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COMMERCIAL REAL ESTATE | CONSTRUCTION | INSIGHTS | RENEWABLE ENERGY | BY KEITH DOYLE
Introduction
The Revised Energy Performance of Buildings Directive (the “Revised Directive”) was adopted by the European Parliament on 12 March 2024 and will be published shortly in the Official Journal of the European Union. Over the next two years Member States of the EU will be required to transpose the Revised Directive into national law. This article looks at what is new in the Revised Directive and how this affects the Irish Real Estate sector.
Our buildings account for 40% of the energy consumed in the EU today. The majority of these buildings are older stock, and inefficient in their energy performance. Against this, the EU has set itself the daunting task of fully decarbonizing building stock in the Union by 2050. The Energy Performance of Buildings Directive has been a keystone in the EU’s legislative arsenal to confront the challenge of energy efficiency and greenhouse emissions since it was first introduced in 2002, with further recast iterations, notably, in 2010 and 2018. The Revised Directive is the latest such iteration. So what has changed?
New Buildings New Standards
The Revised Directive requires the implementation of measures to ensure that all new buildings, residential and non-residential, are zero-emission by 1 January 2030. This deadline comes earlier (1 January 2028) for public buildings. Zero-emission in this context means that the building inter alia produces zero on-site carbon emissions from fossil fuels and produces negligible operational greenhouse gas emissions on a day to day basis. Ancillary to this, the Revised Directive includes a requirement that all new buildings will be “solar ready” i.e. engineered to accommodate rooftop PV or solar thermal plant without the need for significant structural alteration.
Impact on Existing Stock
New buildings aside, the reality is that the majority of existing building stock will remain in place until 2050 (and beyond) and must therefore be addressed in order to meet the stated aim of decarbonization. In order to address that existing inefficient building stock, the Revised Directive paves the way for minimum energy performance standards for non-residential buildings. Member States will be obliged to provide for the renovation of the 16% worst-performing buildings by 2030 and the 26% worst-performing buildings by 2033.
For residential buildings, each Member State is set a hard target of reducing average primary energy use in such buildings by 16% by 2030 and 20-22% by 2035. Within this, Member States are afforded the flexibility to implement specific national measures to achieve these targets, provided that 55% or more of the targeted reduction is brought about via renovation of the worst-performing buildings. Minimum energy performance standards for residential property remain an optional tool, by contrast with their mandatory introduction for non-residential assets. It should be noted that the Revised Directive does not place a legal obligation on homeowners to renovate.
In the case of both residential and non-residential stock, exemptions will be available for classes of buildings that cannot be expected to match the stringent new requirements for energy efficiency, analogous to existing exemptions from the Building Energy Rating (BER) system (e.g. protected / historic buildings).
Other Points of Note
To facilitate retrofits and upgrades, the Revised Directive introduces Building Renovation Passport schemes to assist with the planning of staged renovation works utilising providers across Member States. Individual Member States will be required to establish Building Renovation Plans detailing the national strategy for decarbonization and specifying plans for unlocking financing, training and availability of skilled labour to make these upgrades accessible and affordable and to accelerate delivery. First drafts of these plans are to be in place no later than the end of 2025.
A specific point of note is that fossil fuel powered standalone boilers will no longer be eligible for public support as of 2025. While there is no specific longstop date after which installation of such boilers are to be prohibited outright, Member States may implement binding requirements for maximum emissions, fuel type and/or minimum incorporation of renewable energy sources for heat generation.
Energy Performance Certificates (BERs in this jurisdiction) will be enhanced under the Revised Directive, with a number of indicators to be added on energy and GHG emissions, and voluntary indicators made available on charging points for EVs and / or the presence of fixed controls for indoor air quality. Revised BERs will be required in a wider set of circumstances (currently associated primarily with a sale or new letting in particular) to include a simple renewal of an existing lease or where significant renovations are to be carried out to a premises.
Of particular note to tenants (and by extension landlords) in the Revised Directive is a highlighting of the risk of so-called ‘renovictions’ – a term coined to refer to the process whereby significant increases in rent following energy efficiency renovations would lead to existing tenants being priced out and unable to remain in situ. Member States are directed to introduce measures to tackle this potential risk. Outside of the legislative dimension it is of course advisable that tenants and landlords broach the subject now and agree cost allocation or a mechanism for determining this in due course. This will pre-empt dispute and help to avoid stakeholders being blindsided when mandatory energy efficiency upgrades and divestment from fossil fuel heating and cooling plant begin to take effect as black letter law hardens in this area.
Conclusion
For all stakeholders in the Irish Real Estate sector, from developers to investors, funders, landlords and tenants, the Revised Directive is the latest reminder to urgently factor the imperative of high energy efficiency, divestment from fossil fuels and elimination of greenhouse emissions into investment, asset management, funding and leasing strategies. Asset holders who are unwilling or unable to confront this new regime run the risk of stranded assets and distressed disposals in what is now the short-to-medium term. For others, the new regime presents an opportunity to reinvest, retrofit and future proof their assets so that they remain viable and marketable in the years to come.
How We Can Help
If you have any queries, or would like to discuss the above in further detail, please feel free to contact Keith Doyle in our Real Estate Department ([email protected] / +353 (0)1 440 8300).
This article is for general information purposes. Legal advice must be obtained for individual circumstances. Whilst every effort has been made to ensure the accuracy of this article, no liability is accepted by the author for any inaccuracies.