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Energy xxx (2014) 1e11
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Energy
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Energy retrofit of residential building envelopes in Israel: A cost-benefit analysis
Chanoch Friedman a, Nir Becker b, *, Evyatar Erell a
a Blaustein Institutes for Desert Research, Ben-Gurion University of the Negev, Israelb Tel Hai College, Tel Hai, Israel
a r t i c l e i n f o
Article history:Received 25 April 2014Received in revised form4 June 2014Accepted 6 June 2014Available online xxx
Keywords:Energy conservationComputer simulationEnvironmental benefitsExternalities
* Corresponding author.E-mail addresses: [email protected] (C
ac.il, [email protected] (N. Becker), [email protected]
http://dx.doi.org/10.1016/j.energy.2014.06.0190360-5442/© 2014 Elsevier Ltd. All rights reserved.
Please cite this article in press as: Friedman(2014), http://dx.doi.org/10.1016/j.energy.20
a b s t r a c t
It is often taken for granted that thermal renovation of building envelopes not only conserves operationalenergy and reduces the environmental impact of generating electricity, but is also economically bene-ficial to the individual homeowner. While this may be true in cold climates, it may not necessarily be truein the case of Israel, most of which has a relatively mild Mediterranean climate but parts of which are hotand arid. This study, which sought to address this question, comprised two stages: a) Analysis of thedirect economic benefits to the individual homeowner of different strategies for refurbishing the en-velope of an existing building; and b) Examination of other (external) benefits to society arising fromelectricity conservation resulting from such retrofit. The analysis demonstrates that in Israel, givencurrent electricity prices and building construction costs, insulating the roof is a cost-effective strategy e
but the payback period is 15e30 years, making it unattractive to most homeowners. Insulating theexternal walls of a typical apartment results in electricity savings comparable to only one third of theretrofit cost, and is thus not economically viable. Accounting for the external benefits to society doesmake some marginal retrofits more attractive, but not sufficiently to justify most envelope retrofit op-tions. This highlights the importance of adopting stringent standards for new construction, since themarginal cost of additional thermal insulation in new buildings is far lower than the cost of renovatingthem.
© 2014 Elsevier Ltd. All rights reserved.
1. Introduction
Approximately 40% of global energy use is attributed to build-ings e residential, office and commercial [1e5]. Residential build-ings, in particular, are major consumers of energy in most countries[6e9] and homes produce about 25% of the CO2 emissions of the EU[10]. Israel, where electricity consumption in residential buildingsamounts to some 16 TWh annually, or about 30% of total con-sumption [11], is no exception.
Household energy consumption depends on the local climate,building properties and occupant behaviour [12]. The breakdown ofdomestic energy use into different end-use categories, such as airconditioning, water heating and appliances varies from country tocountry. HVAC (heating, ventilation and air conditioning) has beenestimated at 25e50% of total residential energy [13], although thereare substantial discrepancies among data sources even for the same
. Friedman), [email protected] (E. Erell).
C, et al., Energy retrofit of re14.06.019
country. McKinsey & Company [14] estimate that space condi-tioning (heating and cooling) comprises some 30% of residentialelectricity consumption in Israel as well.
It is thus clear that any plan to moderate the rate of increase inIsrael's energy consumption and to meet its international obliga-tions to reduce emission of CO2 must address the energy requiredto heat and cool buildings. Furthermore, because new buildingscomprise only a tiny proportion of the building stock e only about1.6% is added to the building stock in Israel each year e existinghouses must be renovated too [3,15]. However, refurbishing exist-ing homes to promote energy efficiency may require differenttechnical solutions to those available to designers of new buildings:Unlike a new home designed for energy efficiency, renovating ahome must take into account existing construction features thatcannot be modified easily [16].
The cost of renovation depends on numerous factors, includingthe current state of the building stock, local building practices inthe construction sector, availability of materials and labour, andlegal and regulatory constraints. Likewise, the benefits also dependon local characteristics (such as climate) on one hand and
sidential building envelopes in Israel: A cost-benefit analysis, Energy
C. Friedman et al. / Energy xxx (2014) 1e112
behavioural components (such as thermal preferences and lifestyle) on the other hand. The balance between the cost of retrofitand the expected benefits may determine whether a specificretrofit plan is carried out [17]. The economic approach to the studyof retrofit typically examines the direct costs and benefits of therenovation using tools such as net present value, but studies mayalso consider the embodied energy [18]. In order to use economictools, the lifetime of the project should be estimated and anappropriate discount rate for the period determined [19].
The potential for energy savings in residential buildings hasbeen investigated inmany studies [20e23]. Although a reduction ofas much as 70e85% is possible in older, poorly built homes[10,24e25], the investment required may be very high. Forexample, the investment required to reduce residential heating andcooling bills by 80% from average 2010 levels may be as much as V300 per m2 in Germany [26]. It is unlikely that such an investmentcan be justified on narrow economic grounds.
Clearly, a larger investment is required to achieve successivelyhigher levels of energy saving, because once savings from low-hanging fruit have been realized, further gains become relativelymore expensive. The fact that some studies have demonstrated thatbuilding renovation is effective from the point of view of the indi-vidual renovator [19,27], while others have not [24,25] may thus beattributed to the extent of retrofit undertaken. Studies also differ intheir methodology of assessing the cost of the energy retrofit. Someassume that improvements in the thermal envelope are only carriedout in the course of ‘normal’maintenance, and assign only the addedcost of, e.g., thermal insulation [28], while others assign the full cost[19]. Galvin [19] showed that for Germany, retrofit to the lowestacceptable standard is an order of magnitude more cost-effectivethan retrofit to the highest level, in terms of both energy saved pereuro invested andof the return on investmentover the lifetimeof therenovations, independent of fuel prices. Nevertheless, becauseseveral studies have shown that a long period is required to recoverthe investment in some types of energy-saving building renovation,the subject is worthy of further study. Soratana andMarriott [27], forexample, reported that the payback period of renovating a typicallow-income residence in the U.S. was nearly 35 years.
Retrofit of buildings may deliver benefits both to the occupants,directly, and to society at large. The former are manifested in theform of the reduced cost of building heating and cooling, as well asin improved internal environmental quality. SBS (Sick BuildingSyndrome) is a well-recognized phenomenon and many new airconditioned buildings exhibit few, if any, of the effects associatedwith it, but many older homes still suffer from poor air quality.Improved living conditions may result in potentially large savingsto the individual and to society [16], and are particularly significantfor disadvantaged populations [2,9]. Such societal benefits aremoredifficult to quantify because they are ‘non tradable goods’, and assuch are difficult to translate into financial terms. Studies in the US[2] and New Zealand [29] found that about three quarters of thebenefit from renovation comes from reducing energy consumption.As much as one quarter is attributed to improved thermal condi-tions in the buildings, especially in the case of low-income familieswho cannot afford to heat or cool their dwellings to acceptablelevels (fuel poverty) [30,31]. Additionally, because there are fewmetrics to evaluate the overall contribution of societal effects to anindividual's quality of life, they are rarely reflected explicitly in themarket value of an apartment and there is little incentive to takethem into account. Hence, they generally do not affect economicdecisions by the individual [2,32], although there is some evidenceof a developingmarket willingness to pay for societal benefits (or atleast for the appearance of promoting them), as indicated by apremium for commercial ‘green buildings’ that are certified ac-cording to various voluntary schemes such as LEED or BREEAM [33].
Please cite this article in press as: Friedman C, et al., Energy retrofit of re(2014), http://dx.doi.org/10.1016/j.energy.2014.06.019
Building retrofit may address various deficiencies in the buildingand its systems. Substantial research has been carried out onrefurbishment of heating systems, which often delivers substantialsavings and is characterized by short payback periods, but mostbuildings in Israel are heated by electricity. Studies in the US haveshown that retrofit of such buildings, which deals mostly with theenvelope (sometimes referred to as the ‘shell’) typically haspayback periods in excess of 20 years [34]. Nonetheless, thermalinsulation is a basic element of the building, and has thus been theobject of incentive programs in several countries. Unlike minoractions such as weather stripping which are cheap, effective andeasy to implement, installing thermal insulation is typically acomplex and expensive task and is unlikely to be undertaken byhomeowners without government incentives.
In view of the above, our purpose in this paper is twofold: First,we intend to examine whether in Israel, a Mediterranean countrywhose climate is relatively mild, thermal renovation of the buildingenvelope is economically beneficial to the individual homeowner(considering only the direct benefits of reduced energy consump-tion); Second, we intend to assess the economic benefits from asocietal point of view, when market failures are internalized andare taken into account as well. Such analysis may inform debate onenvironmental as well as other external issues and justify potentialgovernment policy intervention. One such policy is examinedthrough a closed tax system that covers the cost of carrying out aretrofit of all roofs in the country.
2. Methods
Several renovation strategies for the envelope of residentialbuildings were selected for evaluation. The benefit of each strategywas assessed by comparing the energy requirement for climate-conditioning of typical apartments before and after retrofit, bymeans of computer simulation. The cost of each retrofit action wasobtained from a sample of construction companies, and comparedwith the direct economic benefit from energy conservation for eachof the retrofit options. The other external benefits of reduction inelectricity demand, such as avoided air pollution, were thenexpressed in monetary terms to internalize external costs and toprovide an estimate of the overall benefit to society from energy-saving retrofits.
2.1. Identifying energy-effective retrofit techniques
As noted above, the relative contribution of various retrofitscenarios to the buildings' energy efficiency was quantified bycomparing the existing configuration (referred to as the ‘base case’)with a series of improved configurations incorporating variousimprovements. Renovation alternatives examined retrofit of threetypes of building envelope elements:
Walls: Thermal insulation of various thicknesses was studied,applied either to the external surface of the walls or on the buildinginterior. While the former is technically more complex and requirescooperation among all apartment owners in a building, the latter issimpler to install but slightly less thermally effective for a giventhickness of insulation, and comes at the expense of valuable in-ternal space. In the case of external insulation, the cost includedstucco rendering and paint as well as erection of scaffolding, inaddition to polystyrene insulation boards of different thicknesses.For internal insulation, the cost estimate included, in addition tomineral wool batts, gypsum boards on a metal frame, new windowframes and painting e but not relocation of plumbing or electricitysockets.
Roof: Two alternatives were examined for improving the energyperformance of flat roofs: painting the roofs white or installing
sidential building envelopes in Israel: A cost-benefit analysis, Energy
Fig. 1. The multi-story apartment building used in the case study.
Table 1Description of the external building elements.
Building element Materials and thickness Thermal conductivity(U value), W/m2 K
External walls 20 cm hollow concreteblock, plastered on both sides
2.07
Party wallsbetweenapartments
20 cm hollow concreteblock, plastered on both sides
1.75
Ground floor 14 cm concrete slabwith terrazzo tiles on sand
3.47
Intermediatefloors
14 cm concrete slabwith ceramic tiles on sand
3.25
Roof 14 cm concrete slab,with aerated concrete(average thickness 10 cm)sloped to the drains
2.64
Windows wooden frame with asingle clear-glass pane
4.90
C. Friedman et al. / Energy xxx (2014) 1e11 3
more thermal insulation.White roofs have receivedmuch attentionin recent years as a cheap alternative to thermal insulation inwarmclimates [35,36], and in addition to reducing air conditioning coststhey contribute to mitigating urban warming and global climatechange. It was assumed that to maximize the benefit from high-albedo roofs, the paint would be renewed every 5 years. The roofinsulation option consisted of installing extruded polystyrenepanels above the water proofing layer, with 5 cm of gravel ballast.Installation of green roofs, also the subject of much recent research[37,38], was not considered because such roofs are less cost-effective than white roofs in most locations [39], especially whereirrigation is required for their maintenance and cooling effect, suchas Israel [40].
Windows: Two options were examined e replacing old, ill-fitting single-glazed wood-frame windows with double-glazedaluminium-framed units; and the addition of fixed externalshading comprising both a horizontal overhang and vertical fins,complementing the operable blinds that are standard in mosthouses in Israel.
The effects of thermal insulation depend on the thickness of thelayer installed, but increasing the thickness beyond an optimumvalue results in diminishing returns. To establish the most effectivethickness for both walls and roof, independent studies were firstcarried out for each of Israel's climate zones. In both cases, theoptimum insulation was found to be the equivalent of approxi-mately 5 cm of polystyrene. Only these configurations were later
Fig. 2. The semi-detached house used in the case study.
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analyzed in conjunction with other improvements to the buildingenvelope.
2.2. Properties of the case-study buildings
Two different residential prototypes were chosen that representtypical buildings constructed in Israel prior to the establishment ofthe current thermal performance standards. A 3-story apartmentbuilding selected for the study is similar to many built in Israelduring the 1950s and 1960s (Fig. 1). The building is comprised of 12apartments whose original size was about 67 square metres, andhave since been enlarged to about 88 square metres each.
Semi-detached houses, which have become more commonsince the 1980s, were represented by a house built in KibbutzNachshon that is comprised of two apartments with an area of155 square metres each (Fig. 2).
The materials and construction of the apartments that served asthe base case for the study are summarized in Table 1.
2.3. Building energy simulation
The current study is limited to retrofit of the building fabric anddid not include building heating or cooling equipment or replace-ment of home appliances and lighting fixtures. The estimation ofenergy requirements was carried out using the ENERGYui interface[41] for the EnergyPlus building thermal simulation software [42].EnergyPlus simulates a building's thermal load based on adescription of its construction and mechanical systems. The pro-gram calculates heating and cooling loads necessary to maintain aset point temperature or temperature range. EnergyPlus is builtupon DOE-2.1E and BLAST, combining their functions and stan-dardizing the programming language for improved model usageand flexibility. The program is an extremely flexible and capablesimulation tool [43]; it provides a detailed breakdown of con-sumption according to sources; and it is accepted as an aid indemonstrating compliance with numerous green building stan-dards including LEED and BREEAM. ENERGYui is one of a number ofgraphical user interfaces for EnergyPlus. It compares thermal loadsof simulated residential or office buildingswith the requirements ofa reference building that complies with the requirements of IsraelStandard 5282 e Energy Performance for Buildings and is used as atool for assessing the energy rating of buildings under the standard[44]. Outputs are represented as an efficiency rating for each in-dividual apartment and for the building as a whole, but the soft-ware also provides a detailed breakdown of energy requirements.
sidential building envelopes in Israel: A cost-benefit analysis, Energy
C. Friedman et al. / Energy xxx (2014) 1e114
Simulations were carried out for two primary building orien-tations e north-south and east-west, in each of Israel's four climatezones. The heating set point was fixed at 20 �C, and cooling at 24 �C,both in line with requirements for the reference building specifiedin Israel Standard 5282. Internal loads and building occupancywerelikewise fixed following the standard. Windows were assumed tobe partially shaded by external blinds (40% exposure in summer,50% in winter). Night ventilation in summer allows 3 air changesper hour. Windows are closed the rest of the time, allowing only 1air change per hour by infiltration. Heating and cooling areassumed to be provided by heat pumps (split air conditioners) witha COP of 3.0 in both modes.
2.4. Climate zones and major cities
Although Israel is a very small country, its climate is quitevaried, due to the effects of topography, distance from the sea andits location in a transition zone from the sub-tropical desert beltto the temperate mid-latitude regions. Israel Standard 1045 e
Thermal Insulation of Buildings e divides the country into fourclimatic zones [45]. To assess possible effects of climate onrenovation strategies, a representative location for each zone wasselected, and each of the renovation strategies was evaluated forit. Table 2 shows climate data for the cities representing theclimate zones.
As can be clearly seen from the table, there is a substantial dif-ference between the coldest city (Jerusalem) and warmest one(Eilat) both in terms of heating degreeedays (1352 vs. 338) and ofcooling degreeedays (174 vs. 1404).
2.5. Private benefits vs. costs
The cost of applying each of the proposed retrofit plans wasestablished using an industry handbook of construction costs [46]as a reference and, additionally, by obtaining quotes from severalcontractors for each of the proposed retrofit scenarios in the case-study buildings. The cost estimates employed here are thus an ac-curate reflection of current market conditions, irrespective of po-tential changes due to fluctuations in the cost of materials orimprovements in construction technology.
The benefit of each retrofit action to the individual homeownerwas calculated in terms of the electricity savings, as determined bythe computer simulation, multiplied by the residential electricitytariff. The results of this analysis are presented in terms of the netpresent value of the investment, assuming a 30-year useful servicelife and 4% discount rate. A sensitivity analysis is performed toassess the effect of potential changes in electricity tariffs during theservice life of the building after the renovation.
The study did not assess the penalty from reducing the usablefloor area of the apartment (in the case of internal insulation). Also
Table 2Climate data for major cities representing the 4 climate zones [39].
City Winter (January) Summer (July)
Temperature (�C) Heatingdegree-days(base 20 �C)
Temperature (�C) coolingdegree-days(base 24 �C)
Min Max Min Max
Tel Aviv 7.8 18.2 556 22.3 31.5 308Beer Sheva 7.1 17.7 858 21.3 34.7 455Jerusalem 6.9 12.8 1352 20.2 30.0 174Eilat 10.4 21.3 338 27.3 40.4 1404
Note: Heating and cooling degree-days are calculated relative to the heating andcooling set points established in the ENERGYui software to conform with assumedpractice in Israeli homes, which were also used in this study.
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not addressed were possible increases in the value of the propertyfollowing renovation: although there is a standard method forlabelling the energy performance in buildings, few apartments areassessed in practice, and there does not, yet, appear to be a marketpremium attributable to improved energy performance.
2.6. External benefits from building retrofit
Electricity generation contributes about 17% of the emissions ofcarbon dioxide and other greenhouse gases in Israel. It is one of themajor causes of air pollution, and is thus responsible for substantialdamage to human health and to the environment [47e49]. Theexternal benefits of reduction in demand for electricity werecalculated using the methodology proposed by Becker et al. [50].They include three components: 1) The value of Avoided NegativeEnvironmental Emissions associatedwith power generation; 2) Thevalue of peak hour cost saving; and 3) The value of delay in theconstruction of new generating capacity.
The TSB (total benefit to society), assessed as the value of indi-rect benefits resulting from energy conservation in buildings, wasestimated as the sum of these three effects, as follows:
TSB ¼ ANEEþ PHSþ VoD (1)
ANEE (Avoided Negative Environmental Emissions) e Lowerdemand for electricity leads to reductions in emission of pollutantsat power stations, according to the type of fuel used to generateelectricity. The fuel mix varies as the power company adjustsgeneration in line with demand. A detailed calculation of the time-dependent reduction in emissions gave an average value of 1.51euro cents per kWh of electricity saved. Details of the calculationare given in Appendix A.
PHS (Peak Hour Savings) e The costs of power generation varyover the hours of the day and seasons of the year, so that areduction in peak-load conditions has a greater economic benefitthan an equivalent reduction in off-peak conditions. The saving tothe electricity sector as a result of the reduction in peak hours wasestimated thus to be 0.78 euro cents per kWh. Details of thecalculation are given in Appendix A.
VoD (the Value of Delay) e Reduction in electricity consumptioncould delay the need for additional conventional power stationsand would allow more time for establishing alternative sources ofenergy. Insulating all of the roofs in Israel should save2.2 billion kWh/year, which is about 3% of annual consumption, andis equivalent to a year's growth in demand, on recent trends. Thecapital cost of building a power plant capable of producing thisamount of electricity (1260 MW capacity) and the accompanyinginfrastructure is estimated by the Israel Electric Corporation atapproximately V 1.1 billion [11]. Given a 4% discount factor and atime frame of 30 years, the annual financing cost is1.895 million euro. Dividing this sum by the annual consumption of48.947 billion kWh gives a cost saving due to a 1-year delay inconstruction of 0.04 euro cents per kWh.
The TSB (Total Societal Benefit), taking into account the actualpower generation and consumption patterns in Israel, was thusestimated at 1.51 þ 0.78 þ 0.04 ¼ 2.33 euro cents per kWh ofreduced electricity generation.
3. Results
As noted above, the economic analysis was initially carried outfor individual retrofit actions, to optimize the thickness of thermalinsulation suitable for walls and roof of a single apartment, ac-counting separately for the costs and for the benefit for each actionin terms of electricity saving. Fig. 3a and b shows the ratio of the
sidential building envelopes in Israel: A cost-benefit analysis, Energy
Fig. 3. The return from installing thermal insulation on the roof (left) and walls (right), as a percentage of the cost, both expressed in terms of the NPV assuming a 30-year servicelife and 4% annual interest.
Table 3Cost of various retrofit strategies (in V) for a 3-floor apartment building (1065 m2) and for a semi-detached 2-family house (310 m2), in Beer Sheva, and direct benefit derivedfrom electricity savings.
Detached house Apartment building
Cost Benefit Ratio Cost Benefit Ratio
1 Roof painted white 6400 2400 0.37 7300 5000 0.682 Roof thermal insulation 9900 8500 0.86 11,300 13,500 1.193 Roof painted þ internal wall insulation 17,100 5400 0.32 50,000 18,100 0.364 Roof painted þ external wall insulation 18,600 5900 0.32 55,600 20,800 0.375 Roof insulation þ internal wall insulation 20,600 11,800 0.57 53,800 27,400 0.516 Roof insulation þ external wall insulation 22,100 12,400 0.56 59,600 30,300 0.517 Roof insulation þ external wall insulation þ fixed window shading 24,100 12,500 0.52 64,600 30,300 0.47
Notes:a. Costs were estimated in Israeli Shekel at 2010 prices, converted at V1 ¼ 4.7 Shekel, and rounded to the nearest V100.b. Benefits are average electricity savings for NeS and EeW oriented apartments.
C. Friedman et al. / Energy xxx (2014) 1e11 5
benefits to the cost of installing different thicknesses of thermalinsulation, for roofs and walls, respectively, for a semi-detachedtwo-family house in Jerusalem. All monetary values are calcu-lated in terms of the net present value for an expected service life of30 years, at 4% annual interest:
Clearly, roof insulation is much more cost-effective than insu-lating the walls, as the cost of the investment is almost recoupedwithin the 30-year lifetime, even at historic electricity prices andwithout accounting for the external benefits.
Although external thermal simulation is generally consideredpreferable to internal insulation, the apartments simulated hadabundant thermal mass in internal partitions, floor and ceiling, sothe difference in simulated performance was negligible. The cost ofinternal installation, approximately V 40 per m2, was very similarto the cost of external insulation. Because the cost of the insulationmaterial itself was small compared to the labour costs of installa-tion, the thickness of the insulation installed has only a minor effecton the overall cost of retrofit. Although the return is highest for6 cm of insulation (either mineral wool or polystyrene), standardproducts currently available have a 2-inch thickness (5 cm), andhave only a marginally lower return in terms of energy saving.
3.1. Cost of retrofit
The optimal insulation was applied in conjunction with otherretrofit actions, comprising a total of 7 different refurbishmentplans with different roof, wall and window treatments. The cost ofrenovation and the benefit in terms of electricity saving were thenassessed for both the apartment building prototype and the two-
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family detached house, taking into account the respective surfaceareas of the roof, external walls and windows.
Table 3 shows the estimated costs of the seven retrofit strategiesselected. Roof treatments (painting or thermal insulation)contribute to energy savings to the upper floor only, while wallinsulation and window shading is assumed to be applied to alldwelling units.
As Table 3 shows, the benefit to cost ratio for all retrofit optionsis less than 1, except for installing roof thermal insulation on anapartment building, indicating they are not justified on the basis ofelectricity savings. The electricity saving derived from roof insu-lation on the semi-detached house is almost equal to the cost ofretrofit.
Results for other climate regions in Israel are qualitativelysimilar: although there are fairly substantial differences amongthem in electricity demand for heating and cooling, the only retrofitoption that was consistently cost effective (or nearly so) was roofinsulation.
3.2. Effect of retrofit plans on energy consumption for heating andcooling
The energy consumption of apartments before and after theretrofit is influenced both by the climate and by the location of theapartment within the building: apartments on the top floor requireconsiderably more energy for heating and cooling than interme-diate level apartments of similar plan and size. Similarly, apart-ments which are bounded on both sides by neighbouring flats, andas such have two external walls (referred to here as 'internal'
sidential building envelopes in Israel: A cost-benefit analysis, Energy
Table 4The effect of selected retrofit strategies on energy requirements for space condi-tioning apartments in Beer Sheva.
Apartment Annual heating and cooling budget,by retrofit plan (kWh/m2/year)
Floor Position ‘Base’ 1 2 3 4 5 6 7
Ground External 37.1 37.1 37.1 28.9 27.6 28.9 27.6 27.6Internal 29.5 29.5 29.5 26.2 25.7 26.2 25.7 25.7
Intermediate External 43.4 43.4 43.4 33.2 30.8 33.2 30.8 30.8Internal 33.9 33.9 33.9 29.4 28.5 29.4 28.5 28.5
Upper External 66.6 58.9 46.4 50.0 48.5 36.0 33.9 33.9Internal 59.0 51.7 37.7 47.5 46.8 32.7 31.8 31.8
C. Friedman et al. / Energy xxx (2014) 1e116
apartments), are more energy-efficient than flats that are located atthe ends of the building (referred to here as 'external' apartments)which have three external walls.
Table 4 illustrates the effect of the seven retrofit plans on energyconsumption for the case of an apartment building in Be'er Sheva.Results for buildings in other climate zones were qualitativelysimilar.
The table shows that the benefits of the proposed retrofit arequite substantial in the case of all upper-floor apartments: the mostcomprehensive retrofit strategy results in an energy reduction ofmore than 30 kWh/m2 per year, equal to almost half of the energyrequirement prior to renovation.
However, for both ground floor and intermediate apartments,the benefits are much smaller and depend on the degree of expo-sure: the 'internal' apartments which are the least exposed have theleast to gain from thermal insulation. Hence, the maximumreduction in the energy budget for space conditioning that may beexpected in an internal ground floor apartment is only about4 kWh/m2 per year, or about 13%.
3.3. Cost-benefit analysis
The return on the investment in the retrofit is presented interms of the net present value (assuming a 30-year service life and4% annual interest) and in terms of the payback period. Table 5 il-lustrates the results of the analysis for thermal insulation of the roof(only): as noted above, this retrofit strategy was found to be themost cost-effective in all of Israel's climate zones. In each case, thetable shows the result for the 'private' individual (i.e. disregardingthe value of the external benefits to society from the resultingreduction in electricity demand), and the 'total' benefit to society(which is the sum of the private and external benefits).
Table 5 shows that the benefit from the retrofit increases as theclimate becomes more extreme (either cold, in the case of Jerusa-lem, or hot, in the case of Eilat), while the economic benefit inmilder climates (Tel Aviv and Be'er Sheva) is smaller or evennegative (i.e. the energy savings are smaller than the investmentcost). If the value of external benefits to society is included in theanalysis, substantially shorter payback periods are expected in allcases. However, the inclusion of external benefits to society in the
Table 5Economic analysis of applying roof insulation to a semi-detached 2-family house and to
Tel Aviv B
Private Total P
Detached house NPV (V '000) �2.5 �0.9 �Payback (years) 68 37 4
Apartment building NPV (V ’000) 0.3 2.8Payback (years) 29 21 2
Note: In the apartment building, the effect of roof insulation was only reflected in the e
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economic analysis leads to a change from negative to positive NPVin only 2 of the 8 cases (detached buildings in Beer-Sheva and inJerusalem). The apartment building, which is much more compactthan the detached house, requires a relatively smaller investment(per unit floor area), and thus provides a better return on the in-vestment even without taking into account the external effects.
3.4. Sensitivity analysis
Several variables in our analysis are subject to uncertainty, andas such should be subjected to a sensitivity analysis: these includethe cost of the retrofit itself, the cost of electricity and the value ofthe estimated benefits to society from reduced environmentalemissions.
The cost of electricity for the base case was about 0.48 IsraelShekel per kWh, equivalent toV 0.10 (at 1 euro ¼ 4.7 Israel shekel).The analysis investigated the sensitivity of the results to potentialincreases in electricity tariffs up to a cost to the residential con-sumer of 0.7 Israel shekel (equivalent to V 0.15) e an increase thatwas considered likely to occur as a result of various external andinternal forces. Alternatively, a policy of increasing the cost ofelectricity gradually by 1 or 2 per cent per year was also considered,as a means of encouraging conservation without creating sharpone-off price shocks.
Fig. 4 presents the effect of such changes on the net presentvalue of installing roof insulation on a typical apartment building ineach of Israel's climate zones. The cost of the retrofit is indicated bythe thick horizontal lines, while the benefit is illustrated by theheight of the columns. At 2010 electricity prices of V 0.10 per kWh,insulating the roof is cost effective in all regions, even if the externalbenefits are excluded from the analysis. If electricity prices were toincrease from V 0.10 per kWh (the base case, at 2010 prices) to V
0.15, the investment becomes cost-effective even if renovationcosts increase by up to 20%. A sustained increase in the cost ofelectricity of only 1% or 2% per year greatly improves the return onthe investment, both from an individual as well as societal point ofview. Finally, if the total societal benefit is in fact greater than V
0.023 cents per kWh (the actual value obtained in our analysis), theeconomic returns from the investment will rise proportionately.
4. Pigovian tax policy
To evaluate the potential for a government policy intervention,we analyze here a finance mechanism that covers the retrofit coststhrough a temporary levy on electricity. We propose a tax whosemain goal is to finance the renovation costs, as shown in Fig. 5.
The main goal of an environmental tax is usually to changebehaviour patterns and decision making by individuals. However,in this case, we are primarily interested in a self-sustained programto finance the renovation, so full internalization of the external costis not essential. As illustrated by the figure, a full external levy in-creases the marginal cost (supply) from PS to P*S, but a partial levysuch as the one proposed here will result in an intermediate price
an apartment building, in each of Israel's 4 climate zones.
eer Sheva Jerusalem Eilat
rivate Total Private Total Private Total
1.3 0.5 �0.2 1.9 1.4 3.91 28 32 22 24 182.1 5 3.2 6.4 5.9 9.73 17 20 15 16 12
nergy budget of the upper floor.
sidential building envelopes in Israel: A cost-benefit analysis, Energy
Fig. 4. Sensitivity analysis of benefit from roof retrofit.
Fig. 5. Effect of roof insulation on the demand curve for residential electricity.
C. Friedman et al. / Energy xxx (2014) 1e11 7
level (referred to as PPT in Fig. 5). In the general case, the proceedsfrom a Pigovian tax need not necessarily be directed to retrofitactivities e so the demand curve itself will remain unchanged. Inour case, there is an important additional benefit: since the pro-ceeds of the tax are directed into retrofit activities which in turnyield energy savings, there is a reduction in electricity demand andthe demand curve itself is shifted to the left (D* instead of D). Thusthe new equilibrium is at point C rather than point A. The electricityconsumption is reduced to QC as a result of both price change anddemand shift.
To estimate the size of the levy, we use the following formula(2):
Table 6Annual savings obtained from the renovation of all the residential building roofs in Israe
Climate zone Number of residentialunits (thousands)
Annual savings per building (kWh)
Semi-detached house (2 units) A
Tel Aviv 830 4030 6Beer Sheva 755 4680 7Jerusalem 355 5300 7Eilat 60 6184 9Total saving
Please cite this article in press as: Friedman C, et al., Energy retrofit of re(2014), http://dx.doi.org/10.1016/j.energy.2014.06.019
PT ¼ R� SB � PrEd � N
(2)
where:
PT e Pigovian tax rate (euro/kWh)R e area of roofs for retrofit (m2)SB e size of subsidy for investment (%)PR e cost of retrofit (euro/m2)Ed e annual electricity consumption (kWh)N e duration (years)
The numerator gives the sum that is required to implement theproject, which is equal (in this case) to the product of the total roofarea (R), the renovation cost per square metre (PR) and the subsidyrate (SB). The denominator describes the funding source, which isthe product of the total annual electricity production multiplied bythe duration of the proposed tax.
In the case of Israel, assuming an estimated total roof area (R) of80 million m2 and a renovation cost of V 32 per m2, the cost ofrenovating all the roofs is approximately V 2.5 billion. A survey ofhomeowner attitudes found that a subsidy of 25% of the initialinvestment was sufficiently attractive to generate a substantial in-crease in the willingness of homeowners in Israel to install roofthermal insulation [45]. The total cost of such a subsidy, assumingall roofs in the country undergo renovation, is thus about V 0.65billion. If the duration of the levy is (arbitrarily) fixed at 5 years andthe annual electricity consumption (Ed) is 60,000 million kWh (or60 TWh), the required levy is approximately V 0.02 per kWh,equivalent to an increase of 1.6% over the current electricity tariff.
l.
Total saving*
partment building (12 units) Million kWh Million euros (2010 prices)
368 780 80344 820 84965 430 44437 85 8
2115 216
sidential building envelopes in Israel: A cost-benefit analysis, Energy
Table 7Analysis of the marginal cost (and benefits) of adding thermal insulation to abuilding where renovation work is already being planned, for different orientationsof the main façades.
Apartment building Detached 2-family house
North &south
East &west
North &south
East &west
Cost of insulation (V) 11,480 11,480 2976 2976Annual energy
saving (kWh)9637 9863 2295 2279
Annual saving (V) 982 1006 234 27530-year saving (V) 16,984 17,404 4044 4750
C. Friedman et al. / Energy xxx (2014) 1e118
In order to estimate the saving obtained, we need to calculatethe total roof area by type of building and by climate zone. This isgiven in Table 6 below.
Thus, the total annual electricity savings resulting frominstalling thermal insulation on all roofs in the country is about2.11 TWh, equivalent to 3.53% of the total annual electricity pro-duced currently. The monetary value of the saving is estimated atV216 million annually (at 2010 prices, equivalent to V 0.102 perkWh).
5. Discussion
The assumption that improving the thermal properties of thebuilding envelope will necessarily lead to energy saving is clearlynot justified: It has been known formany years that energy demandis affected by occupant behaviour and decision-making, which re-flects social norms as well as energy prices [51,52]. Energy demandin buildings also depends on building systems and equipment.However, appropriate design of the building fabric, and in partic-ular the envelope, has an over-riding importance. First, because it isa prerequisite for attaining high levels of energy efficiency: in itsabsence, even efficient systems and highly aware and committedoccupants will be unable to achieve truly outstanding energy per-formance. Second, because the fabric of the building existsthroughout its useful service life: while systems can be replacedand occupant behaviour modified, upgrading the structure of anexisting building is both difficult and expensive, and will neces-sarily have limited returns, as this study demonstrates.
It should be acknowledged, however, that the focus of the studyon the physical characteristics of the building may over-estimatethe energy savings in practice. Lutzenhiser [12] referred to this asthe ‘Physical-Technical-Economic-Model’ of energy analysis, whichassumes ‘typical’ consumer patterns of hardware ownership anduse and in which the behaviour of the human occupants of build-ings is seen as secondary to building thermodynamics and tech-nology efficiencies. As Rosenow and Galvin [10] note, there is asubstantial body of literature covering several decades of energyresearch that suggests predicted savings (obtained by simulation)are often higher than actual, measured savings, because of behav-ioural changes after the renovation is complete. These may includethe ‘rebound effect’, where consumers increase the level of energyservices after refurbishment, such as increasing the thermostat set-point for heating [53]; the ‘prebound effect’, where actual energyconsumption prior to the renovation is lower than simulationsindicate (often by asmuch as 30%) [51]; technical deficiencies in theretrofit, because installation of several building elements, includingthermal insulation, is more difficult in existing buildings thanduring construction of new buildings; and occupants' inability tooperate complex, new system controls properly, a phenomenondescribed by Walker et al. [54] as lack of ‘competence’.
Governments have recently sought to promote building retrofitbeyond performance levels that may be justified by the individualhomeowner on the basis of strict economic analysis. This is done fora variety of reasons, among them a desire to set inspirational goalsthat promote research and development of new technologies torevolutionize the building industry. Such policies clearly requiresubsidies. Subsidies have also been applied in several countries toovercome barriers to building retrofit in less exceptional circum-stances, often as part of a broad commitment to reduce globalgreenhouse gas emissions.
An alternative approach recognizes that renovation costs areoften compared to an overly narrow definition of benefits e theenergy savings generated e while additional, NEBs (non-energybenefits) are rarely considered. Some of these benefits accrue tosociety and to the environment, while some are personal NEBs,
Please cite this article in press as: Friedman C, et al., Energy retrofit of re(2014), http://dx.doi.org/10.1016/j.energy.2014.06.019
such as: financial gains in addition to reduction of energy bills;improved indoor environmental quality of the house; improvedhealth resulting from better indoor conditions; improved aes-thetics; and pride and contentment from improving the globalenvironment [55]. NEBs evaluated in various studies were found tobe equivalent to 50e300% of the value of the reduction in themonthly energy bill [56]. The NEBs are positive externalities toinvestment in energy saving for both the individual and for societyas a whole, and disregarding them leads to an underestimate of thereturns. It is thus in the interests of government authorities to in-crease public awareness regarding NEBs, which due to their oftensubtle and complex nature may not be a factor in consumer deci-sion making. Market failures such as non-monetization of suchbenefits may be addressed by providing consumers with an effec-tive method of valuing the contribution of NEBs in simple terms[57]. If put in place alongside certification and labelling schemes,which are being adopted in several countries, such informationcould create more demand for buildings that undergo thermalretrofits.
The barrier to building retrofit presented in the paper (namely,that retrofit costs are higher than the expected benefits) may beovercome if the energy retrofit is carried out when a building un-dergoes renovation for other reasons, such as routine maintenance,modification, increasing the building size or structural reinforce-ment [58]. Energy-saving renovation can be integrated in suchprojects and result in a better economic outcome. In such cases, themarginal cost of insulating the building envelope will be muchlower and the investment will become more attractive Forexample: the total cost of adding 5 cm thick polystyrene insulationto the external walls of a typical apartment building is estimated atV 43.6 per m2 and about V 42.5 per m2 for a detached low-risebuilding e but the marginal cost of the insulation itself is lessthanV 10.63 per m2, or aboutV 11,480 for an entire building with atotal wall area of 1080 m2, as shown in Table 7.
As can be seen from the table, when the energy retrofit is part ofan overall renovation of the facade of the building initiated forother reasons, the marginal cost of energy-conservation compo-nents alone is quite small in comparison to the energy savingbenefits for both apartment buildings and detached houses.
Even when retrofit activities such as improving air-tightness ofwindows and doors are cheap and have clear economic benefits,they may still be overlooked because they do not have additionalbenefits such as improved aesthetics [59]. Economic savings areassumed to be sufficient motivation for building retrofit, but thismay simply not always be true. The well-established finding thatdemographics affect adoption of energy efficiency measures in thehome [60] clearly extends to decisions on building envelope retrofit.
6. Conclusions
A substantial research effort has been devoted in recent years todeveloping alternative and renewable energy sources [61]. A
sidential building envelopes in Israel: A cost-benefit analysis, Energy
C. Friedman et al. / Energy xxx (2014) 1e11 9
complementary effort is required to address demand-side issues,not least in buildings, whose contribution to energy consumption islarge and where potential savings are large. As this paper hasdemonstrated, the cost effectiveness of retrofitting the buildingenvelope to conserve energy depends on the potential benefit,which is in turn affected by the initial state of the building and bythe local climate: if the climate is relatively mild, the potentialbenefit may be fairly small, even if the thermal properties of thebuilding are rudimentary. Thus, in Israel, where heating and coolingbudgets are modest, most of the strategies assessed for renovationof the building envelope, with the exception of roof insulation,were not cost-effective to the individual homeowner at currentelectricity costs. Roof insulation, though cost effective over theexpected service life, has a very long payback period.
It is often claimed that since the price of electricity does notreflect the environmental costs incurred in generating it, thenonce these 'externalities' are properly accounted for the cost ofenergy would be sufficiently high to promote conservation.Although a detailed audit of the environmental effects of powergeneration in Israel demonstrated that these external costs are notnegligible, they were not high enough to substantially alter theoutcome of the cost-benefit analysis, except in certain marginalcases.
Electricity prices are higher in most Western Europeancountries than in Israel. The Israeli consumer currently paysabout V 0.135 per kWh (2013 tariffs) while the average price inEurope is about V 0.2. This leads to smaller benefits frombuilding retrofit. However, even a mild cost increase of 1e2 percent per annum, if sustained over a period of several years, couldalter the desirability of retrofit substantially. If such changes inpricing are incorporated in long term planning, companies andindividuals can prepare for the increase in a cost effective andleast disruptive manner.
Not all building renovation measures are equally effective, so itis important that investment is directed to the most effectivestrategies. In the case of Israel, roof insulation is cost-effective evenat present prices, but the payback period is 15e30 years (dependingon the climate zone), so most homeowners will be reluctant toinstall it. Although variations among different climate zones inIsrael are substantial, the cost of insulating building walls orinstalling high-quality windows is not recovered in any of themwithin the assumed 30-year lifetime of these building elements,given reasonable assumptions regarding the cost of capital andfuture electricity prices.
In view of the relatively long payback periods of even the mostcost-effective measures investigated, promotion of building retrofitshould emphasize the non-energy benefits that may accrue inaddition to lower energy bills. Because they are hard to quantify,efforts should be made to evaluate potential non-energy benefits inthe context of specific cultural values, behaviour patterns and evendemographics of the target group.
New buildings comply with more demanding standards, suchthat their energy performance will be high in all future scenarios.Since the cost of renovation is substantially higher than the cost ofequivalent building elements in new construction, energy retrofitshould be promoted in the context of schemes that mandate(through legislation) energy improvements whenever renovation iscarried out as part of the normal lifecycle of a building. The mar-ginal cost of the energy improvements is usually small and thepayback period is short, so every effort should be made to incen-tivize such measures and to dismantle the barriers that impedetheir uptake.
Please cite this article in press as: Friedman C, et al., Energy retrofit of re(2014), http://dx.doi.org/10.1016/j.energy.2014.06.019
Acknowledgements
The research was supported by funding from the Israel Ministryof Energy and Water, under grant no. 010-11-46/20-8-2009.
Mr. Friedman was supported by a scholarship from the AlbertKatz International School for Desert Studies at The Jacob BlausteinInstitutes for Desert Research, Ben-Gurion University of theNegev.
Appendix A. Detailed calculation of external benefits
We describe in detail two of the three components of theanalysis of social benefit derived from reduced electricity demand:Avoided Negative Environmental Emissions and the value of PeakHour Savings.
Avoided Negative Environmental Emissions
Step 1: Electricity production in Israel is based on three majorfuel types: coal, natural gas and diesel fuel. For each fuel type/generation technology (f), we calculated unit cost savings asso-ciated with reducing air pollution emissions of four major pol-lutants (e): SO2, NOX, CO2, and PM, expressed in euro cents/kWh(UCSRAPf). This is carried out by multiplying the emission coef-ficient, expressed in units of g/kWh (ECfe) published by the IEC[51], by the pollution costs of each of the four pollutants,expressed in units of euro cent/g (UPCe) as published by thePublic Utility Authority-Electricity [52], and summing over e.That is:
UCSRAPf ¼X4
e¼1
ECfe$UPCe (A1)
The results of Step 1 are presented in Table A1.Step 2: For each of the three major time load tariff bands (j) e
low, medium and peak e we calculate weighted average unit costsavings associated with reducing air pollution emissions of eachpollutant type, based on the assumed marginal fuel type utilized ineach band (WAUCSRAPj). This is carried out by multiplying UCS-RAPf, by the assumed weighted marginal fuel type used in eachband (WMFTUj), and summing over e. That is:
WAUCSRAPj ¼X4
e¼1
ECfe$UPCe*WMFTUj (A2)
The actual marginal fuel type used in each band is determinedby the optimal dispatch of generation units, which, in turn, dependsupon many economic, engineering and regulatory variables andconstraints governing the electricity generation sector. Full analysisof this issue is beyond the scope of this paper. For simplicity, weassume therefore that in peak demand hours the marginal fuel typeutilized is diesel fuel; in low demand hours, the marginal fuel typesutilized are coal and gas, but we assume that any reduction inelectricity demand will be met by reduced generation by coal (dueto the high emissions associated with its utilization); in mediumdemand hours, reduced demand will be met by reduced generationby both diesel fuel (20%) and coal (80%). The results of Step 2 arealso presented in Table A1.
sidential building envelopes in Israel: A cost-benefit analysis, Energy
Table A1Unit pollution costs (euro cents/kWh), emission coefficient, unit cost savings associated with reducing air pollution and weighted average unit cost savings of reducing airpollution for SO2, NOX, CO2 and PM.
Pollutanttype (e)
Unit pollutioncosts (UPCe)a
(V cent/g)
Emission coefficient(ECfe)b (g/kWh)
Unit cost savings from reducedair pollution (UCSRAPf) (V cent/kWh)
Weighted average unit cost savings fromreduced air pollution (WAUCSRAPf) (V cent/kWh)
Fuel type Fuel type Time load tariff bands
Dieselc Coal Gas Dieselc Coal Gas Low Medium Peak
SO2 0.235 1.2 2.5 0.03 0.26 0.51 0.02 0.59 0.54 0.28NOX 0.178 2.6 2.5 0.5 0.46 0.38 0.27 0.44 0.45 0.46PM 0.699 0.13 0.08 0.01 0.06 0.04 0.06 0.06 0.06 0.09CO2 0.0005 925 872 461 0.49 0.38 0.20 0.45 0.46 0.48Total 1.27 1.31 0.55 1.54 1.51 1.31
Notes:a Source: PUA (2008) [62].b Source: IEC (2006) [63].c Diesel fuel in industrial gas turbine.
C. Friedman et al. / Energy xxx (2014) 1e1110
Peak Hour Savings
This calculation is carried out by comparing the ‘fHET’ (fixedHousehold Electricity Tariff), which is a fixed tariff, with the ‘TLT’(Time Load Tariff), which is a differential tariff that takes into ac-count the time of consumption. This differential tariff is a functionof both season and time of day. The difference between the mar-ginal cost of electricity production (reflected in the time load tariff)and the fixed tariff for electricity represents the additional costsborne by the economy due to demand at peak hours. As the vastmajority of households pay the fixed household electricity tariff,this difference is usually not taken into account by the individualhousehold. The fixed household electricity tariff and the time loadtariff, consisting of different prices for three time bands and threeseasons (summer, winter and transition), are shown in Table A2.
Table A2Time load tariff and household average electricity tariff 3/2008 (V cents/kWh)Source: PUA (2008) [62].
Season Time load tariff (TLTk) Fixed householdelectricity tariff (fHET)
Low Medium Peak
Winter 4.21 10.31 17.49
9.96Transition
(spring/autumn)4.28 8.93 13.95
Summer 4.47 11.78 18.23
We calculate the weighted average time load tariff (aTLT) bymultiplying the time load tariff of each cluster k (k ¼ 9), presentedin Table A1 (TLTk), by its relative share of total electricity con-sumption (SECk) [51], and summing over k. That is:
aTLT ¼X9
k¼1
TLTk$SECk (A3)
PHS (peak hour cost savings) are the product of the potential forelectricity reduction in kWh (PS) multiplied by the unit cost savingsduring peak hours (UCSP). The cost saving is the difference betweenthe average TLT (Time Load Tariff), presented in the former step,and the fHET (fixed household electricity tariff). That is:
PHS ¼ ðaTLT� fHETÞ$PS ¼ UCSP$PS (A4)
The value of Peak Hour Savings obtained is 0.78 euro cents perkWh.
Please cite this article in press as: Friedman C, et al., Energy retrofit of re(2014), http://dx.doi.org/10.1016/j.energy.2014.06.019
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