Decarbonising the residential heating and cooling (H&C) sector is vital to achieve EU energy security and climate goals. The financing of upfront costs is key to its success. H&C represents around 50% of the EU’s final energy consumption, with approximately 26% of this being achieved by renewables. Yet only around 6% points of energy consumption comes from non-polluting renewable energy sources. The scale of the sector means that its decarbonisation is a core component of becoming climate neutral by 2050.
The technologies needed to decarbonise the sector are available today. However, the upfront cost of their installation is often significant. Solutions need to be found to make them more easily affordable for households.
By analysing the markets of seven Member States (MS) of the EU: Czechia, France, Germany, Italy, the Netherlands, Poland and Spain, this study authored by LCP Delta and the Cool Heating Coalition provide insight into the financing that will be needed to successfully transition to a clean residential H&C sector.
Key finding: Monetary savings are the ultimate outcome of transitioning to clean H&C
To achieve the savings though, substantial upfront costs are required. With effective policies in place the financing of upfront costs can be easily achieved.
Households could see savings and a cheaper future
- The study finds that by 2050, households in five of the seven Member States (MS) analysed will save money from transitioning to clean residential H&C. Households in the remaining two MS will save money if the right policies are put in place.
- The monetary savings result from the lower running costs of clean technologies, because of the energy efficiency of technologies such as heat pumps.
However, households require support in the present
- To capture the ultimate savings from lower running costs, the sizeable upfront costs of installing the equipment needs to be funded.
- Currently, partly due to the incomplete pricing of the externalities of air pollution, health costs and climate change impacts, upfront costs of clean technologies can be twice as much as the incumbent technology. Consequently, households need support to transition their H&C systems, to be able to enjoy the lower running costs.
Support can come from the public and private sectors
- Public policy can provide support to households through a number of instruments, including subsidies, grants, tax incentives, guarantees to provide lower interest rate costs, and adjustments to the pricing mechanisms to reduce electricity prices.
- The private sector can support households by providing affordable finance solutions that remove the upfront cost and replace it with manageable and consumer-friendly monthly payments.
Required finance for the support is available
- Finance to fund public policy can be sourced through a mixture of redirecting existing fossil fuel subsidies and mechanisms such as the Emissions Trading System 2 (ETS2).
- Finance to enable the private sector to provide households with attractive finance offerings can be sourced through a mixture of the reinvestment of profits and equity raising.
- Finance for both public and private sectors can be raised from the global bond market in the form of green bonds.