1、Electric Power&Natural Gas PracticeRefurbishing Europe:Igniting opportunities in the built environmentThe built environment in Europe will need to transform to achieve the EUs goals for net-zero emissions.This is challenging but will unlock societal benefits and business opportunities.February 2023

2、Getty ImagesThis article is a collaborative effort by Rory Biskupski,Gustav Bolin,Tomas Nauclr,Erik Sjdin,Bram Smeets,and Paolo Spranzi,representing views from McKinseys Sustainability Practice.Europe is facing an unprecedented energy crisis.Even though many governments have introduced support mecha

3、nisms in recent months,the average European household is still facing energy costs that are almost two times higher than the previous yearand prices are expected to remain considerably elevated than in past years for the foreseeable future.At the same time,the EU has embarked on a large-scale transf

4、ormation of its economies.Decarbonization targets and climate policies(like Fit for 55 and RePowerEU)require that emissions reduce quickly in a short time.Both European institutions and national governments have in past years rapidly introduced legislation that include hard commitments to the decarb

5、onization targets and specific policies to deliver on them.If these efforts are successful,the EU economy will look substantially different by 2030 and will have gone through a radical transformation by 2050.The built environment is a critical puzzle piece for both decarbonization and the energy cri

6、sis.Responsible for 35 percent of energy-related emissions in the EU and 32 percent of natural gas consumption,the sector must transform to enable the regions decarbonization targets to be met.This transition is unlikely to be simple.There are significant hurdles to overcome in improving the buildin

7、g stock across the EU,including structural challenges(driven by a large,old,and poorly-insulated building stock),and others such as difficulties scaling capabilities to deliver on these targets and encouraging uptake by citizens.Yet even though the path to a low-carbon buildings sector in the EU is

8、complex,its successful overhaul offers major opportunities for the continent that could reduce household energy costs,create jobs,and increase the resilience of the EU energy systems.Enhancing the energy efficiency of buildings,shifting to more efficient heating technologies,and increasing the amoun

9、t of electricity produced through decentral and low-carbon means can,in aggregate,help to significantly reduce the net energy consumptionand thus the overall energy cost of buildings.McKinsey analysis shows that,by 2030,this could save up to 30 to 40 percent on a households energy costs(including mo

10、nthly costs of power and gas and annualized infrastructure costs).Moreover,industries that are still in the process of scaling(like heat-pump production)could grow into global leaders,while existing,mature industries could be more readily available(such as solar PV production).McKinsey estimates sho

11、w that over two million new jobs could be created through this effort.Though workers might be displaced as the reliance on fossil-based power diminishes,this presents a great opportunity to upskill and retrain experienced incumbents.This article focuses on the three initiatives that have the largest

12、 capacity to substantially improve energy efficiency of buildings in the EU:drastically enhancing the insulation of homes and commercial buildings;greatly ramping up electric heat-pump installation;and strongly scaling the roll-out of rooftop solar PV.We size the opportunities for the European marke

13、t between now and 2030,offer a view on key prerequisites,and share a perspective on the implications these initiatives have for key stakeholders.The task at hand is immensethe proposed initiatives require a formidable turnaround of Europes built environment.Yet,if successful,the upside could be unpr

14、ecedented.Old and under-insulatedThe building stock within the EU offers significant opportunities for change,but the transition is not without challenges.Structural challengesThe building stock is large,old,and under-insulatedwhich poses fundamental challenges for a rapid transition.First,the stock

15、 is large,with 222 million residential dwellings(apartments and houses)and 12 million commercial buildings as of 2018.A successful transition will require that 1“Household energy price index November 2022,”HEPI,2022.2“Greenhouse gas emissions from energy use in buildings in Europe,”European Environm

16、ent Agency,2022;Global Energy Perspective,McKinsey,March 2022.3 Driven by increased energy efficiency,reduced reliance on natural gas,and lowering capital costs due to learning curve effects.4 Based on Bold Ambition pathway analysis.5“Europe energy information,”Enerdata database;“Building sector and

17、 energy demand in target countries,”Entranze database;EU Building Stock Observatory(BSO)database,European Commission;Odyssee database.2Refurbishing Europe:Igniting opportunities in the built environmentopportunities in the built environmenthundreds of millions of owners across the EU market make siz

18、eable investments in their properties.Second,this stock is disproportionately oldthe region has a low new-build rate(0.8 buildings are built annually for every 100 existing ones versus 1.1 on average for the OECD),with more than 50 percent of buildings over 40 years old.This means the overall buildi

19、ng stock improvements cannot rely on replacing old buildings with more efficient new builds.Finally,building stock that is poorly insulated will need significant work to reach modern insulation baselines.Almost 53 percent of all European dwellings are rated as“low insulation”they have an average U-v

20、alue(thermal transmittance)above 1.1W/m2K.These dwellings use a disproportionate amount of heating energy,at 62 percent of the energy in building stock(Exhibit 1).The outsized influence of poorly insulated dwelling and regional heating needs is made even more evident when looking at the country-leve

21、l data:low-insulation dwellings in Germany and France account for 30 percent of heating energy needs across the EU,even though they make up 19 percent of the building stock(Exhibit 2).Uptake challengesThe rate of improvements of the building stock has been low historically.The European Commission es

22、timates that about 12 percent of buildings undergo some level of energy-performance renovations every year,but this mostly concerns light insulations,which are the most affordable and have the shortest payback time(for example,simple draft proofing).Deep renovations are carried out in only 0.2 perce

23、nt of dwellings a year(these are interventions that reduce energy consumption at least by 60 percent).This is also the case with heat-pump adoptionabout two-thirds of dwellings still use natural gas or other fossil-fuel-based heating systems.6“HM1.1 Housing stock and construction,”Housing Market dat

24、abase,OECD,2020;Enerdata database;“Building sector and energy demand in target countries,”Entranze database;EU BSO database,European Commission;Odyssee database.7 Entranze database;EU BSO database;Odyssee database.8 Comprehensive study of building energy renovation activities and the uptake of nearl

25、y zero-energy buildings in the EU,Directorate-General for Energy,European Commission,2019.9 Entranze database;Odyssee database;EU BSO database.Exhibit 1 The EU building stock is large,old,and under-insulated.Apartment119.89448081,643102.712.459.7(25%)57.8(25%)49.4(21%)36.3(15%)349(10%)536(16%)270(8%

26、)557(16%)1,047(31%)505(15%)6.8(3%)4.8(2%)ApartmentHouseHouseCommercialCommercial53%of dwellings have low insulationLow insulation dwellings make up 62%ofenergy demandHigh insulation (average dwelling U-value 1.1W/mK)Breakdown of dwellings stock,Million(%of total)Breakdown of dwellings energy demand,

27、TWh(%of total)The EU building stock is large,old,and under-insulated.McKinsey&Company3Refurbishing Europe:Igniting opportunities in the built environmentopportunities in the built environmentThe slow uptake is not surprising when considering the costs and processes required to implement improvements

28、.To start,upfront costs can be significant,with limited to no immediate financial benefits to households(for example,payback periods often exceed 15 yearseven higher for insulation work).In addition,the actual improvement processes can be disruptive(moving furniture in and out,fixing surfaces,or nee

29、ding to temporarily evacuate homes)and can devalue properties(for example,through loss of floor space due to insulation improvements).Finally,building codes can add another layer of difficulty or complexity,further reducing uptake.Capacity challengesThe European ecosystem does not currently have the

30、 capacity to deliver the volume of installations required to meet the EUs decarbonization targets.It is missing capabilities and capacity across the supply chainfrom insufficient materials to enough manufacturing facilities and a large enough workforce with the necessary skills.The gap in capacity b

31、ecomes evident when looking at current production and installation rates versus what is necessary to reach Fit for 55(FF55)and RePowerEU targets.All deployment rates will need to grow significantly,even when compared to record 2022 figures that were driven by the energy crisis.Annual deployment of r

32、ooftop solar will need to reach one-and-half times the recent 2022 record rate of 22 GW(versus the four-year average of 10 GW a year)to reach the EUs FF55 and RePowerEU targets.0Heat pump deployment will also need to keep growing at 12.5 percent a year through to 2030 to reach RePowerEUs target of 5

33、4 million heat pumps by 2030(versus only 15 million heat pumps currently installed at end of year in 2021,and an expected additional 2.5 million to be installed in 2022).The most difficult hurdle is likely to be insulation improvements,where the Buildings Performance Institute Europe(BPIE;a not-for-

34、profit organization)estimates that deep renovations need to grow to Exhibit 2 Stock and heating energy is split by region and insulation level.High insulation (average dwelling U-value 1.1W/mK)GermanyGermanyFranceFranceItalyItalyIberiaIberiaBeneluxBeneluxNordicsNordicsSE EuropeSE EuropeOther CEOther

35、 CEPolandPolandCzech RepublicCzech RepublicIrelandIreland77449423371312542101614965599320.54633131112245,071838642463238318122226772443419237,67633,755 32,84414,92815,36219,72913,37015,2774,4821,907Source:“Europe energy information,”Enerdata database;“Building sector and energy demand in target coun

36、tries,”Entranze database;EU Building Stock Observatory(BSO)database,European Commission;Odyssee databaseStock and heating energy is split by region and insulation level.McKinsey&CompanyBreakdown of dwellings stock,Thousand(%of total)Breakdown of dwellings energy demand,TWh(%of total)0 Global solar P

37、V market outlook update:Q4 2021,Wood Mackenzie,December 9,2021;McKinsey analysis.RePowerEU targets 10 million new hydronic heat pumps to be installed by 2027,extrapolating that by 1)including air-to-air units,and 2)continuing growth to 2030;expected sales in the EU;EHPA heat pumps installed in Austr

38、ia,Belgium,Czech Republic,Denmark,Estonia,Finland,France,Germany,Hungary,Ireland,Italy,Lithuania,Netherlands,Poland,Portugal,Slovakia,Spain,and Swedenincluding hydronic and air-to-air units.4Refurbishing Europe:Igniting opportunities in the built environmentopportunities in the built environment3 pe

39、rcent of buildings per annum before 2030 for the building sector to contribute to the EUs FF55 target15 times the current average of 0.2 percent.While not impossible to overcome,each of these challenges makes the much-needed transition more difficult to accelerate and complete.Careful planning by st

40、akeholders across the ecosystem could help ensure these barriers are broken down efficiently.Warming up to huge opportunitiesDespite these challenges,the EUs built environment needs to make a broad range of changes to meet decarbonization targets.The list of potential interventions includes installi

41、ng rooftop solar,replacing gas boilers with heat pumps,improving insulation across the building stock,expanding the use of smart thermostats and Building Energy Management Systems(BEMS),deploying district heating solutions,and many more.For the purpose of our analysis,we focused on three leversheat-

42、pump adoption,rooftop solar installations,and insulation improvements.We selected these levers as they represent some of the top abatement opportunities for the building sector and have sufficient scale to be ready for acceleration across the EU market.Since historical uptake for these three levers

43、has varied,and a range of challenges can prove a bottleneck for acceleration,the actual rate of implementation across these three is still very uncertain,even though policy support is increasing.To deal with this,we developed three scenarios to illustrate the range of possibilities,depending on how

44、effectively deployment can be accelerated across the EU:the Business as Usual(BAU)pathway,the Fit for 55(FF55)pathway,and the Bold Ambition(BA)pathway(Exhibit 3).Hlne Sibileau,“Deep renovation:Shifting from expectation to standard practice in EU policy,”BPIE,November 2021.For further information on

45、heat pump and insulation abatement potential,see“Call for action:Seizing the decarbonization opportunity in construction,”McKinsey,July 14,2021.Exhibit 3 Three pathways illustrate the range of energy possibilities,depending on how effectively the EU can accelerate deployment.Total heat-pump installa

46、tions for 20232030,millionsPathwayTotal rooftop solar installed for 20232030,GWTotal deep renovations uptakes for 20232030,millions1 Deep renovations continue at current pace(about 0.2 percent of dwellings per annum);heat-pump installations remain at 2022 levels(2.5 million heat pumps per annum);roo

47、ftop solar installations decline from 2022 spike to average 10 GW per-annum levels.2 Deep renovations accelerate to 3 percent of dwellings a year;heat-pump installations grow by about 12.5 percent a year,with annual installation rate reaching 6.5 million in 2030;rooftop solar installations increase

48、from 24 GW per annum in 2023 to 36 GW per annum through 2030.3 Deep renovations accelerate to 1 percent of dwellings a year;heat-pump installations grow by 25 percent a year with annual installation rate reaching 15 million heat pumps per annum by 2030(twice the FF55 scenario);rooftop solar installa

49、tions accelerate to 48 GW per annum through 2025 and 72 GW per annum through 2030(twice the FF55 scenario).efectively the EU can accelerate deployment.McKinsey&CompanyBusiness as Usual(BaU)Fit for 55(FF55)Bold Ambition(BA)20366388424244484155Refurbishing Europe:Igniting opportunities in the built en

50、vironmentopportunities in the built environment BAU pathway:Installations across three levers remain at current pace,as the rate of deployment across the EU market is unable to accelerate further due to an inability to scale supply chains or incentivize homeowners to invest in upgrades.FF55 pathway:

51、The rate of deployment speeds up enough to meet the EUs FF55 and RePowerEU targets.BA pathway:More cost-effective and achievable levers are focused on.This translates to heat-pump installations growing at 25 percent per year(in comparison to 12.5 percent for FF55 pathway)and rooftop solar being depl

52、oyed at twice the rate in the FF55 scenario.In addition,the more expensive,difficult-to-achieve deep insulation improvements are only ramped up to 1 percent of households a year in the EU(versus 3 percent in FF55 scenario).System-level outcomes by pathway offer a helpful indicator of where capital c

53、ould be effectively targeted by decision makers.For example,the BA pathway could potentially offer higher energy savings and emissions reductions than the FF55 pathway at the same costdriven by increasing emphasis on rooftop solar and heat pumps(Exhibit 4).However,insulation improvements cannot be c

54、ompletely eschewed;they are critical not just for their own energy savings,but also to enable heat-pump installations and other energy efficiency measures like BEMS.Three major business opportunitiesAchieving the FF55 or BA pathways will require activity to be scaled up significantlyup to 103 millio

55、n unique installations will be needed across the EU between 2023 to 2030.This growth could open up an exciting space with opportunities to create new industries and establish EU supply Exhibit 4 The three pathways could potentially lead to different energy-demandreduction,emissions reduction,and ann

56、ual investment required by 2030.62301410625452393451759278345Avg annual investment requiredfrom 2023 to 2030,(bn)92020496432561523562111208Emissions reduction by 2030,(MtCO)81741102855851193001,0043202386001,158Energy saved/displaced by 2030,(TWh)RenovationsHeat pumpsRooftop PVTotalreduction,emissio

57、ns reduction,and annual investment required by 2030.McKinsey&CompanyPathwayBusiness as Usual(BaU)Fit for 55(FF55)Bold Ambition(BA)Including heat pumps installed,deep renovations completed,and roofs installed with solar in the BA pathway.6Refurbishing Europe:Igniting opportunities in the built enviro

58、nmentopportunities in the built environmentchains.Although the transition to meeting the EUs net-zero targets could lead to worker displacement,these changes could also allow for an opportunity to reskill and retrain incumbent workers,and create employment for thousands of people(Exhibit 5).Three bu

59、siness opportunities are available:component production and assembly,distribution and installation services,and financing and energy efficiency solution providers.Each opportunity can not only offer material value to those who enter,but they can also help accelerate the transition.Component producti

60、on and assemblyThe adequate production and final assembly of components will be needed to meet the anticipated demand for solar panels and heat pumps in the EU.Here is the opportunity to create new,zero-carbon,EU-based businesses that can help secure supply chains and ensure transition happens swift

61、lywith an estimated 429,000 new jobs to be created.The challenge is how to maximize the chances of success,how these businesses can aim to be cost competitive,how to be able to compete globally,and how to find novel ways of encouraging consumers and other businesses to adopt their products.Solar pre

62、sents an opportunity for the EU market to develop domestic production.Currently,the majority of solar panel components sold in the EU are sourced from China(98 percent of ingot,wafer,and cell components;83 percent of module component;and 50 percent of polysilicon),with inverters being fully produced

63、 within the EU.Today,some forecasts suggest that,by 2025,China will produce 95 percent of all polysilicon,ingot,and wafer globally.In the BA pathway.McKinsey analysis based on manufacturing capacity in 2021 in the EU;“EU market outlook for solar power 2021 to 2025,”SolarPower Europe,2021.Solar PV gl

64、obal supply chain,IEA,July 2022.Exhibit 5 Three business opportunities could create thousands of jobs by 2030.Existing workersNew workers10,000 FTENumbers for Bold Ambition pathway1 Additions beyond current 2022 workforce.2 Only assembly jobs were considered for heat pumps.Three business opportuniti

65、es could create thousands of jobs by 2030.McKinsey&CompanyOpportunityComponentproduction&assemblyDistribution&installationservicesLeverHeat pumpsSolar PVHeat pumpsSolar PVInsulationservicesWorkers2030 total workersPotential 2030market size288k54bn225k49bn263k69bn358k87bn1,500k175bn7Refurbishing Euro

66、pe:Igniting opportunities in the built environmentopportunities in the built environmentFifty GW of new production capacity could be added to the EU market at an investment cost of 5 billion to 25 billion(equivalent to a maximum of 36 million panels per year)to meet the forecasted new demand for roo

67、ftop solar.However,an important consideration for this industry is whether it can be cost competitive with other global suppliers.McKinsey analysis suggests that EU solar manufacturing could be relatively cost competitive with global leaders(that is,within 0.3 per MWh levelized cost of energy LCOE o

68、f lowest produced costs)if certain conditions could be met:reaching economies of scalethat is,at least 5 to 7 GW per year of integrated sites solar-production capacityand ensuring wider ecosystem changes(for example,consistent access to low-cost green energy and improved productivity through automat

69、ion of processes).Achieving this by 2030 could have further benefits in uptakethe cheaper solar is for households,the likelier the uptake.Heat pumps offer another opportunity to build manufacturing capacity(focused on heat pump assembly)in the EU market.Filling all demand across the region would mea

70、n assembling an average 7.9 million heat pumps(air and ground sourced)per year from 2023 through 2030,growing to 15 million heat pumps to be installed in 2030(with over 50 percent being hydronic heat pumps).0 This would require 132 new assembly factories,each producing 100,000 heat pumps annually.Lo

71、oking further down the supply chain,dependency of external sources of components could be reduced by bringing component manufacturing in-house,representing an industry of 57 billion in revenue by 2030,given current heat pump component costs.As with solar,the industry could look to improve productivi

72、ty and efficiency to drive down end costs to households.Beyond these manufacturing businesses,additional growth is likely required in insulation material manufacturing and faade manufacturing but have not been included in this analysis.Distribution and installation servicesDistribution and installat

73、ion service capacity within the EU market is not yet sufficient to take advantage of the new business opportunities.There is a shortage of qualified personnel to install insulation,heat pumps,or solar panels at the forecasted pace,with 1.6 million new jobs needed.At-scale businesses for providing th

74、ese services present a significant value-capture opportunity,with a total addressable market of more than 300 billion by 2030.The workforce delivering insulation improvements would need to be grown significantly in the EU7.3 million buildings a year will require moderate insulation improvements(for

75、example,to their walls or roofs,or both)and 2.4 million buildings will need significant insulation work.This will mean more trained workers,when considering a team of three full-time workers needs four to six weeks to complete a deep renovation(windows,walls,roof,and basement)of a 100 m2 low-insulat

76、ed home.A combination of new workers and productivity improvements is likely necessary to deliver on these targets,as seen in Exhibit 5.Many more heat-pump technicians would be required to install 63 million new heat pumps between now and 2030.As this is a more complex process,the 219,000 new techni

77、cians needed are likely to require training,which could cost on average 68 million in training fees per year(total training costs of up to 613 million through 2030).Finally,rooftop solar installations on up to 3.2 million buildings a year will require the onboarding of around 280,000 workers(based o

78、n the existing workforce of 76,000 workers).Investments refer to an integrated factory from ingot and wafer to solar module;BA pathway;McKinsey analysis.“Building a competitive solar-PV supply chain in Europe,”McKinsey,December 13,2022.0 BA pathway;McKinsey analysis.BA pathway;expert input;McKinsey

79、analysis.The workforce that would be required for component manufacturing has not been modeled or included in job figures;assuming heat-pump components are sold for around 3,000 for all components together(excluding assembly);BA pathway.BA pathway;McKinsey analysis.BA pathway;McKinsey analysis based

80、 on BSO,Odyssee,and Entranze databases.Comprehensive study of building energy renovation activities and the uptake of nearly zero-energy buildings in the EU,2019;McKinsey analysis.BA pathway;McKinsey analysis.BA pathway;McKinsey analysis.Numbers readjusted to represent rooftop solar sector;EU solar

81、jobs report 2022:Addressing the solar skills challenge,SolarPower Europe,2022;BA pathway.8Refurbishing Europe:Igniting opportunities in the built environmentopportunities in the built environmentFinancing and energy efficiency solution providersThe voluntary buy-in of end usersboth consumers and bus

82、inessespresents a potential hurdle to each lever.New advisory and financing services could be a key unlock to hasten the adoption of these levers and to create new value for the businesses offering these services.Green financing presents an opportunity.Retail banks and other lenders could capture ne

83、w value pools,while supporting the transition of the built environment.This could be done through mortgages,special loans,or even leasing and subscription models(for example,a bank and solar-panel installer could partner to offer installation plus use of the panels at a set monthly subscription rate

84、).Banks can leverage their existing appswith high-customer engagement of several times a week or moreto effectively interface with customers.This would allow banks to support their large customer bases.McKinsey analysis suggests the green financing market could be over 300 billion a year in 2030.In

85、addition to financing,companies have an opportunity to offer further value-add services to help customers plan the most efficient ways to deploy these technologies in their homes.Additional services could educate consumers on the benefits of taking action,as well as support the uptake of green finan

86、cing products.Typically,these companies will have a combination of engineering and thermodynamic capabilities to help consumers calculate the most energy-efficient solutions to adopt,as well as financial expertise.Significant societal benefitsAccelerating this transition can offer significant benefi

87、ts beyond new businesses and jobs.A critical benefit could be reduced household energy costsanalysis suggests each lever,on its own,could reduce a households energy cost by up to 30 to 40 percent.Attractiveness of each investment(as measured by the payback period)is likely to increase as EU industri

88、es scale and reduce production and installation costs.Heat pump payback periods could decrease from 12 to 17 years in 2022 to nine to ten in 2030,with solar decreasing from eight to 12 years in 2022 to five to nine in 2030(Exhibit 6).0 These payback periods(and therefore household energy costs)could

89、 lower further due to decreasing electricity costs as the power system decarbonizes and decentralizes(reducing costs at peak times).The transition may also confer broader societal advantagesincreased energy autonomy,for one,due to lower energy consumption(in particular,natural gas from the switch to

90、 heat pumps and improved insulation)and a higher share of renewable solar PV in the energy mix.McKinsey analysis suggests that the Bold Ambition pathway could reduce overall energy demand from households by up to 24 percent.This could in turn reduce local pollution due to the increase in net-zero el

91、ectrification and the reduction of fossil-fuel use for home heating.Finally,McKinsey analysis suggests that deploying these levers could decrease an individual household emissions by up to 75 percent.Five key catalysts for kick-starting changeShifting Europes built environment to a greener future co

92、uld be started with the help of five key drivers.Upskilling the workforceThe EUs energy transition is likely to create job displacements for workers in fossil-based industriesa difficult and destabilizing prospect for all workers impacted.EU member states could help support retraining and upskilling

93、 these workers to help them retain jobs or gain new ones.This could be a real win-win situation,as displaced workers could bring their valuable experience to a new industry and,in return,find secure,high-quality jobs that help accelerate the green energy transition.We estimate that 2 million new wor

94、kers will likely Including monthly costs of power and gas and annualized infrastructure costs;exact range depends on energy prices and extent of infrastructure costs reduction;Entranze database;EU BSO database Odyssee database;McKinsey analysis.0 Exact figures will depend on energy prices and extent

95、 of cost reductions.Versus 2022 overall household energy demand(across heating and other uses).9Refurbishing Europe:Igniting opportunities in the built environmentopportunities in the built environmentbe required to overcome the shortfall in skilled workers and fill the gaps across supply chains.McK

96、insey preliminary analysis suggests that new businesses training people(including those with little prior solar experience),and implementing efficient ways of working(for example,centralizing common functions and capability building for frontline managers)could increase productivity by 40 to 50 perc

97、ent.Additional opportunities for efficiency exist if businesses could create multi-skill crews to complete all or most of the elements of an energy upgrade(for example,have crews that could fill the role of electrician,plumber,HVAC technician,carpenter,and insulation installer).This could increase t

98、he speed of deployment and reduce delays due to difficulties coordinating tradespeople.Setting appropriate incentive mechanismsEU member states could look at how to construct new incentive mechanisms to help support the scaling up of critical supply chains and help technologies reach a low enough co

99、st to be competitive and appeal to consumers and businesses.Examples of potential financial support seen in other regions include direct subsidies,reduced rates on loans,and tax incentives.In addition,the decision makers may wish to consider how to set carbon emissions tariffs on components and incl

100、ude non-price criteria in public procurement tendersfor example,environmental,social,and governance(ESG).Attracting financing and private capitalNew financing mechanisms,such as green financing and increased activity from private capital could help to encourage customers to invest in energy-saving o

101、pportunities and to finance the growth needed to deliver these changesa critical way to support the investment required between now and 2030 to deliver on the FF55 or the BA pathway.Exhibit 6 Payback periods for heat pump and rooftop solar could decrease up to 40percent as productivity improvements

102、reduce investment required.High commodity price scenarioHigh gas/average power price scenarioLow commodity price scenarioTCO of home with gas boiler(for specifc scenario)Heat pumpsMetric20222030Rooftop solar20222030Payback period,yearsTotal annualizedcost of ownership,15.112.517.110.39.010.68.29.212

103、.65.45.88.73,8803,6402,9402,3503,1703,3623,4743,4282,6462,3513,1323,161Illustrative using German single family home as example 1 Based on:(1)Forecasted capex of rooftop solar and heat pumps based on 2022 fgures and assumed learning rates through to 2030;(2)Energy needs for standard-and medium-insula

104、tion household in Germany;(3)Three diferent price scenarios:high-commodity price scenario where gas markets remain tight and power prices remain relatively coupled to gas prices(leading to prices staying higher than historical averages);high gas/average power price scenario where gas markets remain

105、tight and power prices remain somewhat coupled to gas(leading to gas prices higher than historical averages and power prices dropping to historical averages);and a low-commodity price scenario where gas demand reduces and renewables push allows power to decouple from gas prices(leading to gas prices

106、 returning to historical averages and power prices reaching new historical lows).percent as productivity improvements reduce investment required.McKinsey&Company BA pathway.“Building a competitive solar-PV supply chain in Europe,”December 13,2022.10Refurbishing Europe:Igniting opportunities in the b

107、uilt environmentopportunities in the built environmentRetail banks and other financing providers could develop novel offerings to support homeowners seeking to invest in refurbishing their homes.For example,in the United Kingdom(UK),Lloyds Banking Group and Octopus Energy have announced a partnershi

108、p to provide energy-efficiency home improvements to Lloyds customers.The first scheme will help UK households switch to air-source heat pumps at a reduced cost via a 1,000 cashback to customers who use mortgage borrowing to fund the switch.The retail bank will then provide borrowers with a referral

109、link to arrange installation with Octopus Energy.On top of rolling out new financing packages,banks could pair loans with energy-efficiency advisory systems to give customers extra support.At the same time,private capital could coordinate and educate itself to be able to efficiently support and fina

110、nce new businesses built in this transition.Investing in grid infrastructurePreparing the energy grid for big shifts in power demand will ensure these levers can be deployed effectively and homeowners will be able to fully capture the benefits of these installations(for example,being able to maximiz

111、e power sold back to the grid with new rooftop solar connections).Transmission and distribution(T&D)infrastructure will likely need significant investment from operators to manage increases in power demand and structural changes in the grid(for instance,the connection of solar installations and incr

112、eased household electricity demand driven by heat-pump adoption),with the average annual investment across the EU estimated to increase by 50 to 70 percent from about 32 billion on average over the past five years.Creating net-zero and circular supply chainsCareful planning can help minimize the pot

113、ential environmental and carbon costs of capturing these opportunities.The acceleration of manufacturing capacity could materially increase emissions and negate the gains made from the decarbonization of the building sector.In addition,gas boilers and other house materials removed during renovation

114、processes will need to be recycled and disposed of appropriately to maximize the circularity of the process.To manage these potential issues,the entire ecosystem could coordinate to optimize use of disposed materials and track the carbon impact of newly produced materials.A critical area is insulati

115、on materials,which can have high production emissionsthe insulation manufacturing industry could look to scale up net-zero production processes to avoid this issue.The challenges may appear immense for the built environment as the EU transitions to net zero and combats the energy crisis.However,by d

116、eploying these three principal levers and five key catalysts,the critical energy transition could be secured and the worst impacts of the energy crisis mitigated.Igniting these business opportunities within the built environment could enable the EU to build world-leading industries in critical suppl

117、y chains globally.“Lloyds Banking Group and Octopus Energy agree partnership to make Britains homes greener for less,”Lloyds Banking Group,November 9,2022.“Connecting the dots:Distribution grid investment to power the energy transition,”Eurelectric,2022;Global transmission report,Global Transmission

118、,2022;RIIO-ET1 annual report 202021,Ofgem,September 28,2022.Copyright 2023 McKinsey&Company.All rights reserved.Rory Biskupski is a consultant in McKinseys London office;Gustav Bolin is an associate partner in the Stockholm office,where Tomas Nauclr is a senior partner,and Erik Sjdin is a partner;Br

119、am Smeets is a partner in the Amsterdam office;and Paolo Spranzi is an associate partner in the Milan office.The authors wish to thank Santiago Arango,Rosie Liffey,Giulia Reggiani,and Cindy Ruiter for their contributions to this article.11Refurbishing Europe:Igniting opportunities in the built environmentopportunities in the built environment