deep retrofit schemes is not only damaging environmentally, but is a false economy for asset managers. While the low upfront costs of shallow retrofits may be easier to approve at board level, the failure to reduce HVAC demand creates an energy performance gap that drives up operating costs for asset managers and tenants alike. When combined with supply chain volatility and increasing commodities costs across Europe and the US, there are clear incentives for asset managers to act sooner rather than later.

At A/O, we work alongside some of Europe’s largest real estate owners and operators, for whom ageing stock comprises a large component of their portfolios. The rapidly evolving landscape of proptech solutions supports asset managers in implementing portfolio wide deep retrofits. Here’s how:

Reducing HVAC demand

A fabric first approach reduces HVAC demand through insulation and air sealing to eliminate energy loss in building envelopes and ductwork. Materials-based solutions can help asset managers to minimise tenant disruption by reducing the time taken to insulate a building façade. For example, Building Envelope Materials insulates a single family unit in one day by injecting insulation into ½” holes, while Aeroseal uses a blower door to quickly identify air leaks, and then sprays sealant onto walls and ductwork. In both cases, software is used to measure the airtightness achieved, alongside internal air quality improvements and the reduced risk of mould. Other solutions such as Spotr.ai use computer vision to derive facades measurements remotely, enabling asset managers to plan envelope retrofits across entire portfolios.

For large buildings, advanced energy management systems (EMS)such as Aquicore use AI and machine learning to provide granular energy consumption data. These insights enable commercial facility managers to reduce HVAC demand by up to 22%. Meanwhile, building energy management systems (BEMS), such as PassiveLogic, use quantum digital twins to create fully autonomous buildings that reduce HVAC load by as much as 30% without the intervention of a facility manager. Notably, BEMS solutions can be installed in one-tenth the time of conventional HVAC controls.

Smart devices enable significant HVAC load reductions. For example, smart water heating devices such as Heatworks have been shown to reduce energy consumption by 12% and energy costs by 35%. Meanwhile, LED lighting, when combined with smart controls such as Orro, reduce lighting energy consumption by up to 40% in residential buildings and by up to 65% in commercial buildings. Other solutions including Inovues offer smart window retrofits for commercial buildings, which are estimated to bring energy savings of 20%. Other smart devices with significant energy savings potential include dishwashers, refrigerators and freezers, clothes washers and dryers.

Decarbonising electricity supply

Fossil-fuel boilers and heaters can be replaced with electric space and water heating and cooling devices. Hybrid heating and cooling pumps use low impact refrigerants to reduce carbon intensity by 75%. Tech-enabled solutions such as Gradient use modular design to reduce noise for tenants, and allow tenants to control the interior environment using an app. These products can be combined with energy-as-a-service (EAAS) models to eliminate the upfront cost to the asset owner.

The electrification of space and water heating places strain on the grid, which when combined with ageing grid infrastructure and extreme weather events, increases the frequency of blackouts. This in turn threatens the reliability of electricity supply for tenants. Proptech solutions can go hand in hand with solar home energy systems, improving the reliability of back up systems through data visibility and control measures. Smart electric panels such as Span provide appliance-level energy insights and control. Among other benefits, tenants can estimate off-grid capacity and control the order in which the battery will shut off circuits in the event of a blackout.

Eliminating upfront costs

In November this year, the city of Ithaca (NY) was the first US city to vote to electrify the city’s entire building stock using private financing. According to Luis Aguirres-Torres, the City of Ithaca’s sustainability director, deep retrofits “are not an environmental issue…rather an economic issue that can be solved with creative financing schemes”.

To this effect, there are a growing number of innovative energy service companies (ESCOs) such as Carbon Lighthouse, Blocpowerand Sealed who eliminate upfront costs by leveraging private financing repaid through the achieved energy savings. In addition to arranging financing, platforms also match schemes with vendors, whether through a marketplace or consultant-based model. Other solutions such as Energiesprong act as retrofit methodologies for large affordable housing portfolios, whereby tenants pay the housing association an energy service plan equivalent to their previous energy supplier bill to partly fund the retrofit works. A related scheme RetrofitNY is active in New York.

Optimising the retrofit supply chain is regarded as one of the greatest challenges for developed economies. Our investments to date in Span, PassiveLogic and Aquicore support asset managers in reducing HVAC load and electrifying portfolios.

At A/O, we are actively investing in technologies that enable the deep energy retrofit of real estate portfolios around the world. If you are a proptech startup tackling the retrofit challenge, or a real estate operator keen to learn more, get in touch!

Glossary
About the author
Catriona Hyland
Research Analyst

Catriona focuses on research-driven sector analysis, including the identification of core trends, assessment of market dynamics and evaluation of investment targets.

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