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Policy developments in the European Union and strategies for Pay-for-Performance business models

Dimitra Tzani; Vassilis Stavrakas; Marion Santini; Filippos Anagnostopoulos

European Union (EU) leaders recently agreed a more ambitious 2030 climate target which, among other things, means at least doubling the annual overall energy renovation rate of 1%. In this context, intensified actions to rapidly accelerate the decarbonisation of the building sector are needed. However, retrofit actions are hindered by barriers at different stages: from the initial decision to renovate, to financing and completing energy efficiency projects. To overcome these barriers, it is necessary to act on different fronts to foster better use of EU and national public funds and mobilise a greater share of private funds. EU and national public funds should be better communicated and target end-users more effectively.

Innovative financing solutions can be found in performance-based schemes, like pay for performance (P4P), which have been used so far to engage both energy and third-party service providers, mainly in North American energy efficiency projects. In P4P schemes, financial flows between the parties involved are linked to the actual/ metered and weather-normalised energy savings produced by the retrofit project. P4P schemes also rely on energy efficiency aggregators, which group buildings together into an energy savings portfolio. The energy efficiency aggregator usually acts as the intermediary between the client and the programme implementer and is compensated for delivering energy savings. However, despite the benefits that P4P models may provide, they have not yet been adopted in the EU.

This report focuses on ways that policy and regulatory developments in the EU may become risks or opportunities for P4P schemes. In particular, the main goal of this study is to analyse the directives, policies and measures already adopted, as well as those under consideration by the EU. Based on a comprehensive literature review, a Strengths-Weaknesses-Opportunities-Threats (SWOT) analysis, interviews with key stakeholders from the field, and an EU-wide online survey, we identify regulatory opportunities for P4P schemes considering the different policy measures and market uptakes. Finally, based on insights from all the different parts of our work, we devise and present ten (10) integrated strategies for rolling-out P4P schemes in the EU, by considering existing and upcoming regulatory frameworks, the exploitation of opportunities that may emerge and adaptation to potentially unfavourable developments.

The authors would like to acknowledge the support from the EC. The authors would like to thank the stakeholders that participated in the interview meetings and the online survey. The content of this report is the sole responsibility of its authors and does not necessary reflect the views of the EC.
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