Earlier studies have demonstrated that barriers are often cited in explaining why renovations do not include energy-efficiency measures. We became interested to see how different barriers appeared and disappeared and also transformed during the process. In the following, we will discuss two quite specific situations when energy measures were discussed and where the decision on whether to implement a measurement or not changed during the process. But we start by giving a more general overview of the renovation processes studied.
General overview of the renovation process in the studied housing company
We will first describe the renovation process focussing on the second phase, the planning and design phase, in which the content of the tender document is determined (Fig. 1).
The planning and design phase in our case studies was conducted by the property developer jointly with its consultants. The consultants hired in this phase were chosen from a list of consultants contracted through public procurement for 3 years, a new procurement being conducted every 3 years. In our cases, the planning and design phase can be seen as an action planning phase in which goals are broken down into sub-goals and details are clarified or simply deleted from the agenda. This phase ends with a tender document.
The project manager and the consultants initiate the planning and design phase, in which specific renovation measures are discussed and decisions are made about what to include in the renovation. When the project manager has a first draft of the tender document incorporating the suggested measures, this is presented to the investment group. This group consists of the public housing company’s management team, which comprises the CEO, real estate development manager, business unit director, controller, and real estate manager. It is the group’s task to make a preliminary decision on the project orientation. In preparation for the final investment decision, the investment group evaluates the selected measures and ideas and decides whether they seem financially feasible. The final investment decision comes later in the process, and the preliminary orientation decision is intended to make the investment decision process smoother so that little will need to be changed in the end. However, a project can go back and forth between planning and design meetings and the investment group, and orientation decisions can be made several times during the planning and design phase. The final investment decision determines what the tender document will ultimately look like (housing company internal process document; interview, e.g. Internal 4, 5, 6).
An economic framing of the renovations
More or less, all the interviewees meant that it was “money” that decided what energy-efficient measures to implement. No LCC perspective was applied and in the end energy-efficient measures were often regarded too expensive.
So first you want to do it, then it will cost and then you do not do it. Where it might, if one factored in 30 years, the cost may have payed off […]. (External consultant 1)
The economic restrictions could also be seen during the project meetings since the project group members themselves adapt to an economic argumentation. Even the standard energy measurements, which are commonly used by the housing company, were not always implemented due to initial cost premium and lack of LCC perspective. Measures were discussed in relation to whether they had a pay-off time of more or less than 6 years. If the pay-off time was presented as less than 6 years, they were implemented. During the project meeting, such measures were the installation of energy-efficient appliances in the apartments and the laundry room and also the installation of a heat recovery ventilation (observation notes, e.g. 17 Jan 2013; 14 Feb 2013; 15 Jan 2014).
The method for calculating the pay-off time of energy-efficiency measures was done according to an own defined formula. The housing company representatives reflected on the fact that they did not yet really know how to calculate the pay-off time of energy-efficiency measures. They stated that the formula they used was too pessimistic compared with others, with the result that energy-efficiency measures were easily rejected.
Yes, we are looking at different calculations … we have said that we will implement energy measures with a maximum pay-off of six years. … Then we opt for them without an investment decision. But it is difficult in the case of changing windows … insulating façades … and we have also noticed that other companies get a better pay-off than we do. We have concluded that they probably just consider the additional costs, for example, of adding a third pane to a window, and then they got a different pay-off time … so we are looking into that now. We feel that we calculate this too pessimistically. (Investment group 3)
Energy calculations were surprisingly absent during the meeting and had low impact on the decisions. In the projects, an HVAC or energy consultant was assigned to do energy calculations, but the calculations were not presented at the meetings and it was unclear how and to what extent these calculations actually were done and if so how they were used. No energy calculation was made for any of the renovation projects based on data or statistics of how much energy the buildings were consuming before the renovation, nor was a goal set regarding how much energy saving should be achieved with the renovation. The figures used were based on past experience and ‘standard buildings’ (interview project leader 1). Calculations were said to be made, but it was not easy to get hold of them in all projects and in one project no one could find them or knew who had them. The lack of calculations contributed to a process characterized by bounded rationality where decisions based on rule of thumbs were common.
Next, we will look into a conflict that appears around LED lamps and if to install them or not. In this conflict, several barriers appear related to contractural relationship, lack of common goals, assymetric information and split incentives.
The meaning of electricity efficiency measures, the case of LED lamps
Within the housing company, there was a common view that as many energy-efficiency measures as possible should be implemented within reasonable economic limits. We could however observe that there was lack of intention to save electricity. The common view was electricity is not an issue worth spending time on. The electricity consultant said:
I have given the electricity manager at [name of the housing company] a list of measures that would save electricity and have short pay-off times, but they have not been implemented. … There are a lot of measures to implement, but the problem is that electricity [consumption] is too small in relation to the total. So you don’t save 25% in total if you reduce the electricity consumption by 50%. To save 25% you need to include HVAC. (External 2)
One of the HVAC consultant said:
They don’t care so much about electricity – there is so little … In the big picture, it costs nothing… Even if you save 50%, it is like a drop in the ocean. (External 3)
In general, one can say that there was a common understanding that the measures making the greatest difference regarding energy efficiency were related to ventilation, window replacement, laundry rooms, heating systems and insulation as well as reduced air leakage.
However, in one of the projects LED lamps became ground for a rather prolonged conflict. The question concerned if to install LED lamps in the apartments or not. The discussion took place between the area manager, the project leader and the external electricity consultant. The area manager was a proponent of LED lamps because he meant they are energy efficient, will be widely used and popular in the future and they were asked for by the tenants. The external electricity consultant strongly argued against LED lamps and said amongst others:
Yes, I have the opinion that it is lobbying, it is too much trust in this. Let the others make the mistake, we do not need to do them. [...] The energy saving is not so great as people think, there is less energy than a low-energy lamp, but it is not that amazingly much lower […]. (External 2)
During the meetings of the project group no obvious decision was taken. The discussions went back and forth. We asked the project leader and area manager what has happened in the LED discussion. The first impression, after talking to the project leader, was that it was decided not to use LED lamps. The reason why LED lamps would not be selected was that the technology was regarded as being too immature and therefore the risk would be too big:
So we want to wait a bit more so that we do not do any mistakes that it becomes more expensive in the end and we have to exchange the fixtures… (Internal 6).
About 1 month later, we interviewed the area manager. Then it seemed like the area manager had put pressure on other professionals in the project group and LED lamps were selected after all.
I don’t think you can just see to the cost, but you must also have an attitude about what we are doing and sometimes it must simply be allowed to cost a little more. [...] And I think the relationship between us and the consultants are wrong. I had to have a discussion first with the project leader, who referred me to the … person internally responsible for electricity, who has expertise in this, who then referred me to the real estate development manager, who said that this is a strategic question and it is uncertain who takes the decisions. And then I became really angry. You have to take responsibility for the decisions and then you have to know who decides and say what our position is in this. But then we agreed that LED lamps would be implemented. (Internal 7)
In this case, several barriers appear. The renovation process is based on a complex series of contractual relationships, in which asymmetric information and different goals contribute to split incentives in the project group. In this case, it was interesting to see that it was the external consultant pleading against LED because it was an unproven technology, which was expensive with a high risk of failure. The internal area manager on the other side meant it was an energy-efficient measure that should be implemented even if the cost became slightly higher. There were no calculations, scientific studies or similar presented and bounded rationality characterized the conflict. Other barriers were inertia and lack of a common goal to evaluate the suggested measure against.
The next example concerns the heating system.
Keeping or changing the heating system
The share of multifamily dwellings heated by district heating is large in Sweden compared to EU. In apartment buildings, district heating is the dominant source of heat with around 64% (Meijer et al. 2009). All buildings in the three renovation projects were attached to district heating. District heating is also used for water heating. Both heating and water-heating is included in the rent, while electricity has individually metering and charging. This made heating a much bigger cost than electricity for the housing company.
This example is how the energy system was discussed in one of the renovation projects. In this case, the orientation decision process was protracted and the project was discussed several times by the investment group when meeting to make decisions.
During the project meetings, it was soon clear that the heating system needed replacement. The main reason was purely technical. Such heating systems were said by the consultants to have a life span about 30 years, but the system in renovation project 1 was over 50 years old and was described in the meetings as a “ticking time bomb” that could break down any time. Of course, no one could know exactly when the system would break down, but it would likely do so within the next few years. If that happened, then the whole renovation would essentially need to be redone, which would be costly and time consuming. The project group agreed that the best recommendation for the investment group was to change the heating system.
The project presented to the investment group included replacing the heating system. The investment group decided, however, not to replace the system because it was deemed an unnecessary cost. The extra cost of replacing the system was estimated at approximately EUR 22,000. The whole renovation project was estimated to cost approximately EUR 1,200,000, so the cost of the heating system replacement, though substantial, was not a huge part of the total cost.
When this first decision was presented to the project group many members, both internal and external, became quite upset. One consultant later explained in the interview why he had become so upset:
But now we are doing a total renovation. And then I asked what we should do with the heating system. It is 40 to 50 years old. Will we replace it or should we keep it? The project manager said that we should replace it. But that costs, I said. No, there is nothing to discuss, he said. … Everyone, except those in charge, agreed with this. I mean, they don’t know what they are doing. They don’t understand the decisions they make. They look only at the money, the finances, not the consequences. (External consultant 3)
Internal employees from the housing company were also critical of the decision made by the investment group:
Internal 4: No, I don’t like that we didn’t replace the heating system. It was a pity, I think. They didn’t understand that they would save … it will be almost as expensive anyway and it will complicate the process to keep the old pipes.
Interviewer: But why could you replace the system in project 2 but not in this project?
Internal 4: No, I cannot answer that.
Interviewer: Because it would be much more expensive?
Internal 4: No, I mean … it is … but … I think that it will be much more expensive [not to replace the system]. No, I think that it was a wrong decision. (Internal 4)
Another internal participant believed that it was necessary to replace the system from a technical standpoint:
Because, if you start screwing and banging, then the risk is that it will start to leak. No, this is a decision made at another level, where the money rules. (Internal 5)
One external consultant felt that the decision from the investment group was so unacceptable that he decided to call a member of the investment group to try to convince him that the investment group needed to reconsider the decision. The representative of the investment group refused to discuss the matter with the consultant, and instead referred him back to the project manager. This consultant saw it as a matter of professional pride to attempt to have the decision changed:
No, I don’t want to stand there with my head hanging when everything is finished and it starts to leak and everyone in town is talking. The industry is not that big … Who is the consultant? Yes, it is [consultant’s name] and he didn’t say anything. (External consultant 3)
One member of the investment group explained why they were reluctant to replace the heating system:
From the beginning we thought that we should change [the system] and then I was actually the one who said: Why should we replace the heating system, no one does that? If you owned the building you would never change the system; why should we do that just because we are [the name of the housing company], why? … No other private company would replace it. Answer that. (Investment group 2)
Another member of the investment group reflected on the problems connected to the fact that the investment group does not follow the planning and design phase and does not know how various issues have been discussed before being presented to them:
Sometimes I think … we undertake quite thorough investigations, we have consultants, we think internally, we have experts and everything is going on for quite a long time, and then you end by approaching the investment group that has not participated in this journey at all. And they say, “No, this is not possible, it is crazy”. The system must stay, and then we try to say that we have discussed this, but okay, we take it another turn then. (Internal 3)
Discussion of the heating system continued for several months before the investment group finally discussed the issue again. By then, informal contacts had been made. The calculations and the arguments were still the same the second time, but the results were the opposite. The new decision was now to replace the system. The second time the investment group accepted the arguments put forward that it was too risky not to change the system. By just studying the material presented to the investment group nothing had really changed, but the informal contacts had resulted in a change of mind by the members of the investment group. To the investment group this did not seem to be a major reversal or indicate a loss of prestige:
With energy saving and everything, sometimes you need to step aside and … I mean, we could keep the old heating system even though we know that it is not good to keep pipes that are 40 years old, but if there is no money, then we need to take a chance. But sometimes, of course, you need to back off. (Investment group 4)
However, one person in the investment group, even after the decision was made to replace the heating system, was reluctant to acknowledge whether that was the best decision. He was quite convinced a heating system can last well over 50 years without problems, and questioned that the replacement was an investment at all.
The heating system, which is a great thing to discuss. Why should we replace the heating system? They say yes, it is embedded pipes and there is a great risk that there will be damage. But… it's just a pure cost, it is a cost that is taken from year one ... that is no investment... Normally, you do not replace it, it will last one hundred years. (Investment group 2)
The decision to replace or not to replace the heating system is an example of how economic arguments change during the process and are dependent on how they are defined, as costs or investments, and if they are discussed in a long or short-term perspective. The case also exemplifies an organisational barrier within the housing company. It seems as the idea of having an investment group that is not deeply involved in project planning and yet makes the final decision on renovation implementation can lead to a barrier in itself. The investment group lack knowledge of both technical preconditions and of how the project group reasons about a problem such as the heating system. The investment decision is made in isolation from the work in the project group, which creates an information gap and problems with adverse selection where the project group knows more about the energy performance of a technology than the investment group does, the investment group select measurements on the sole basis of price.