17-06-2024 12:18

EU Renovation Wave: A golden opportunity for renovation companies

The EU Renovation directive will require cumulative investments of around EUR 1.2tn during 2024-30, according to Nordea's ESG Research team, offering an unprecedented opportunity for renovation companies. The team analyses which renovation measures are likely to be prioritised.
Construction worker cutting mineral rock wool

The final adoption of the Energy Performance of Buildings Directive (EPBD) by the European Parliament in March marks an important step in the EU Renovation Wave – the set of policies designed to boost the energy efficiency of buildings. Nordea’s Equities ESG Research team previously analysed what the law means for Nordic real estate companies . But what about the renovation companies providing the solutions and services?

The ESG Research team estimates that meeting the 2030 EPBD targets will require EUR ~1.2tn in investments, implying a ~20% compounded annual growth rate in the European renovation market in 2024-30. 

“Achieving the EPBD targets will be a challenge but possible under the right conditions. This offers a once-in-a-lifetime opportunity for companies in the energy renovation space,” says Marco Kisic, Head of ESG Research.

Summary of main EPBD targets

Existing buildingsTarget yearRequirement
Non-residential building2030Renovate the 16% worst-performing buildings
2033Renovate the 26% worst-performing buildings
Residential building2030The average primary energy use of all residential buildings decrease by at least 16% by 2030
2035Primary energy use should decrease by 20-22% by 2035
55% of the energy reduction must be achieved through renovation of the worst-performing buildings
All buildings2050National building stocks should be transformed into zero-emission buildings
New buildingsTarget yearRequirement
 2028All new public buildings must be zero-emission buildings
2030All new buildings must have zero on-site emissions from fossil fuels

EU: Current renovation spend (EURbn) and estimated annual 2025-30 spend (EURbn) to meet EPBD targets

Source: Company data, European Commission and Nordea estimates

Financing still a question

The main EPBD trigger will be the publication of the EU countries’ renovation plans and related measures by December 2025 at the latest. Some countries have already started to make early moves, with France, for example, banning the rental of high energy consumption buildings from January 2025.

A political shift in the EU with the recent parliamentary elections could water down the requirements to some extent, but the broad framework is likely to remain intact, according to Kisic. He expects countries to announce new subsidy plans and sanctions in conjunction with their renovation plans. 

Kisic notes that financing is the main question mark, and a mix of EU facilities, innovative debt financing solutions and equity will be required. Today there is already some EU money on the table, but only a small fraction of the required investment.

Which renovation measures?

Today, there is little consensus about which renovation measures are likely to be prioritised in the renovation wave. The ESG Research team analysed the Italian Superbonus, a large-scale renovation scheme recently implemented, conducted interviews with Swedish real estate companies and installers and surveyed academic research. Based on that review, the team concludes that insulation, windows, heating systems and heat recovery are likely to be the most popular measures.

Renovation Wave measures: Priority index 

(Y-axis is a score based on rankings obtained by combining and weighting the three different criteria)

Source: Nordea estimates

Find out more about the expected impact of the EPBD on Nordic real estate companies.

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