'Accelerating renovation for energy efficiency is vital'

May 27, 2021

Interview with Kristofer Fichtner

Kristofer Fichtner is a serial entrepreneur and impact investor. With a background in information systems and the energy industry he moved into the adjacent real estate sectors and specialized in digitizing construction processes as well as distributed renewable energy systems for residential and office buildings. Early in 2021 he also became an advisor to Foundamental.

Kristofer, you are the co-founder of Thermondo and ecoworks. While Thermondo reinvented how home owners buy their heating systems and how the process is efficiently handled, you went a step further with ecoworks to upgrade the insulation of millions of European multi-family homes. It does not seem to be exaggerated to say that you are pursuing a higher purpose. What brought you to the build & built world?

I started my career in 2007 as a management consultant advising blue-chip utilities in various projects. Then, in 2011 and 2012, I travelIed the world and began asking myself how I really want to spend my time on this planet. It was clear to me that I was not only looking for something to maximize my own personal wealth but to also positively impact our society. Given that fighting climate change is the greatest challenge of our generation it was a pretty obvious solution to my question.

As a logical next step I ran a few analyses to identify the industry with the largest potential to reduce carbon emissions. That’s how I got into the build & built world.

Turning the build & built world carbon neutral is a tough nut to crack.

That is true, but I’m not optimizing for simplicity. Making sure that our planet does not heat up more than it already does is the pressing need of our time. To me, fighting climate change is an obligation for every person living on this planet who can afford it and has the required skills. The build & built world has a gigantic lever on our climate but is vastly under-innovated. We cannot afford not using this lever. And we have to start rethinking innovation now: turning the build & built world carbon neutral is not as simple as electrifying the powertrain of a car.

The legislative pressure on the industry starts to build up. In Germany, CO2 emissions emitted by heating systems are taxed as of January 2021…

Indeed. The tax starts at 25€ per ton of CO2 and is planned to increase to 55€ per ton of CO2 until 2025. According to scientists the fair price per ton of CO2 should be somewhere between 180€ and 400€. My guess is that depending on the outcome of this year’s federal parliament election in Germany the tax may be topped up.

The million dollar question is who is going to pay the bill…

The legislative framework in Germany used to be very clear on this: it was all to be paid by the tenants. But we have seen talks about making a 50:50 split with the building owners recently.  

However, this regulation is not set in stone and we might see more changes coming. The percentage of Germans living in apartments they own themselves is at roughly 47%. In Berlin it’s only around 17%. Those people living in apartments they rent do not have any influence on how their heat is produced so pressure to change to cheaper low-CO2 sources is not high enough. Overhauling the legislation is a balancing act. There are fierce debates.

How can a solution look like?

We’ll probably get to a compromise in which both tenants and building owners will have to pay a certain share of the CO2 tax depending on the energy efficiency level of the building. In the long run, that sort of compromise yields the intended outcome: reducing the CO2 footprint of new builds and retrofitting the existing building stock for energy efficiency.

That solution puts a strain on the financial models of building owners – too much?

That depends on multiple factors such as CO2 costs, energy efficiency levels of buildings in the portfolio, leverage, refinancing costs, etc. At ecoworks we analyzed a few different scenarios and do not anticipate too much strain on building owners at current CO2 costs.

Once we reach costs of €100-200 per ton of CO2 emitted, the situation may become more challenging, specifically for those building owners that operate at tightly calculated budgets, especially when using a lot of leverage in financing the buildings.  

From my perspective, there is a more immediate challenge:
Some countries in Europe like the Netherlands, UK and France have passed regulations prohibiting the renting out or price increase of office spaces and/or residential buildings if they do not achieve minimum energy efficiency standards.

While the concept of “stranded assets” was rather abstract in the past, it now becomes a very tangible scenario. The potential impact on a building owner’s financial model is much more immediate and much harder than a CO2 tax.

Europe’s largest market alone has roughly 19.2 million residential buildings. Within Europe we are talking north of one hundred million. Across the globe, hundreds of millions of residential buildings. Are we on a good trajectory to upgrade the building stock’s energy performance?

Not really. The rate of renovation in Germany is currently slightly below 1% per year. Knowing that the legislative pressure continues to increase, building owners should have already started to secure contractor capacities for renovation to avoid ending up with stranded assets.

Ecoworks’ solution is one way to speed up the renovation rate. What else can be done?

There is no silver bullet to the challenge. In a nutshell, we need to increase the supply of skilled labor but in particular put this limited resource to use more efficiently.

That includes a smarter allocation of tasks on job sites as well as various industrial automation technologies and autonomous machines. It also includes seemingly simple solutions like making the jobs more attractive.