Energy saving programs in Germany: an unsung success story

On July 8, the Bundesrat, the upper house of the German legislature, followed the example of the nation’s other legislative body, the Bundestag, by ratifying the decision to abandon nuclear energy by 2022. These decisions raise questions about Germany’s strategy for satisfying its energy demands, but even before this historic about-face from nuclear energy, Germany had engaged on the path of energy conservation several years ago in order to carry forward an ambitious climate agenda.

An objective of 30% energy savings for Europe’s pioneer

Although Germany has already managed to reach 20% of renewable energy in its energy mix (18% in 2009 according to Enerdata),  the nation distinguishes itself from its European neighbors with a particularly ambitious energy savings goal. By setting a 30% objective for the reduction of energy demand, Germany intends to surpass the other EU member states.

Is it too soon to proclaim the “German miracle” of energy savings? Germany’s model remains rather anonymous, despite having obtained very tangible results since its 2006 inception.

The three pillars of Germany’s energy efficiency initiative

The German approach is based on three pillars, progressively put into place since 2002, whose cornerstone legislation is the Energy Conservation Act of 2002 (known as EnEv in German).

The three pillars:

  • Reduce the energy demand through a binding legal framework that imposes energy performance improvement obligations on buildings and an increased use of renewable energy sources by electricity suppliers.
  • Propose financial incentives via subsidies and loans to reduce buildings’ energy consumption at all administrative levels – federal, regional and municipal. At the federal rung, these incentives are offered by the public investment bank, KfW, with strong financial backing from the German government.
  • Create awareness to change energy behaviors by working at the regional and local levels, not only developing applicable standards through Energy Performance Certificates, but also supporting pilot projects all over the country.

A recent study conducted by Ecofys/German Watch for the World Wildlife Fund and E3G established a ranking of countries with the best policies and measures aimed at reducing global warming while boosting the economy. Germany took first place, notably thanks to the Energy Conservation Act (EnEv) of 2002, amended in 2007 and in 200, which puts a clear emphasis  on buildings as the principal source of energy consumption. At the federal level, the EnEv imposes the following measures:

  • Major renovations of every aspect of a building, including the roof, exterior walls and windows, must result in at least 30% greater energy efficiency than before. The performance of insulation should be systematically improved by at least 15%.
  • Heating, hot water, ventilation and cooling systems should be improved to include energy efficient systems or renewable technology, like solar thermal energy.
  • The progressive replacement of fossil fuels with renewable energy should reduce CO2 emissions.
  • Energy Performance Certificates are compulsory and the experts issuing them must be licensed.

Financing ambitious measures with market tools: the example of KfW

In addition to the obligations imposed by regulation, one of the reasons for the actual success of Germany’s energy savings policy is the role played by the public investment bank KfW, which finances in large part the renovation efforts of the existing building stock. Rather than direct funding, the federal government injects funds into KfW, which finances programs chosen beforehand. The government negotiates the conditions of these programs, like access to subsidies, the amount of funding available or the adjustment of interest rates.

KfW’s flagship program, named the “CO2 Building Rehabilitation Program,” was replaced in 2009 by the “Energy-efficiency Refurbishment Program” (Energieeffizient Sanieren in German).

Within this program’s framework, KfW proposes grants and loans financed either by the national and international financial markets or by public funding injected by the German federal government. Funds raised by KfW are then lent out to banks who can themselves offer KfW loans to consumers.

The basic principle behind KfW loans are that they become more attractive as the sought-after level of energy savings approaches that of the new building standard KfW Efficiency House 55 – 115, laid out in EnEv.

In spite of impressive results, a huge savings potential remain untapped

Between 2006 and 2009, the KfW program alone allowed for the refurbishment of one million buildings and the construction of 400,000 highly efficient buildings. The number of jobs created by the sector is estimated at 240,000 per year, for a total of 894,000 at the end of four years. 27 billion euros were distributed in loans and subsidies between 2004 and 2009, for a total investment in building efficiency of nearly 54 billion euros. (Figures drawn from Brookings Institute, March 2011).

The German building stock is estimated at 39 million units, around 80% of which were constructed before 1979. So far, an estimated 9 million units have met the minimum refurbishment standard under German law, just a glimpse of the immense potential of this initiative for both economic development and carbon emissions reduction.

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