Energy-Efficient Residences: Subsidizing Intelligently

Industrial real estate developers have placed energy-efficiency as a central part of the design, construction and operation of their projects and the trend is here to stay. But the residential sector remains strongly underdeveloped in terms of energy- efficiency. As Christopher Heard, Lecturer and Researcher at the Autonomous University of Mexico (UAM), points out, “the implementation of energy-efficiency in residential real estate can strongly and positively impact households and the country and improve householders’ quality of life, but there is little incentive for it.”

This lack of incentive is largely due to subsidies that reduce residential energy tariffs. “Homeowners prefer to consume energy produced through renewable sources and reduce their grid-energy consumption,” Heard says. “But this reduced consumption puts households on a subsidized tariff scheme where they pay less, inadvertently removing incentives for energy-efficiency.” Although subsidies are beneficial for low- income sectors of society, they prevent the country from promoting energy-efficiency as the installation of renewables is financially inefficient for householders. Renewables- implementation programs like FIDE also make it harder to teach people about the advantages of energy efficiency.

To create incentives for energy efficiency, Heard says it is important to increase regulations on the residential sector and to redirect subsidies to benefit society as a whole instead of focusing only on the individual, as the current scheme does. “The social and fiscal benefits produced by regulations that promote investments in technologies that make use of energy in the residential sector more efficient are far greater than those created by individual subsidies on energy consumption.” To boost energy-efficiency, these subsidies need not conflict with the implementation of renewable energies, but complement them. To achieve these new policies, however, political will is more important than an economic assessment as households will see their energy tariffs increased, which can cause turmoil. For residential real estate developers to profit from energy-efficiency regulations, these must be intertwined with appropriate subsidies that boost their implementation. A house built with energy-efficiency in mind that, for example, has proper thermal management and insulation, has lower energy consumption and can be more comfortable for its inhabitants. But investing in these and other technologies is economically unfeasible for developers unless they can take advantage of subsidies that make doing so attractive. “The main goal of real estate developers is to create returns for their shareholders, so asking them to implement energy efficiency at their own expense is not reasonable,” says Heard. He proposes the fostering of the implementation of these technologies by subsidizing them, pointing out that such a policy could result in tangible economic benefits for society, particularly in zones with 1F, 1E and even 1D tariffs.

Heard points out that the local small-scale photovoltaic (PV) generation plants can be beneficial in the housing sector since PV is the easiest technology to install and maintain while small-scale wind energy farms could be a good option for rural areas. “Just as personal computers, smartphones and other electronics become increasingly powerful and cheap on a daily basis, renewable technologies are becoming more affordable and efficient,” he says. For instance, PV modules can generate more energy at a lower price using the same surface area. Moreover, batteries designed to store energy are becoming more compact, cheaper and have increasingly longer lifecycles. For Heard, such technological advancements make the use of renewable-energy technologies in the residential real estate sector more viable without subsidies.

There are several opportunities to supply residences with renewable energy on a large scale, but according to Heard “big industries producing all the energy far from cities will be confronted by a new reality where locally generated energy can be stored and managed for the benefit of residents.” He believes distributed generation, small-scale production and energy storage are emerging trends that will completely change the paradigm of energy generation. These processes will not only make residences more energy-efficient by decreasing the base-loads of households, but also enable residents to have a better position when negotiating electrical tariffs. “Mexico needs to be careful about the long-term energy structure it wants to have, and residential developers should take advantage of the possibilities that new regulations can bring and properly manage them,” he says.