Clean Energy for all Europeans Package: future implications for the real estate sector

On the 13th of November the European Parliament adopted new targets for energy efficiency and renewable energy generation as part of its wider package of clean energy initiatives.

The “Clean Energy for all Europeans Package” aims at moving towards a renewable future with reduced dependence on coal, gas and oil. The new agreements adopted this week target a 32.5% energy consumption by 2030, as well as requiring 32% of energy spend be on renewably sourced energy by 2023 within the bloc. Additionally, 14% of fuels utilised in transportation will have to be issued from renewable sources by 2030.

The legislation, divided into three major documents, stipulates that member states will have to roll out specific measures to address disparities in energy production and provision, and make renewable energy available for citizens to produce, purchase and sell.

Each member state will be asked to develop a 10-year national plan addressing energy and climate, detailing objectives, contributions, policies and measures, by the end of 2019. This will then have to be updated each decade.

What does it mean for real estate investors with pan-European portfolios? 

The agreement aims at reducing CO2 emissions, maximising energy efficiency, reducing energy costs for European consumers, and fighting global warming. These are goals that have been growing in prevalence over the past decade and are now at the heart of the EU’s agenda, with this recent legislative development further evidencing its importance to the bloc. With buildings consuming around 40% of the energy used worldwide, real estate is inherently at the heart of this commitment.

Firstly, real estate investors with pan-European portfolios can expect a wave of new incentives and regulations promoting renewable energy over traditional energy sources. The design, extent, and stringency of new legislation could however vary from country to country as each is being allowed to develop its own action plan. Considering renewable energy projects at your assets or switching to green energy contracts, now available from most major suppliers, are great ways to contribute toward these goals and enhance your portfolio’s environmental credentials.

An additional benefit of moving toward renewable energy sources is reduced exposure to the price volatility of traditional energy sources such as coal and oil as a result of geopolitical, legislative and environmental dynamics. Not only is renewable energy better for the planet, it may not be long before it comes at a lower and more stable price.

Real estate investors with pan-European portfolios can expect a wave of new incentives and regulations promoting renewable energy over traditional energy sources

It is unclear as to whether national-level plans will mainly apply to primary energy producers, and the extent to which they will involve public and private bodies. It is likely, however, given the scale of this new European directive, that such national goals will to some degree affect all stakeholders involved in the energy supply chain.

As the real estate sector is at the very core of the fight against climate change and in the reduction of greenhouse gas emissions, real estate investors may be expected to comply to new emission thresholds, standards and increased transparency, in order to meet new national targets. This will certainly require additional resources and capacity to be devoted to better, more structured and regular energy and environmental reporting to external governmental and institutional bodies. Moreover, these new commitments should act a trigger for creating a more transparent energy supply chain for buildings. Re-evaluating and adopting a better step-by-step energy supply strategy will become increasingly important in the years to come.

Real estate investors may be expected to comply to new emission thresholds, standards and increased transparency, in order to meet new national targets

Finally, the initial Energy Efficiency Directive of the European Commission clearly stated the overarching goal of this agreement. By reducing greenhouse gas emissions, improving air quality and using resources efficiently, the idea is to move towards a healthier, more comfortable and respectful future for people and the environment. It is of fundamental importance that all stakeholders understand the role that businesses and investments play in shaping the years ahead, and how this legislative step fits into a larger framework of creating resilient value for the future.

Sources:

1. Energia, efficienza e rinnovabili al 32,5 e 32 per cento nel 2030. La Repubblica. Published.
2. European Commission. 19 June 2018. Energy efficiency first: Commission welcomes agreement on energy efficiency American [Press release].
3. European Commission. 13 November 2018. Commission welcomes European Parliament adoption of key files of the Clean Energy for All Europeans package. [Press release].
4. European Commission. Buildings.