Whole-house retrofit: the role of new business models, finance mechanisms, and their implications for policy

The energy retrofit of homes is one of the most important and challenging issues for the decarbonisation of the global economy - having wider benefits for social welfare, economic development, energy security and public health. This thesis examines how new ‘business models’ and ‘finance mechanisms’, can promote a comprehensive ‘wholehouse’ approach to retrofit - involving integrated energy efficiency measures to the building fabric, low carbon heat measures such as heat pumps, and electricity microgeneration such as solar photovoltaics (PV). In addition, it shows how policymakers can support these new business models and finance mechanisms through innovation intermediaries. To deliver these aims, this research involved thirty-eight semi-structured interviews, combined with information from documentary sources and is split into four original articles, with a primary focus on the United Kingdom (UK). Article 1 shows how new business models can be a powerful tool for overcoming the challenges of whole-house retrofit. The article describes and compares five business model archetypes - ranging from the traditional, to highly innovative business models. These innovative models are characterised by: an emphasis on home improvement, aesthetics and comfort; industrialised processes and integrated supply chains; a holistic customer offering and single point of sale; long term energy-saving performance guarantees and integral project finance. Although the traditional model is suitable for the implementation of single energy-saving measures, it is argued business model innovation will be required to meet the UK’s ambitious climate change targets. Article 2 explores the challenges of financing this retrofit activity at scale. First, it develops a novel typology of finance mechanisms for residential retrofit - highlighting their key design features. The article then explores how these features influence the success of these mechanisms in different contexts. Three outcomes are shown to be especially important: a low cost of capital for retrofit finance; funding for non-energy measures such as general improvement works; and reduced complexity through a simple customer journey. Most importantly, the article outlines how finance alone is unlikely to be a driver of demand and should be viewed as a necessary enabler, of much broader retrofit strategy. Article 3 outlines how the adoption of ‘systemic innovations’, such as whole-house retrofit, may necessitate business model innovation. Through a case study of the innovative ‘Energiesprong’ retrofit business model it highlights the central role of an intermediary in this business model innovation. The article shows how Dutch policymakers sought to promote business model innovation through creation of this ‘market development team’: developing a novel framework combining the components of business models with the functions of intermediaries. The article further argues that policymakers might promote business model innovation through intermediaries in other sectors. Article 4 outlines how recent policy initiatives in the UK, have failed to address four interrelated challenges that constrain demand for retrofits: 1) uncertain benefits and quality; 2) complexity, disruption and timing; 3) up-front capital cost and split incentives and 4) information, engagement and trust. Overcoming these challenges, will require a comprehensive and wide-reaching policy strategy - involving ambitious targets and regulations, and the creation and support of new finance mechanisms, business models and dedicated intermediary actors to support policy implementation. This thesis therefore demonstrates how a focus on business models and financing provides an effective means of integrating the social and behavioural, organisational management and economic and financial challenges of retrofit. Thus, providing a coherent picture of how these problems fit together, as well as making a conceptual contribution. It further illustrates how policymakers can act to support business model innovation, through innovation intermediaries, and thus overcome many of the challenges facing the diffusion of whole-house retrofit.