Sustainable BuildingsRetrofittingInvestigating Investment: How to Pay for Retrofitting

Investigating Investment: How to Pay for Retrofitting

Karl Dickinson
Karl Dickinson
Change matters. It takes courage. As a writer - and citizen - I am inspired by stories of those who challenge the 'we've always done it this way' attitude. We can do better - it's time to listen to those who go against the grain.

Even knowing retrofitting will improve our standard of living and save us cash in the long run, finding the money upfront to pay for it can be a challenge. In this article, we prove that you don’t need to be self-sufficient with pots of gold to spare. There are options for retrofitting investment. We also investigate what decision-makers can be doing to aid owners and tenants of older building stock to accelerate the retrofit revolution.

London, 2017. A fire ripped through the cladding encasing Grenfell Tower, killing 72 people and leaving hundreds homeless. A formal review resulted in a change of regulations. The UK now faces a bill of £15 billion to replace insufficient insulation and weather-resistant coating for flats and public buildings. With the Treasury stumping up just a third of that, leaseholders are facing bankruptcy-inducing bills at the behest of central government.

It’s not the usual retrofit tale, but whatever the reason for changing the fabric of our existing building stock, someone needs to pay somehow. And we need to prove to detractors that it isn’t only the cash-flush middle classes with a green conscience that can participate. From government grants and tax incentives to shrewd cost-cutting, don’t claim defeat before browsing our advice for financing.

Public vs Private Pennies

As public money, spending of city budgets has to be monitored and justified. Philanthropic funding is less risk-averse: private investment is primed for backing innovative ideas where pay-outs often do not depend on hitting specific efficiency targets like council grants do, Peter Kraus from Vienna’s green party told us. This paves the way for experimentation and increasingly more impactful solutions.

Although according to Trude Rauken, Interim Director of the Carbon Neutral Cities Alliance, “only 2% of philanthropic funding actually goes to climate work”, private finance models are challenging government programmes. As a result, the competition is encouraging savvy centralised initiatives to become more compelling. Our research into funds is a good jumping-off point for grants, loans, and green mortgages.

It’s also worth checking with your local authority for up-to-date options.


Not the question of equality, but the value locked away in property. You could apply to free up some home equity in the form of a loan or second mortgage. Shop around as banks will have different offers and rates.

Pay As You Earn

Emma Harvey, director of the Green Finance Institute, suggests lenders team up with employers to create salary sacrifice schemes for workers to repay retrofitting loans. Taking it from pre-tax earnings would make the offer more desirable. This, therefore, needs to be backed by the government.

Low-income options

Retrofitting offers a chance to lift lives out of energy poverty. Low income and “disadvantaged groups like renters, pensioners, students and the working poor” are more likely to be renters and “live in less energy-efficient buildings compared to higher income households”. What can we do to make retrofitting accessible for all? Let’s take a look:

Solar Leasing

PV units have dropped in price but still involve upfront costs. Unless you rent them. Solar leasing enables poorer properties to enjoy lower bills because the households thrive on the green energy they produce. It can get sticky when residents move, however, as new tenants must take over the contract – this bumps up the costs.

Power Purchase Agreements

Get all the hardware choices, installation, and paperwork done for you with a PPA at no cost. Developers do all the hard work, so you don’t have to. In turn, your building generates solar power, you buy it at a fixed rate (lower than that from the grid), and the developer benefits from tax credits and green energy financial incentives.

Landlord Incentives

Renters usually have little say or control over the fabric of the property they rent. Therefore, it’s important to get landlords swept up in the retrofit wave. The approach can be push or pull:

  • Push – encourage landlords to upgrade their properties, promising the benefit of higher rents and lower long-term maintenance costs (e.g. through weather resistance), or;
  • Pull – establish a policy that prevents renting out dwellings that fail to meet a specified energy rating.

Unless handled appropriately, the first option risks gentrification, pricing out the very groups we want to include. For occupants on the bread line, the latter option coupled with rent controls would be best. Retrofitting gives us a chance to solve a social issue, too: eradicating the exploitation of low-income families by slum landlords.

For more affordable options for your own shallow retrofit, head over to our article explaining how to retrofit on a budget.

Image credit: Pexels / RODNAE Productions

Innovative Institutional Interventions

Maybe it’s time we changed the way we look at how we administer retrofits. By applying a bit of creativity, those who pull the city’s strings can aid swift and cost-effective implementation.

Just What the Doctor Ordered!

Rather than medical treatment, some medical practitioners are prescribing home improvements to aid wellbeing.

The Guardian reported on a trial in Sunderland, UK, which saw a private housing group team up with doctors prescribing “£5,000-worth of double glazing, efficient boilers and loft, cavity and wall insulation” for chronically ill patients dealing with energy poverty. Of course, such a scheme involves a significant initial cost to the public purse, especially if rolled out nationwide. But with savings of up to £2,500 for the NHS each time a healthcare visit is avoided, the costs are quickly recouped.

It Needn’t Be Taxing

Who likes paying taxes? Anyone? No, of course not. So, how about countries offer tax breaks – or credits – to those who have undergone an energy-saving retrofit? Added to the lower energy bills, this is quite the financial incentive for homeowners. Or a way to share financial relief between landlords and tenants, which can be a real motivator. For more details, see split incentives, below.

Revenue Decoupling

Imagine a world where consumers, power companies, and conservationists were all happy. It’s not some Utopian fantasy, but the offshoot of revenue decoupling.

Arup reports that a handful of American states are already practising this. In simple terms, their profits are protected. They can charge more for energy at times of low demand but can offer discounts when it’s high, which encourages citizens to use energy efficiently. There is some argument that this is a more effective way to create a transition in the sector than mandating or penalising companies for poor practices.

Financing Challenges – A Bumpy Road Ahead

So, we’ve made inroads to creating accessible, innovative, responsive, diverse financing models and options. We can still do better. Here are some areas where improvement is needed.

Not Just a Case of ‘Sign on the Dotted Line’

Speaking of the processes of applying for retrofitting support schemes, Siddharth Sareen told us that “the paperwork required gets so elaborate” only “quite a highly educated person” or trained professional can really get their heads around it. As widespread abandonment of applications to Ireland’s Better Energy Homes scheme and the collapse of the UK’s first Green Deal has shown, a public that struggles with the process fails to engage.

Thankfully, the landscape is changing. Ireland’s Green Hub already offers an end-to-end service, but starting at €20,000 it’s not for everyone. Stuart Hobbs, Head of Energy Services for SSE Airtricity in Ireland, advises speaking directly with your energy provider. His team, like others, offers free advice “including what grants are available. We’ll even do the complicated application paperwork”. Does it fall to individual companies to drive this kind of initiative, or should we be applying pressure to governments to form such programmes?

Split Incentives

Who pays and who benefits? The conundrum of retrofitting privately rented properties is that the answer to these two questions is not the same. Holding ownership of a building, landlords pay to carry out the work. In terms of gains, it’s occupants who reap the rewards of lower bills and improved comfort. This is the split incentive.

Answers to this quandary include Environmental Upgrade Agreements, an initiative from Australia. It’s effectively upfront funding available to landlords, who then share repayment responsibilities with their residents.

On-bill financing also offers a solution: an electricity supplier pays for the property upgrade, and residents pay them back via regular bills. Some housing associations offer a similar scheme, whereby residents continue to pay their previous energy rates – rather than the new reduced costs – but directly to the landlord, who gradually makes their money back. It requires an agreement, or ‘energy service plan’, to make the arrangement official and protect both parties.

Ponderous Policy

With time running out and authorities needing to hit their climate commitments, the only thing we want to be lagging is the covering on water heaters! Policy must be regularly reviewed and modernised to facilitate the rate of retrofitting. What’s the holdup?

Hem, a town in France, has piloted Energiesprong’s modular units, but local legislation means residents cannot use the self-generated power. It’s the same for energy co-ops in England. The landscape can change, though: Sid told us that Lisbon introduced a policy allowing for community energy consumption in 2020.

There is also fear that real estate markets, backed by a powerful lobby, will resist stringent changes to policy for as long as possible, holding back wide-scale fabric-first changes. Dialogue with all stakeholders needs to be the first step to underpin what will facilitate change: be it incentives, force, sharing responsibility, or appealing to a sense of duty… or guilt.

C40 advises mapping policies to see where prevention for energy-efficient uptake may lay and strike right at the nerve. The example they give is how “energy bill savings” don’t amount to much in the face of costly retrofit projects when “high subsidies on grid electricity” keep established costs relatively low. Only by understanding the policy landscape at local, regional, and national levels can we make moves to amend it.

The Conundrum of a Sliding Scale

The Bankers for NetZero[1] report reminds us that costs of solar and wind power dropped by 80% and 50% respectively between 2010 and 2021. This energy may be cost-effective, but how do we acquire the apparatus that generates it? They suggest ‘front-loading’ and tapering financial support: offering upfront payments and gradually reducing the sum offered. This could spark interest, as citizens scramble for the higher subsidies.

They also note how “public investments in decarbonising social housing and public buildings” can ‘prime pump’ the market. It doesn’t take long before scaling up forces costs to drop. Head of International Market Development for Energiesprong, Ron van Erck, explained that “once you are doing 3,000-5,000 homes a year, it gets you to the scale needed for industrialisation”.

Be an Opportunist

As the COVID pandemic eased, many called for retrofits to be included in government stimulus packages. It makes sense. Improved building efficiency on a micro-scale reduces the need to invest in clean energy at the macro level. It’s a balance: spend with one hand but save with the other.

The show of confidence from governments and city administrations investing in retrofit measures and technology is a powerful tool to encourage public and commercial buy-in. It’s also proven to leverage six times the level of investment from private investment channels so we can expect to see more options than those we listed at the beginning.

Financing Retrofits in a Nutshell

What’s striking about the financing options for retrofits is that investment and long-term cost-savings go hand-in-hand. But we can’t rest on our laurels and hope energy refurbishments will occur organically. We need to act. Through revised policy, better incentives, punitive measures for failure to comply, and addressing the still present challenges that prevent us from retrofitting, we can make accelerate change. Affordable and sustainable change.

[1] Volans, Re:Pattern and APPG on Fair Banking. (2021). Bankers for Net Zero Briefing: The Retrofit Revolution.

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