3FOOD

Third Industrial Revolution Consulting Group
1.2.1 SEF Characteristics Relevant to Luxembourg
At its core, the SEF model is anchored by an economic perspective that builds on a basic
principle of energy efficiency, or energy productivity, as it is made specific to Luxembourg--that
is, monetizing an array of savings which cost less than paying the retail price for energy, water
and materials as the source of its capital investments. For example, a recent study of the
institutional building stock in Luxembourg found retrofit costs of 0.04 to 0.08 €/ kWh for the
majority of floor area in their sample. 214 The 2014 cost of electricity was 0.166 and 0.075
€/kWh for households and industry, respectively. The cost to save energy, therefore, is
considerably below the cost to use that energy.
The gap between the cost to buy energy and the cost to save energy forms the basis for capital
investment. In other words, the direct savings (or the use of renewable energy to lower the use
of more expensive energy resources) are used to pay back initial investments that enable the
reductions. Critically, SEF economics avoid the practice of many governmental and regulatory
programs currently in use which assess end users for funds that conventional utilities operate
to meet sustainability goals. As such, SEF economics do not require regulated utility price
increases to cover renovation costs. SEF economics similarly does not rely on taxes to capitalize
renovation but reaps social advantages such as benefiting low-income households. 215
Capital investments are used to procure energy, water, and material conservation measures
and on-site renewable energy options to lower participants’ costs. Figure 3 offers a conceptual
overview of the SEF arrangement: capital investments are attracted to implement energy
efficiency measures and renewable energy options up to the maximum point of savings that
can be covered without raising the original energy costs of the participant. After debt service
payments have fully paid back the capital investments, over a period of 10-14 years, all
remaining savings accrue to the participant of the program over the next 6-10 years or so (with
the assumption of a typical project life of 20 years).
214 Hoos, T., Merzkirch, A., Maas, S., Scholzen, F. (2016). Energy consumption of non-retrofitted institutional
building stock in Luxembourg and the potential for a cost-efficient retrofit. Energy and Buildings (published online
01 April, 2016 at http://www.sciencedirect.com/science/article/pii/S0378778816302213). Doi:
10.1016/j.enbuild.2016.03.065
215 The approach is compatible with the ‘State Renovation Fund’ described in the Working Group ‘Building’ Final
Outcome Document (Version 02.05.2016). This proposal is detailed on page 19 of the Third Industrial Revolution
Working Group ‘Building’ Final Outcome Document (Version 02.05.2016).
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