REPORT 2015:34. Individual metering and charging in existing buildings

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1 REPORT 2015:34 Individual metering and charging in existing buildings

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3 Individual metering and charging in existing buildings

4 Title: Individual metering and charging in existing buildings Report number: 2015:34 Publisher:, december, 2015 Edition: 1 Print: ISBN print: ISBN pdf: Keywords: individual metering, individual charging, cost-effectiveness, measuring system, multi-dwelling buildings, apartments, existing buildings, heat cost allocators, temperature metering, energy use, energy saving, heating, heat, cold, comfort cold, hot water Reference number: /2014 The report can be ordered from. Website: publikationsservice@boverket.se Phone: Postal address:, Box 534, Karlskrona The report is available in PDF format on s website. It can also be produced in alternative format on request.

5 Foreword Article 9 of the Energy Efficiency Directive (2012/27/EU) requires member states to ensure that building contractors and property owners install individual meters so that each apartment s energy use for heating, cooling and domestic hot water can be measured. The aim of measuring each apartment individually is to increase households awareness of their energy use and give them the possibility of lowering their heating costs. Sweden has implemented the article through the Act on energy measurement in buildings (Lagen om energimätning i byggnader, 2014:267). This act includes requirements on building contractors and owners to make it possible to measure heating, cooling and domestic hot water individually in each apartment. However, the requirement only applies if the measure is cost-effective. Government bill 2013/14:174 stated that it should not be the individual building contractor or owner who assesses whether it is cost-effective to install individual meters; instead should make a general assessment. was therefore commissioned to examine whether individual metering and charging is a cost-effective investment, and to specify in which cases metering systems for heating, cooling and domestic hot water should be installed in buildings. completed the first part of this government commission in 2014, about individual metering and charging in new construction and reconstruction projects. The present report is s response to the commission s second part, about individual metering and charging in existing buildings. It was produced by Anders Carlsson, Cathrine Engström and Bertil Jönsson, with Joakim Iveroth as project manager. Karlskrona in september 2015 Janna Valik Director-General

6 Innehåll Foreword... 3 Summary... 6 Examination of radiator and temperature metering...6 Method of analysis...7 Individual metering and charging using heat cost allocators...8 Individual metering and charging using temperature metering Introduction s commission Delimitations, method and procedure Property owners and metering companies two different views Outline of the report Cost-effectiveness definition and additions Uncertainty of cost-effectiveness Individual metering and charging in Denmark Individual metering and charging in Sweden a follow-up Berndtsson s studies s follow-up of the studies Conclusions Swedish property owners experiences of individual metering Households with individual metering experiences and attitudes 33 Results of SKOP s telephone survey Heating of existing multi-dwelling buildings in Sweden Construction of the heating system Energy performance of heating in Swedish multi-dwelling buildings. 40 Heat transfer makes it harder to measure actual energy use for heating The results of part 1 are used in part Individual metering of heating using heat meters in multi-dwelling buildings Individual metering of domestic hot water in multi-dwelling buildings 50 Individual metering of heating and cooling in commercial spaces Individual metering and charging using heat cost allocators Dividing heating costs using heat cost allocators The benefits energy savings through lowered temperatures Installation and operating costs The calculation model Calculations, results and analysis Conclusions Individual metering and charging using temperature metering Charging on the basis of temperature The benefit side energy savings through lowered temperatures Installation and operating costs The calculation model Calculations, results and analysis Conclusions... 98

7 References Appendix 1 Sensitivity analyses Results of step 1 of the analysis using alternative district heating rates Results of step 2 of the analysis using alternative district heating rates Results with uniform probability distributions for the installation and operating costs Appendix 2 Energy performance in Swedish multi-dwelling buildings Energy performance for heating, by climate zone Energy performance by year of construction Appendix 3 District heating rates Variable energy prices and power charges, including VAT rates.114

8 6 Individual metering and charging in existing buildings Summary Under the Act on energy metering in buildings (Lagen om energimätning i byggnader, 2014:267), the owner of a building must ensure that the energy used for an apartment s indoor climate can be metered, if it is technically feasible and cost-effective to install a system for individual metering and charging. has therefore, on the government s instructions, examined in which cases it is technically feasible and costeffective to install metering systems for individual metering of heating, cooling and domestic hot water. The government commission (N2014/1317/E) is divided into two parts. In response to the first part, delivered the report Individual metering and charging in new construction and reconstruction projects. In it, recommended not making individual metering and charging of heating (with a heat meter), domestic hot water or cooling a requirement. This was because the results showed that a requirement would force most building contractors and property owners who were constructing or reconstructing buildings to make unprofitable investments. It is s assessment that this also applies for existing buildings. Part 2 of the commission concerns metering and charging in existing buildings. The present report, Individual metering and charging in existing buildings, is s response to the question about when individual metering would be cost-effective. The report looks particularly at metering with heat cost allocators and temperature metering. The results of our cost-effectiveness calculations show that an investment in individual metering and charging using heat cost allocators or temperature metering is generally not cost-effective in existing buildings. The investment also appears risky. All in all, s recommendation is that individual metering of heating, cooling or domestic hot water not be required in any existing building s case. For that reason, is not making any proposals for regulatory provisions. Examination of radiator and temperature metering This examination is limited to analysing individual metering of heating using a radiator meter and using temperature metering. The reason for this is that the result of Part 1 of the commission showed that individual

9 Individual metering and charging in existing buildings 7 metering and charging of heating using heat meters, of domestic hot water and of cooling, are not cost-effective in new and reconstructed buildings. Our assessment is that this is also the case in existing buildings. Method of analysis s commission was to examine in which existing buildings individual metering and charging would be cost-effective 1. Since the analysis equates cost-effectiveness with profitability, we responded to the question by comparing the benefits on the measure with its costs. If, over the lifetime of the investment, its benefits are greater than its costs, then the investment is profitable; otherwise it is unprofitable. The analysis was made at the building level, where factors such as energy performance and climate were varied in order to see to what extent they affected the result. To carry out the calculations we created calculation models for the investment in metering systems for individual metering. The standard building used in the calculations was modelled using different energy performance values, and was placed in four different locations Malmö, Stockholm, Sundsvall and Kiruna corresponding to three different climate zones. We estimated the energy savings that would theoretically result if the temperature was lowered by either one or two degrees in the standard building. This was the benefit side of the calculation. These energy savings were linked to different district heating rates and fed into the model along with cost data in order to calculate the economic outcome. If the present value of the benefits during the calculation period are greater than the present value of the costs, the investment in individual metering is cost-effective, or profitable, given that the temperature in the building is lowered. However, there are many uncertainties regarding benefits as well as costs of investments in individual metering and charging. In order to manage these uncertainties, the input data was given probability distributions, and then we made systematic scenario analyses (known as Monte Carlo simulations) in order to analyse whether individual metering of heating is cost-effective. Besides allowing for many calculations to be carried out in a systematic manner, the method also makes it possible to present the results in a diagram overview. The results of all the calculations are summarised in a 1 The analysis assumes that an investment which is cost-effective is also technically feasible.

10 8 Individual metering and charging in existing buildings histogram, and the expected present value, standard deviation (a measure of the investment s risk) and the likelihood of getting a positive outcome, i e profitability, are presented. Put simply, this data describes what a property owner, faced with the requirement to install individual metering and charging, can expect in terms of the outcome of the investment. For it provides a balanced picture of the profitability of the measure and of how profitability varies depending on the energy performance of geographical location of the building. Based on this, we can make an overall assessment whether, and if so in which buildings, individual metering and charging should be required. Individual metering and charging using heat cost allocators The analysis of heat cost allocators was divided into two steps: In the first step, it was assumed that the introduction of individual metering would bring a one-degree temperature reduction in the building, with absolute certainty. Installation and operating costs were varied on the basis of predefined probability distributions. In the second step, we let the temperature reduction in the model vary as well, with between 0, 1 and 2 C. These temperature reductions were given different probabilities. Table 1 presents the results for all standard buildings in two of four locations, Malmö and Kiruna, when the temperature reduction in the model is held constant at 1 C, at the building level (step 1).

11 Individual metering and charging in existing buildings 9 Table 1. Results of step 1 of cost-effectiveness calculations: 1 C temperature reduction in the building, installation and operating costs with triangular distributions prices, unchanged in real terms. Real interest rate of four per cent. 10-year calculation period calculations per standard building. Profit/loss Malmö, EON Värme Min (SEK) Mean (SEK) Max (SEK) Standard dev P of profit BBR % BBR % BBR % BBR % Kiruna, Tekniska verken BBR % BBR % BBR % BBR % In the table, Min refers to the lowest present value of calculations per standard building, Mean the expected present value and Max the highest present value of the calculations. Standard dev is the standard deviation, and a measure of the investment s risk. P of profit indicates the probability of a positive outcome, i e how many of the calculations produce a present value of SEK 0 or better. BBR in Table 1 refers to when energy use in the standard building is on a level with current BBR requirements ( s building regulations, BBR 21), while standard buildings BBR +25, BBR +50 and BBR +75 have increasingly higher energy use, i e increasingly worse energy performance in relation to current BBR requirements. As Table 1 shows, it is difficult to achieve profitability in multi-dwelling buildings with an energy use which is on a level with current BBR requirements or slightly worse. The expected present value (the mean value) is negative, i e unprofitable, and the probability of a positive outcome is low or very low. In order for the expected present value to be positive, the building s energy use must be substantially higher than BBR at the outset (i e an energy performance corresponding to the standard building BBR +75).

12 10 Individual metering and charging in existing buildings According to data from the register of energy performance reports, this comprehends a few hundred properties in climate zone I, a few thousand in climate zone II and properties in climate zone III. There are no guarantees, however, that an investment in individual metering and charging actually leads to a temperature reduction in the building. This is shown in SKOP s questionnaire survey of households that currently have individual metering and charging, and by experiences gained among property owners who have made the investment. Step 2 of the analysis, where we looked in particular at standard building BBR +75, was therefore to introduce uncertainty on the benefit side as well. This was done by having the temperature reduction vary in the model, between 0, 1 and 2 C at various probabilities. Table 2 shows the calculation results for analysis step 2 for two of four locations, Malmö and Kiruna. Table 2. Results of step 2 cost-effectiveness calculations: 0, 1 and 2 C temperature reduction in the building with various probabilities, installation and operating costs with triangular distributions prices, unchanged in real terms. Real interest rate of four per cent. 10-year calculation period calculations per standard building. Profit/loss P of 0 C Malmö, EON Värme Min (SEK) Mean (SEK) Max (SEK) Standard dev P of profit 20 % BBR % 30 % BBR % 40 % BBR % 50 % BBR % Kiruna, Tekniska verken 20 % BBR % 30 % BBR % 40 % BBR % 50 % BBR % When it is no longer certain that the temperature in the building will be reduced by 1 C, the outcome worsens. The expected present value (the mean value) of the investment is reduced, the risk inherent in the

13 Individual metering and charging in existing buildings 11 investment (the standard deviation) increases sharply, and the number of calculations with a positive outcome drops. In Malmö, with a 20 per cent probability of a 0 C temperature reduction (and a 75 per cent probability of 1 C, and 5 per cent for 2 C), the expected present value becomes a profit of SEK The standard deviation is SEK It is an investment with a low expected present value but with a high level of risk. With a 30 per cent probability of unchanged temperature in the building (and 65 per cent for 1 C, and 5 per cent for 2 C), the present value comes to a loss of SEK The standard deviation comes to SEK Outcomes are somewhat better in Kiruna. With a 20 per cent probability of unchanged temperature in the building, the expected present value comes to a profit of SEK With a 30 per cent probability, it produces a profit of SEK The standard deviation for both of these outcome lands on SEK and SEK , respectively. The calculation results show that the expected outcome for a property owner who invests in individual metering and charging with heat cost allocators will be low or negative. The risk inherent in the investment furthermore looks very high. A requirement for individual metering of heating using heat cost allocators thus looks very likely to lead to unprofitable investments for the majority of property owners. On the basis of the calculation results, proposes that individual metering and charging of heating using heat cost allocators not be required for any existing buildings. Individual metering and charging using temperature metering The installation costs for temperature metering are higher than they are for radiator metering. We have assumed in our analysis that the temperature in the building is reduced by 1 C when temperature meters are installed. The expected present value of the installation is negative in the standard buildings we have looked at. The probability of the investment becoming profitable is very low. s conclusion from the calculations is that individual metering and charging using temperature metering is not cost-effective, and we propose that individual metering and charging using temperature metering not be required for existing buildings.

14 12 Individual metering and charging in existing buildings Introduction Sweden introduced the Act on energy metering in buildings (2014:267) in order to implement Article 9 of the EU Energy Efficiency Directive (2012/27/EU). The act includes requirements on building contractors and owners to make it possible to measure heating, cooling and domestic hot water individually in each apartment. This statutory requirement applies for new construction and for reconstruction of existing buildings, but only if the measure is cost-effective and, in reconstructions, technically feasible. The requirement also applies to existing buildings that are not being reconstructed if the measure is both cost-effective and technically feasible. The aim of the act is create incentives for residents to reduce their energy use, by dividing energy costs according to actual use. An early consideration by the government included in the government bill Implementation of the Energy Efficiency Directive was that legislation under which building contractors or owners themselves determined whether it was cost-effective to install individual meters would lead to a very variable application of the law. Instead, the government considered that cost-effectiveness and technical feasibility should be assessed generally, and therefore commissioned to examine which types of buildings should be subject to the installation of metering systems for heating, cooling and domestic hot water. 2 s commission The government commission consists of two parts. On 1 November 2014, submitted the report Individual metering and charging in new construction and reconstructions to the Government Offices, in response to the commission s part 1. The conclusion in that report was that it would not be profitable to apply individual metering of heating or cooling in new construction and reconstructions. For domestic hot water the assessment was that individual metering would be profitable under some circumstances, but that the likelihood of profitability overall was too low to impose a requirement. therefore did not propose any requirements for such metering. 3 The present report concerns part 2 of the commission, in which was instructed by the government to do the following: 2 Government bill 2013/14:174, Genomförande av energieffektiviseringsdirektivet. 3 (2014), Individuell mätning och debitering vid ny- och ombyggnad.

15 Individual metering and charging in existing buildings 13 Examine and specify in which cases existing buildings, not currently being reconstructed, should be subject to requirements that the energy used to generate apartments indoor climate, as well as their consumption of domestic hot water, be metered in each individual apartment. Base the examination on an analysis if technical feasibility and costeffectiveness. With respect to heating, principally examine the inflow metering method (heat meters). In those cases where individual metering using heat meters is not cost-effective or technically feasible, heating cost distributors (referred to hereafter as heat cost allocators) are to be examined. In those cases where heat cost allocators are not regarded as technically feasible or cost-effective, requirements for temperature metering or other metering methods are to be considered. Provide proposals for regulatory provisions needed in order to implement s conclusions, with the associated impact assessment. Obtain opinions from affected agencies, businesses and other actors. The report, including proposals, is to be delivered on 1 October Delimitations, method and procedure Three specific metering methods of heating are to be examined: heat meters, heat cost allocators and temperature metering. Individual metering and charging using heat meters were examined in part 1 of the commission, with the conclusion that they were not a cost-effective way of metering heating in new construction or reconstructions. s assessment is that they do not constitute a cost-effective method in existing building either. The same assessment is made for individual metering of domestic hot water and cooling, as well as for individual metering of commercial spaces. The reasoning behind these assessments is detailed in the section The results of part 1 are used in part 2. This report is thus limited to analysing the individual metering of heating using heat cost allocators and temperature metering. As mentioned earlier, s instructions are to base its analysis on costeffectiveness. As explained in the section Cost-effectiveness definition and additions, cost-effectiveness is equated with profitability. To calculate profitability, the benefits on the measure are compared with its costs. If, over the lifetime of the investment, its beneftis are greater than

16 14 Individual metering and charging in existing buildings its costs, then the investment is profitable; otherwise it is unprofitable. The analysis is made at the building level. The delimitations outlined above raise the following two questions for the examination: When is it profitable, in a business economics sense, to divide the cost of heating using heat cost allocators in existing multi-dwelling buildings? When is it profitable, in a business economics sense, to charge an apartment s heating costs on the basis of temperature (temperature metering) in existing multi-dwelling buildings? To answer these questions, we created calculation models for the investment and calculated cost-effectiveness, or profitability. The benefit side of the calculation were the energy and power savings that would theoretically result if the temperature were reduced in a specified standard building by 1 or 2 C. These energy savings were then linked to different district heating rates and fed into the model along with cost data in order to calculate the economic outcome. If total benefits during the calculation period are greater than total costs, the investment in individual metering is cost-effective, given that the residents reduce the temperature. However, both the cost and the benefit side of the calculation//equation are uncertain. The costs of individual metering varies, and it is unclear what the effect of metering will be. In order to manage these uncertainties in the commission, input data was given probability distributions. We then made systematic scenario analyses (known as Monte Carlo simulations) in order to analyse whether individual metering of heating using these methods is cost-effective. This involved using the computer to make thousands of calculations, and for each calculation randomly choosing a value from the predefined probability distributions. The end result of each individual calculation was either profitable or unprofitable. With such a large number of calculations, we also extracted the expected present value of the investment, its standard deviation which is a measure of the investment s risk and the probability of getting a positive outcome. This information satisfactorily describes what a property owner who is required to install individual metering and charging can expect in terms of the outcome of the investment. For it provides a balanced picture of the profitability of the measure and of how profitability varies depending on the energy performance of geographical location of the

17 Individual metering and charging in existing buildings 15 building. Based on this, we can respond to the report s questions and make an overall assessment of which existing buildings should be required to install individual metering and charging. As part of the examination we also carried out a questionnaire survey of households that already have individual metering and charging of heating. The purpose of this was to obtain a better picture of how Swedish households energy use behaviour changes when heating costs are metered and distributed by individual. The results of the questionnaire survey provide a basis for assessing the benefit side of the calculation//equation. We furthermore followed up apartments in which heating had been, or should have been, individually metered since The aim of this follow-up was to learn about Swedish property owners experiences and views of individual metering and charging, which formed further material to supplement the theoretical calculation result produced in this report. The results of the follow-up were also supplemented with what emerged in the course of s contacts with housing companies, metering companies and other stakeholders. These communication efforts are summarised in the section that follows. Property owners and metering companies two different views Hearing and consultation with stakeholders On a number of occasions and under various circumstances, met with stakeholders to discuss individual metering and charging. These included a hearing on 23 April 2015, at which about 50 representatives from trade organisations, metering companies and housing companies took part in a discussion about heat cost allocators and temperature metering. We also held the following consultation meetings: Consultation with Fastighetsägarna, SABO, Svenska Bostäder, Byggherrarna, Uppsalahem and Botkyrkabyggen, to learn about public housing sector s experiences of individual metering. Consultation with HSB Riksförbund, Riksbyggen, SBC and Bostadsrätterna, to learn about tenant-owner associations experiences of individual metering. Meeting with Otto Paulsen, from the Danish Technological Institute, and Brunata, to learn about a metering company s view of individual metering.

18 16 Individual metering and charging in existing buildings In the course of these meetings and discussions, two sides with completely different views of individual metering emerged. On one side are Swedish property owners, represented by trade organisations such as SABO, Fastighetsägarna and HSB Riksförbund. Their members have tested some form of individual metering in some of their properties. Their view is that individual metering and charging of heating bring considerable installation and operating costs, but that the measure does not produce any energy savings. On the other side are German and Danish metering companies, primarily represented by the Swedish association of metering energy consumption (SFFE, Svensk förening för förbrukningsmätning av energi), who claim that heating can be metered and charged individually at low costs and with considerable energy savings. Public housing companies currently metering individually primarily install systems for temperature metering, while the metering companies primarily install and maintain heat cost allocators. The fact that these two groups use different metering technologies does not explain why their views of individual metering and charging are at odds with each other. The purpose of the metering methods is the same, after all to provide residents with an incentive to save energy on heating. Obtaining an overall picture of tenant-owner associations view of the issue was difficult. According to SBC and Bostadsrätterna, both the trade organisations, the boards of the associations often lack sufficient knowledge about the technology and are often generally sceptical towards a technology they are not certain is fair. According to Riksbyggen, it is also fairness rather than energy savings which is the usual sales argument when the technology is being sold to tenant-owner associations. It was evident that an already difficult task had become more difficult, as the stakeholders had such fundamentally different views of what individual metering and charging cost, and what potential energy savings they offered. As shown in part 1 of the commission, there are very few evaluations within the energy sector that indicate the actual outcome of an energy measure. This is also true of individual metering and charging. In the course of carrying out part 1 we found no Swedish evaluation in which individual metering had been analysed as a separate measure and where installation and operating costs were compared to the value of energy, power and water savings. Faced with this lack of evaluations, we were obliged to investigate how individual metering had actually been dealt with among housing companies. For that reason, we contacted both property owners and metering companies in order to obtain as balanced a

19 Individual metering and charging in existing buildings 17 picture as possible of the costs and benefits of individual metering. The fact that their responses diverged so strongly was problematic. Outline of the report This report consists of eight sections: In the following section, Cost-effectiveness definition and additions, the term cost-effectiveness is defined. This section also describes the uncertainty connected with the investment and how this is dealt with in the calculation model devised for this report. The next section, Individual metering and charging in Denmark, summarises the results of s meeting with Otto Paulsen of the Danish Technological Institute, at which individual metering and charging in Denmark were discussed. The section Individual metering and charging a follow-up is a follow-up of Lennart Berndtsson s report from and aims to provide an updated picture of Swedish property owners view of individual metering and charging. It does this by investigating whether they still meter heating individually in the way they reported in The section Residents experiences and attitudes to individual metering aims to provide a more in-depth picture of Swedish households experiences of individual metering and charging, looking in particular at whether the effect of the measure is reduced energy use. This section summarises the questionnaire survey carried out by the polling company SKOP on s behalf, in which households with individual metering and charging were interviewed by telephone. The section after that, Heating of multi-dwelling buildings in Sweden, describes how Swedish multi-dwelling buildings are heated, and buildings average energy performance. The implications of heat transfer problems for individual metering are also explained. The section entitled The results of part 1 used in part 2 describes why the results of part 1 of the commission also apply for part 2, which means that this report only examines metering and charging of heating using heat cost allocators and temperature metering. 4 Berndtsson (2003), Individuell värmemätning i svenska flerbostadshus en lägesrapport.

20 18 Individual metering and charging in existing buildings The section Individual metering and charging using heat cost allocators examines individual metering and charging using heat cost allocators, describing the metering technology, the benefit side and the cost side, the calculation model and the calculation results, including an analysis and proposal. The section Individual metering and charging using temperature metering correspondingly examines temperature metering, describing the technology, the benefit side and the cost side, the calculation model and the calculation results, including an analysis and proposal.

21 Individual metering and charging in existing buildings 19 Cost-effectiveness definition and additions The commission is to examine and specify in which cases individual metering of energy use for heating, cooling and domestic hot water should be required for each apartment in existing buildings. The examination is to be based on an analysis of cost-effectiveness and technical feasibility. The report makes the assumption that it is not possible to make a costeffective investment which at the same time is technically unfeasible. It is therefore limited to analysing only the cost-effectiveness of the investment. No analysis of technical feasibility is carried out. In the analysis, cost-effectiveness is equated with profitability that benefits over the lifetime of the investment are greater than the costs. Benefits on the introduction of individual metering and charging are the value of the energy savings, the value of the power savings and, for domestic hot water, the value of the water as well. The costs are for installation and operation. The focus is on examining which cash flows positive (benefits) and negative (costs) are generated by the investment at the building level, and whether total benefits are greater than total costs. This examination does not include looking at how benefits and costs are divided between landlord and tenant. Uncertainty of cost-effectiveness As with all investments, those made in individual metering and charging are associated with uncertainty. Figure 1 below illustrates how uncertainty, or risk, associated with investments can be analysed and quantified. 5 5 The results were calculated using two normal distribution curves: mean value SEK , standard deviation SEK in one, and mean value SEK , standard deviation SEK in the other calculations were carried out.

22 20 Individual metering and charging in existing buildings Figure 1. The outcome of two investments with different risks. We are looking at two investments that both lead to an expected present value of SEK One way to measure risk in an investment is to calculate the standard deviation of the outcome. This is a statistical measure that shows the average deviation from the expected present value (the mean value). The risk, i e the standard deviation, differs in the two investments. In one the standard deviation is SEK and in the other it is SEK (see the summary to the right of the figure). The risk is thus higher in the investment with a large spread. The former is represented by the red bars in the figure, the former by the gray bars. As can be noted, the spread of the outcome is different for the two. Both have the same expected present value, SEK , but in the investment with a large standard deviation the outcome varies between SEK , at its lowest, and SEK at its highest. The corresponding spread for the investment with a small standard deviation is SEK at its lowest and SEK at its highest. The figure also shows that in 90 per cent of the calculations the outcome is between SEK and SEK for the investment with a large standard deviation. For the investment with a small standard deviation, 100 per cent of the calculations fall within this range. A property owner striving to minimise risk in their investment will, in the example above, choose the investment with a small standard deviation, since this option has the same expected present value, but a lower risk.

23 Individual metering and charging in existing buildings 21 There are a range of different energy efficiency measures that a property owner can undertake in their building in order to reduce energy use. The expected present value of each of these measures can be calculated, as can any risk associated with the measure. The measures can then be compared in terms of expected present value and risk, and the energy efficiency measure with the best outcome chosen. It is very important to have an idea of the risk inherent in an investment. And for investments in individual metering and charging of heating there are considerable uncertainties, both in terms of benefits and costs. It is not clear if, and if so by how much, temperatures are reduced in a building with individual metering. A temperature reduction is necessary in order to generate a benefit. Additionally, the cost information obtained is spread over quite a wide range. All of this means that very many calculations have to be done in order to obtain as good a basis for decisions as possible. However, these have to be done in a systematic way, otherwise the overall picture will be lost. The method used in the present report, in which the calculations were carried out systematically, is known as the Monte Carlo Method. The method is presented in detail in the section Individual metering and charging using heat cost allocators. When this method is used, the calculation results do not only show what a property owner who is going to invest in individual metering and charging can expect in terms of the outcome of the investment, but also provide a picture of the risk, or uncertainty, that the property owner will be faced with. All in all, the method provides a basis that allows us to answer the two questions posed in this report, and by extension to fulfil the commission.

24 22 Individual metering and charging in existing buildings Individual metering and charging in Denmark It is often mentioned in the discussions about individual metering that Denmark has requirements in place for individual metering and charging of electricity, gas, water, heating and cooling. For this reason, paid a visit to Otto Paulsen at the Danish Technological Institute in Taastrup outside Copenhagen, in April of Paulsen has extensive experience of issues surrounding individual metering of energy in Denmark. During the trip to Denmark also visited Brunata, one of the larger companies in Denmark that provide individual metering using heat cost allocators. The aim of visiting Paulsen was to learn whether any systematic studies had been carried out in Denmark involving calculations of cost-efficiency in individual metering and charging. We also wanted to find out if there were any studies that showed how apartment owners in Denmark changed their behaviour when individual metering and charging was introduced. We were furthermore interested in issues relating to technical feasibility and in learning how the regulatory system governing individual metering is structured in Denmark. According to Paulsen there are no systematic Danish studies of either cost-effectiveness or of how behaviour changes when individual metering is introduced. This, Paulsen said, was mainly due to the fact that individual metering is foremost a matter of fairness in Denmark, and not a matter of saving energy and money. Moreover, individual metering has a long history of popular support in the country. Denmark and Sweden have elected to implement the Energy Efficiency Directive in two different ways. In Sweden we have statutory requirements for individual metering of heating, cooling and domestic hot water, where these are cost-effective and technically feasible. Denmark instead has general requirements in the rules, but with a number of possible dispensations which are examined by municipalities. Some of these dispensations are connected with economy and technology. No studies of cost-effectiveness in Denmark According to Paulsen, few or no studies have been carried out in Denmark of how behaviour changes when individual metering is introduced. Neither are there any studies that have looked specifically at whether individual metering is cost-effective. The general view in Denmark is that

25 Individual metering and charging in existing buildings 23 individual metering and charging using heat cost allocators provide energy savings, and the normal thing is to assume that a 10 per cent saving on energy use is possible. In spite of this, individual metering and charging is not a big subject of discussion in Denmark. This, according to Paulsen, is because it is regarded as fair that everyone pays for their own consumption. Denmark also has a historical tradition of individual metering of heating. The first radiator meter was installed as early as in 1918, and by 1945 Denmark had installed heat cost allocators. Sweden chose to go down another route. Instead of individual energy metering, energy use was metered at the building level and the costs then divided among the residents based on living space. Rules of individual metering in Denmark New rules on metering of electricity, gas, water, heating and cooling came into effect in Denmark on 2 June 2014; the previous rules were from They concern requirements for meters in buildings containing several apartments, and apply for new construction as well as for existing buildings. Regarding metering of heating, the rules only apply to heat meters in new construction, while for existing buildings they apply to both heat meters and heat cost allocators. Temperature metering is not an alternative to individual metering under the Danish rules. According to Paulsen there are several reasons for not metering and charging on the basis of temperature. One issue is how many measuring points are needed in each room, but there are also problems related to how temperature can be affected by e g airing or heat generated by house guests. The Danish rules use correction factors to adjust the heating costs of apartments located in the outermost parts of the building. This is because these apartments require more energy for heating, and the purpose of the correction factors is to divide heating costs fairly. To deal with the fact that heat is transferred between apartments, the heating cost is not divided only on the basis of the meters a part is divided on the basis of living space. However, it is a requirement in Denmark that at least 40 per cent of a building s total heating costs be divided on the basis of the individual metering. There are several exceptions to the requirement for installing individual meters. These apply to care and nursing institutions, holiday homes, 6 BEK no 563 of 02/06/2014.

26 24 Individual metering and charging in existing buildings buildings in which technical problems mean that installation costs would be unreasonably high in relation to potential savings, buildings in which technical problems mean that a longer installation period is needed, and buildings in which the individual tenant does not stand to gain any economic advantage. Those wanting to be granted a dispensation on any of these grounds must send an application to the municipality, which will then examine the case to determine whether a dispensation can be granted. The municipality is also responsible for supervising compliance with the rules. In Denmark there are also rules about heat cost allocators and requirements regarding the installers of heat cost allocators. 7 7 BEK no 1166 of 03/11/2014 and BEK no 1167 of 03/11/2014, respectively.

27 Individual metering and charging in existing buildings 25 Individual metering and charging in Sweden a follow-up The question being investigated in this report is when it profitable, in a business economics sense, to meter and charge heating individually, in existing buildings. answers this question by making profitability calculations using a specially developed model. A complementary picture is provided by looking at how property owners who have already invested in individual metering and charging view the technology today. This section is a follow-up of the properties with individual metering and charging that were studied by Lennart Berndtsson at the beginning of the new millennium. The aim of the follow-up is to get a better picture of the possibilities of metering heating individually in multi-dwelling buildings in Sweden today, and whether this can be assumed to be a cost-effective, or profitable, investment. In summary, this section shows that: The public housing companies studied by Berndtsson now seem to be abandoning individual metering of heating using heat meters, while temperature metering is a technology that is still being used. Heat cost allocators are only rarely used within public housing today. Construction companies such as JM, Skanska, NCC and Peab have consistently negative experiences of installing systems for individual metering. The reasons they refer are that they have been expensive to install and that it has been difficult to get the technology to work. Few tenant-owner associations that use individual metering were contactable during the follow-up. However, a recent study shows that there is a strong resistance to individual metering among Swedish tenant-owner associations and that it is therefore rarely used. This resistance is attributed to a low level of knowledge about the technology and to the perception that individual metering is not cost-effective. Berndtsson s studies In two studies, published 1999 and 2003, Lennart Berndtsson described the use of individual metering and charging as it looked in Sweden during the first half of the 2000s. The studies were commissioned by the Swedish Energy Agency, with the aim of following up developments in the area of individual metering since the Heat metering report of A

28 26 Individual metering and charging in existing buildings further aim was to describe the conditions for individual metering and charging in Swedish multi-dwelling buildings. Berndtsson s work resulted in the reports Study of experiences of individual metering and charging of heating and hot water in Swedish multi-dwelling buildings and Individual heat metering in Swedish multi-dwelling buildings a progress report. 8 The latter provides a detailed picture of about 150 projects in which property owners have either installed heat meters, heat cost allocators or temperature metering. The report describes technology choices and the property owners reasoning behind their choice to install the technology. All in all, the study covered apartments in which metering and charging of heating and domestic hot water was being used, or in which there were well advanced plans to begin such metering between 2003 and s follow-up of the studies The apartments included in Berndtsson s report from 2003 can be seen as the total number of apartments which at that time metered (or were soon going to begin metering) and charged heating and domestic hot water individually in Sweden. Not counting those apartments that only metered and charged domestic hot water, that number was Table 3 below illustrates them, divided by type of housing and metering technology. Table 3. The number of apartments with individual metering in Berndtsson s report Individual metering of heating in Swedish multi-dwelling buildings, divided by metering technology and housing type. Heat meter Heat cost allocators Temperature metering Combined system** Unknown tech Total no Rented apartment Tenantowned Total * * Berndtsson included a total of apartments, of which 3759 with heat meters, 4035 med heat cost allocators, 3666 temperature metering and 2101 with combined or unknown technologies apartments in total. s compilation shows a different number, but that is not deemed to affect the result of this follow-up. ** Berndtsson reports that a small number of companies installed several metering technologies in order to achieve fairer measurements. 8 Berndtsson (1999), Utredning angående erfarenheter av individuell mätning och debitering av värme och varmvatten i svenska flerbostadshus and Berndtsson (2003), Individuell värmemätning i svenska flerbostadshus en lägesrapport.

29 Individual metering and charging in existing buildings 27 A property owner faced with the choice of whether to implement an energy measure is likely to do so if the benefits are deemed to be greater than the costs. The same decision criterion applies in cases where individual metering is being installed in order to save energy. By investigating whether these property owners still meter and charge heating in the way they stated in that they did in 2003, we get a picture of the possibilities of metering heating individually in multi-dwelling buildings in Sweden, and of whether this can be assumed to be a cost-effective investment. Respondents and response rate The property owners were contacted by via , and in a few cases by telephone, and were asked to answer the question whether heating was still being metered and charged individually. It emerged that of the total of apartments, had been sold. It was not possible to obtain information as to whether heating was still being metered individually in these apartments. Further, the situation for apartments remained unknown as the property owner did not provide a response. Thus the respondents in this follow-up comprise property owners representing of the total of apartments. The distribution of these apartments by type of housing is shown in Table 4 below. Table 4. Respondents, i e property owners who responded to the question about whether they currently meter and charge heating individually, presented as the number of apartments divided by metering technology and housing type. Heat meter Heat cost allocators Temperature metering Combined system Unknown tech Total no Rented apartment Tenantowned Total The response rate for apartments with heat cost allocators is low, around 10 per cent. The number of respondents means that the follow-up result should be interpreted with caution. The sample is small for rented apartments with radiator metering, since a large number of the apartments have been sold (1 674 of a total of 2 090). In the case of tenant-owned apartments, the low response rate is due mainly to the fact that most tenant-owner associations in Berndtsson s report were not specified by name