​Toolkit for building renovations

© IRENA 2025

Unless otherwise stated, material in this publication may be freely used, shared, copied, reproduced, printed and/or stored, provided that appropriate acknowledgement is given of IRENA as the source and copyright holder. Material in this publication that is attributed to third parties may be subject to separate terms of use and restrictions, and appropriate permissions from these third parties may need to be secured before any use of such material.

Acknowledgements

The digital report was authored by Ines Jacob, Karan Kochhar and Ellipse Rath under the guidance of Simon Benmarraze. Valuable input and comments were provided by IRENA experts Abdullah Fahad, Jinlei Feng, Alina Gilmanova (consultant), Petya Icheva, Paul Komor, Angela Khanali Mutsotso and external experts Damilola Adeyanju and Bogdan Atanasiu. Editorial and communications support were provided by Francis Field, Stephanie Clarke, Daria Gazzola and Yixuan Wang.

The report uses information collected in the context of the Innovation for Renewable Energy Transitions (IFRET) project funded by the European Union.

For further information or to provide feedback: publications@irena.org.

Disclaimer

This publication and the material herein are provided “as is”. All reasonable precautions have been taken by IRENA to verify the reliability of the material in this publication. However, neither IRENA nor any of its officials, agents, data or other third-party content providers provides a warranty of any kind, either expressed or implied, and they accept no responsibility or liability for any consequence of use of the publication or material herein

The information contained herein does not necessarily represent the views of all Members of IRENA. The mention of specific companies or certain projects or products does not imply that they are endorsed or recommended by IRENA in preference to others of a similar nature that are not mentioned. The designations employed and the presentation of material herein do not imply the expression of any opinion on the part of IRENA concerning the legal status of any region, country, territory, city or area or of its authorities, or concerning the delimitation of frontiers or boundaries.

Decarbonising the buildings sector is essential for the EU to meet its energy and climate targets. In 2023, the buildings sector accounted for around 40% of final energy consumption and one-third of energy-related greenhouse gas (GHG) ¹ emissions in the EU. Most of the EU’s building stock was constructed before 2000, and 75% of these buildings exhibit poor energy performance (European Commission, n.d.a).

Over 35% of EU buildings are more than 50 years old, with a significant portion built before the establishment of thermal insulation standards. It is estimated that around 85-95% of the current building stock will still be standing in 2050.

To facilitate the energy transition, at least 35 million buildings will need to undergo energy renovations by 2030 (European Commission, 2020a, 2023). Given that EU buildings are generally old and have poor energy performance, their renovation plays a key role in decarbonising the sector and contributing to the energy transition, while also providing other important benefits, outlined below.

• Economic benefits. Energy renovations can lead to substantial reductions in energy bills, with households saving up to 25% (Climate Group, 2024).
• Improved health and well-being. More than 50 million households in Europe lack adequate lighting, heating or cooling due to outdated heating systems and inadequate insulation (Mara Chlechowitz et al., 2021). Building renovations offer a chance to increase living standards in the EU by improving comfort and alleviating energy poverty. Renovations can increase thermal comfort, improve air quality and reduce noise pollution, leading to improvements in health and well-being (Climate Group, 2024).
• Enhanced climate resilience. The prolonged extreme temperatures in Europe – both heat waves and cold spells – along with other severe weather events underscore the need to make buildings more resilient and better adapted to climate challenges.
• Cultural preservation. Retrofitting heritage buildings to both preserve them while improving their overall energy efficiency provides a valuable opportunity to reduce energy consumption while contributing to cultural preservation.

Today, the annual rate of energy-related renovations in the EU stands at only 1%, with the rate of deep energy renovations even lower, at 0.2% (Figure 2). Deep energy renovations are defined as renovations that result in at least a 60% reduction of energy consumption (European Commission, 2020a). These renovations require a series of measures and steps to be completed, often involving higher upfront costs and longer payback periods compared with stand-alone retrofits; however, they naturally yield greater energy savings.

To accelerate the energy renovations of buildings, the European Commission has launched the Renovation Wave initiative, a central component of the EU Green Deal. Its objective is to double annual renovation rates across Member States by 2030, while ensuring that these efforts contribute to emissions reduction, improved indoor comfort and greater energy affordability. Central to this transformation is the integration of renewable energy technologies and energy efficiency measures, which are essential to reduce dependence on fossil fuels and facilitate the transition to a low-carbon economy.

A significant driver of the Renovation Wave is the urgent need to address energy affordability. More than 46 million Europeans are affected by energy poverty, a challenge that the EU’s Action Plan for Affordable Energy directly addresses. The plan focuses on enhancing the energy performance of buildings to lower energy bills – by as much as 25-30% – through targeted efficiency measures and a strengthened market for energy services. Wider adoption of technologies such as heat pumps and better home insulation could further decrease consumer costs and reduce fossil fuel imports by up to EUR 60 billion by 2030.

Promoting sustainable and energy-efficient renovations not only supports climate mitigation efforts but also delivers numerous socio-economic benefits, including job creation, economic recovery and improved quality of life across Europe.

Directives such as the Energy Performance of Buildings Directive (EPBD), Renewable Energy Directive (RED) and Energy Efficiency Directive (EED) provide a regulatory framework that supports the Renovation Wave.

The EPBD sets legally binding requirements for national renovation strategies and energy performance standards, including minimum energy performance standards (MEPS) for renovations and mandates for zero-emission buildings, thereby incentivising building renovations. To encourage extensive renovations and systematic energy savings in buildings, the EED establishes enforceable energy efficiency targets. Meanwhile, the Renovation Wave’s focus on renewables such as solar energy and efficient technologies like heat pumps aligns with the RED’s requirements for increased use of renewable energy for heating and cooling, accelerating the phase-out of fossil fuels in buildings. Together, these directives create a coherent framework aimed at achieving the Renovation Wave’s goals of renovating 35 million buildings and at least doubling the EU’s annual rate of energy renovations (European Commission, 2020b, 2025).

This section highlights the key barriers and enablers associated with building renovations, followed by specific recommendations for policy makers in Europe.

• Policy and regulation
  • Lack of administrative capacity and regulatory enforcement. The absence of administrative resources and a skilled workforce, especially at the local level, hinder the transposition of EU law to national legislation. This results in weak regulatory enforcement and impedes progress towards building renovation goals. Additionally, while Member States are required to submit National Building Renovation Plans (NBRPs) by the EPBD, these plans often lack binding milestones, funding mechanisms or consequences for failing to meet targets.
  • Implementation gap between EU legislation and action at the national and local level. Responsibilities for decision making and policy implementation are divided between national and local levels, leading to delays and a lack of co-ordination.
  • Lengthy or complex permitting processes. Although the revised RED has improved the framework for expedited permitting, particularly for renewable energy installations, permitting remains a significant barrier for building energy renovations in many EU Member States due to inconsistent implementation, administrative complexity and resource constraints. Additionally, renovations involving changes to the building envelope may also require compliance with local building codes and regulations.
  • Insufficient regulation for heritage buildings. Many countries exempt historical and heritage buildings from compliance with binding EU targets. Policy makers should address the need for renovations that preserve the integrity of these buildings.
• Markets, business models and finance
  • High upfront costs of retrofitting and integrating renewable and energy-efficient technologies in buildings. These costs, along with long payback periods, particularly affect low-income households and small businesses.
  • Limited and complex access to affordable finance solutions. This issue predominantly impacts vulnerable households, and small and medium enterprises (SMEs).
  • Split incentives (owner vs. tenant). One-third of EU residents live in rental housing, where landlords typically manage renovations while tenants bear the energy costs, resulting in split incentives (Keliauskaitė et al., 2024).
  • Market fragmentation. Decision-making processes vary significantly across different building types, ownership structures and renovation needs.
• Technology and infrastructure
  • Lack of accurate data hampers the monitoring and assessment of decarbonisation efforts.
  • Technical challenges arise from integrating low-carbon technologies into existing structures.
• Skills, community engagement and collaboration
  • Low awareness among building owners regarding the benefits of renovation leads to risk aversion towards the adoption of new technologies and deep renovation processes.
  • Lack of accessible community engagement programmes.
  • Lack of skilled labour for renovations.

To address the challenges outlined above, the International Renewable Energy Agency (IRENA) has identified several enablers across four pillars: (1) policy and regulation; (2) technology and infrastructure; (3) markets, business models and finance; and (4) skills, community engagement and collaboration.

• Policy and regulation
  • Clear targets for the buildings sector. Establishing explicit national and local GHG emission reduction and renewable energy targets – for example, the percentage of renewables in energy consumption within buildings, or technology-specific targets such as solar water heating – is crucial for providing accountability and direction for stakeholders.
  • Building renovation passports serve as documents that outline a long-term, step-by-step renovation roadmap for a specific building, following an on-site energy audit that meets particular quality criteria and indicators. They ensure co-ordination throughout the various phases of deep renovation and address the complexities that arise from differing building ownership situations during this process. The revised EPBD establishes a framework for renovation passports, offering a clear road map for phased extensive renovations as an additional optional tool (BPIE, 2024).
  • Minimum Energy Performance Standards (MEPS). The implementation of mandatory building MEPS is essential to enhance the efficiency of heating and cooling equipment and appliances.
  • Building codes. Mandatory building codes should be adopted, which may include requirements for energy supply and consumption while banning certain fossil fuel technologies.
  • Carbon pricing mechanisms. Implementing carbon pricing mechanisms for the buildings sector, in conjunction with the EU Emissions Trading System, is a vital policy tool to encourage decarbonisation. Given the sector’s substantial contribution to GHG emissions, this approach could significantly promote energy-efficient renovations and facilitate the integration of on-site renewable energy.
  • Subsidies and grants. Subsidies and grants are non-repayable economic incentives designed to alleviate the financial burden on property owners undertaking renovations. Although they present low risk, they often come with strict eligibility criteria. Priority should be given to the worst-performing residential buildings and vulnerable or low-income households (Keliauskaitė et al., 2024).
  • Tax incentives. Tax credits, deductions and exemptions are fiscal incentives applicable to building renovations, allowing owners to deduct renovation costs from their taxes.
  • Digital product passport. The digital product passport proposed by the Ecodesign for Sustainable Products Regulation aims to enhance transparency and ease for consumers, manufacturers and authorities, enabling better-informed decisions regarding sustainability, circularity and regulatory compliance (European Union, 2024).
  • Streamlined permitting processes. It is essential to streamline permitting processes; to develop tools such as online permit application systems, standardised permit application forms and templates for document requirements; and to establish clear timelines for permit reviews and standard steps for approval. The digitalisation and automation of parts of the review process, to allow for real-time tracking by applicants and to facilitate data sharing between relevant authorities, play a crucial role in reducing delays and minimising administrative bottlenecks.
• Markets, business models and finance
  • Energy service companies (ESCOs) and energy performance contracting (EPC). Through EPC, ESCOs contractually guarantee a specified amount of energy savings. The ESCO is responsible for managing the entire project and assumes all associated risks, including technical, financial and performance risks. The facility owner or manager incurs no additional expenses, as the capital improvements necessary for energy upgrades are financed through the savings generated. Both contractual parties aim to maximise investment while pursuing the greatest possible savings (SECCA, n.d.).
  • Green loans and energy-efficient mortgages are debt financing mechanisms that offer low interest rates and typically feature long repayment periods. These options can be combined with grants or other public funds to address the common challenges that low-income households and small buildings encounter in accessing loans. Such mechanisms are particularly suitable for residential and commercial properties.
  • Green bonds are another form of debt financing, usually issued in larger amounts and traded publicly. They are issued by public or private organisations to raise funds for environmentally beneficial projects. Buyers of green bonds became the issuer’s creditors, and the issuer is obligated to repay the loan balance with interest over time (ICMA, 2021).
  • On-bill finance. Pay-as-you-save (or on-bill finance) refers to financing schemes where customer repay investments in energy efficiency or renewable energy through their utility bills. A utility or a private capital provider covers the upfront costs for renovation, which customers then repay over time. This approach reduces or eliminates the need for upfront capital. It is an accessible option characterised by low interest rates and streamlined repayment processes, although it does require the participation of utility companies (Better Buildings, n.d.; Keliauskaitė et al., 2024).
  • Public-private partnerships (PPPs) are agreements between public entities and private companies, wherein the latter is contracted to carry out energy renovations in public buildings. These arrangements allow national or subnational/local authorities to “outsource” energy renovation projects.
  • Sustainability-linked investments are financing options designed for commercial or public buildings, contingent on meeting specific sustainability targets. In this model, banks provide loans to businesses and public entities specifically for energy renovation projects. This approach incentivises these entities to achieve their sustainability goals and necessitates clear reporting of their objectives (MSCI, 2025).
  • Loan guarantees are financial instruments through which private lenders (such as banks or other financial institutions) receive backing from public organisations (including the EU, national governments or public banks) that partially compensate them for potential losses if borrowers default. Consequently, lenders are more willing to issue loans for building improvements, often at lower interest rates or even to higher-risk borrowers who may not qualify otherwise.
  • Risk sharing mechanisms encompass first-loss agreements, co-lending and portfolio guarantees, whereby governmental organisations and private lenders share the risk of loan defaults. This collaboration can facilitate increased private investment and further motivate banks to participate in funding renovations (GNE Ventures, 2025).
  • Energy communities consist of groups of individuals or organisations/companies coming together to fund renovations, thereby alleviating the financial burden on individual members. This initiative empowers citizens to secure local benefits such as reduced energy bills, enhanced energy efficiency and decreased energy poverty while financing energy renovations. Effective collaboration among participants is crucial, as it can boost public awareness and acceptance of integrating energy efficiency solutions and renewable energy technologies within the buildings sector (European Commission n.d.[b]).
  • Public procurement can stimulate the market and generate demand for energy-efficient and renewable solutions through the procurement of services and products for public buildings (Sustainable Energy Connectivity in Central Asia, n.d.).
  • One-stop-shops (OSSs) are independent contractors that manage entire rehabilitation projects, serving as a liaison between the project recipients and the comprehensive supply chain and decision-making process. These responsibilities include monitoring, delivery and addressing financial and legal considerations. OSSs possess the necessary tools and expertise to help property owners overcome significant barriers, such as lack of funding, technical knowledge or the capability to plan complex renovations and navigate associated procedures (European Commission, 2021).
  • The energy-as-a-service business model allows users to pay solely for the use of technologies such as solar rooftop photovoltaic (PV) systems through a subscription, eliminating the need for ownership or the costs associated with installation.
• Technology and infrastructure
  • Reduced demand and improved energy efficiency. Demand for energy services in buildings can be reduced by:
    • Utilising materials with lower embodied carbon. When replacing building envelope materials to enhance insulation, opt for materials with lower embodied carbon – that is, emissions across the life cycle, from the extraction of raw materials to the transport of the final product.
    • Smart building energy management systems. The implementation of smart technologies along with the integration of artificial intelligence (AI) and the Internet of Things (IoT) enables the optimisation of energy consumption, facilitates sector coupling and enhances monitoring and usage of data for flexibility purposes.
    • Demand response and flexibility by utilising power-to-heat, storage solutions, electric vehicles (EVs) and smart appliances.
    • Energy-efficient appliances and equipment. Switching to energy-efficient appliances and equipment results in reduced demand.
  • Integration of renewable energy resources through direct use or renewable electricity. Promoting the direct use of local renewable energy resources, such as solar thermal, geothermal or biomass for heating, is an important complement to the integration of renewable energy through electrification.
  • District heating and cooling. Centralised district heating and cooling systems cater to the heating and cooling demands of multiple buildings simultaneously. Fourth- and fifth-generation district heating and cooling systems operate at lower temperatures, which enhances efficiency and allows for the utilisation of low-temperature renewable heat sources.
  • Grid modernisation and expansion. Increased electrification of the buildings sector requires additional grid capacity to meet the growing electricity demand. Additionally, the integration of smart technologies in buildings (and their successful facilitation of greater flexibility in energy use) requires the modernisation of grid infrastructure.
• Skills, community engagement and collaboration
  • Engagement with local communities to increase public awareness and acceptance. Fostering public awareness regarding the need for and benefits (environmental, economic and social) of integrating renewable energy and energy efficiency in existing buildings is essential. The public sector plays an important role in demonstrating the application of relevant solutions and their benefits by implementing energy renovations in governmental, municipal and public buildings.
  • Training programmes to equip workers with skills. Technical training programmes should provide workers with the skills needed for renovation projects. Reskilling and upskilling workers from other sectors and industries (such as fossil fuel industries) is essential.
  • Knowledge sharing focused on best practices. Multi-stakeholder platforms for the exchange of best practices can facilitate their expansion. Also, it is important to develop capacity-building programmes, particularly at the local level, to support energy-related renovations of the existing building stock.

• Countries should set clear emission reduction and renewable energy targets for the buildings sector. While the revised EPBD sets energy consumption reduction and renovation targets at the EU level, establishing GHG emission reduction and renewable energy targets at the national level ensures accountability, better tracking of progress and allows countries to tailor actions to their specific building stock, climate and socioeconomic context. It also provides national stakeholders with a clear direction. Additionally, countries can complement the EPBD’s energy consumption targets with clearer and more ambitious national targets and establish specific renovation rates for residential, commercial and public buildings.
  • The implementation of targets needs appropriate administrative capacity and regulatory enforcement. The NBRPs that EU Members are required to develop should include clear roadmaps with concrete short- and medium-term actions, as well as binding measures to achieve the EU’s objective of a decarbonised buildings sector by 2050. It is essential to establish robust frameworks for implementation and monitoring progress at the national and subnational levels.
  • Setting clear standard definitions for net-zero buildings and their requirements for existing structures at the EU level would help ensure that renovated buildings adhere to such ambitious standards.
• Knowledge exchange between national governments and subnational governments is key:
  • While Member States are required to transpose EU directives into their national regulations, there is often a lack of effective knowledge transfer to the local level. Equipping municipalities with the right tools is vital.
  • One-stop shops can offer de-risking elements alongside information, financing and technical support.
  • There should be focus on capacity building and training programmes at the local level.
• NBRPs must address deep energy renovations in public buildings. The revised EED (EU/2023/1791) mandates that at least 3% of public buildings at local, regional and national levels with a total useful floor area exceeding 250 square metres be renovated annually to meet nearly zero-energy or zero-emission standards. Public buildings, such as schools, hospitals and administrative offices, are highly visible and can demonstrate the benefits of deep renovation – such as lower energy bills, improved indoor comfort and reduced emissions – to citizens and private stakeholders.
  • Public buildings should meet or exceed current renovation standards, setting benchmarks for private sector renovations.
  • Integrating green public procurement into building renovation allows public authorities to reduce GHG emissions and promote sustainability. By prioritising renewable technologies and energy-efficient solutions public procurement fosters innovative, environmentally responsible projects and aligns renovations with EU climate goals, although enhanced guidance and skills are still needed.
  • PPPs can mobilise private investment and expertise for large-scale renovations, making ambitious projects feasible. By structuring contracts around long-term performance and sustainability, PPPs enable public buildings to exemplify best practices, accelerate innovation and encourage the replication of successful models across the EU.
  • It is important to monitor and communicate results. Tracking energy savings, cost reductions and co-benefits from public building renovations, and sharing these successes, can inspire broader market uptake.
• Accelerate the deployment of heat pumps and renewable energy technologies and in building renovations. It is essential to focus on economic incentives, regulatory frameworks, financial mechanisms and the systemic integration of mature technologies. Key recommendations include to:
  • Address energy price disparities. The electricity-to-gas price ratio should be less than 2 to incentivise the installation of heat pumps. This can be achieved through targeted subsidies for heat pump electricity tariffs, carbon pricing mechanisms and tax reforms.
  • Mandate technology integration in renovations. NBRPs should set specific technology deployment targets.
  • Leverage co-benefits in policy design such as the advantages of grid flexibility.
  • Implement support mechanisms such as renovation grants that prioritise low-income households and SMEs.
  • Demonstrate scalability of technologies with applications in public buildings.
• Accelerate flexibility services in buildings with appropriate rewards. Currently, flexibility services provided by buildings are not properly rewarded. However, smart buildings play a crucial role in contributing to grid flexibility and accelerating the energy transition. Measures such as implementing targeted subsidies for technologies that enable flexibility, offering higher compensation for new flexibility providers or for selling electricity to the grid and deploying dynamic grid tariffs should be considered. Incorporating flexibility into renewable technologies’ support schemes could accelerate flexibility services by incentivizing building owners to participate in flexibility markets.

Skills shortages are common across many sectors, and addressing them is particularly critical for the deployment of innovative solutions. In the context of building renovation, IRENA identifies four key skill areas that are essential to address:

Digital skills

• Utilising building information modelling for renovation planning and execution.
• Integrating energy management systems and smart building technologies.
• Applying AI and IoT to monitor and optimise energy consumption.

Technical skills

• Installing and maintaining energy-efficient systems, including heating, ventilation and air conditioning (HVAC) systems, heat pumps and solar PV.
• Conducting energy audits and performance assessments.
• Retrofitting building envelopes for insulation and passive design.

Sustainability skills

• Designing and executing nearly-zero-energy building renovations.
• Understanding renewable energy integration, including solar thermal, PV, biomass and geothermal.
• Applying circular economy principles in construction materials and waste management.

Soft skills

• Managing projects and facilitating multi-stakeholder co-ordination.
• Planning finances and securing renovation funding.
• Communicating and training building users on energy-efficient practices.

To assist stakeholders in bridging the skills gap, IRENA proposes a five-step action plan (Figure 3):

1. Anticipate and align skills
   • Forecast emerging needs. Regularly assess future skill requirements for installing and maintaining advanced HVAC systems, heat pumps and solar PV systems, as well as for conducting energy audits and high-quality retrofits of building envelopes.
   • EU policy integration. Incorporate updated building renovation targets, EPBD requirements and “Fit for 55” objectives into national training and qualification frameworks.
2. Upskill and reskill the workforce
   • Curriculum modernisation. Integrate digital diagnostics, sustainability principles and life-cycle cost analysis into vocational and higher education programmes.
   • Flexible upskilling and reskilling. Offer short courses, certification programmes and on-site apprenticeships that cater to busy professionals and facilitate transitions from fossil-based industries to clean energy roles.
3. Strengthen institutions
   • Professional development for policy makers and regulators. Train public officials in implementing performance-based renovation strategies, green procurement and robust financing instruments (e.g. Renovation Wave initiatives).
   • Support for system operators and building managers. Enhance skills in data analytics, smart building controls and integrated energy management to improve indoor comfort and optimise grid interaction.
4. Foster diversity and local value
   • Inclusive workforce policies. Encourage women, youth and minorities to enter the renovation sector through targeted mentorships, scholarships and gender-sensitive policies.
   • Local value creation. Empower SMEs to produce high-quality, locally sourced materials and services, thereby strengthening European autonomy, resilience and economic returns.
5. Continuous monitoring, knowledge sharing and improvement. Regularly monitor and track progress towards bridging the skills gap. Share best practices and lessons learnt across relevant stakeholders to reduce fragmentation and duplication of effort. Maintain continuous improvement through ongoing evaluation and updating of training and education programmes.

IRENA has compiled best practices across the four pillars and across Europe, that can be viewed in a dashboard format. The dashboard also includes a techno-economic analysis of two case studies.

This section focuses on specific strategies and measures to decarbonise existing buildings through energy renovations (Figure 4).

Embodied carbon in construction materials

Key steps forward include the replacement of existing construction materials with those with less embodied carbon. This could significantly reduce emissions in the buildings sector. Embodied carbon refers to the emissions associated with the life cycle of construction materials, from extraction to end of life (WBCSD, 2021).

This is important to consider not only in new buildings, but also in existing structures where replacing the envelope materials could improve insulation, leading to reduced energy demand. In these scenarios, using materials with lower embodied carbon would further decrease emissions.

Passive building design techniques

Passive building techniques, especially those improving the insulation of the building envelope, have the potential to significantly reduce energy demand. Reducing energy demand, particularly for heating and cooling, is essential to integrating low-temperature renewable energy solutions.

• Building envelope improvements. Measures that improve insulation such as replacing materials in the building envelope, sealing up air leaks and installing cool or green surfaces on walls and roofs can significantly reduce energy demand.
• Ventilation and radiative measures. Strategies that control solar radiation through shading, glazing and aperture support are helpful in lowering cooling and heating demands. Effective ventilation is also vital for indoor air quality and serves as a passive cooling technique.
• Using thermal mass. Some materials can absorb, store and release heat, which is essential for regulating interior temperatures, enhancing comfort and reducing energy use in space heating and cooling (New Zealand Government, 2023; UNEP, 2023).

Building operations can be made more energy-efficient by reducing demand for various energy services through the implementation of smart building energy management systems, upgrading to more efficient equipment and appliances, and integrating demand response and flexibility.

Smart building energy management systems

Building energy management systems utilise advanced technologies such as IoT and AI to monitor and optimise the use of HVAC systems, smart appliances and distributed energy resources. Also, the use of such tools is key to managing flexibility services (Hernández et al. 2024).

• Internet of Things (IoT). IoT devices, or connected devices, utilise electronics, sensors and software to connect and exchange data over the internet. They enable efficient integration of the power and heat sectors, support remote monitoring and management, help lower energy prices and carbon emissions and maximise the use of renewable sources through automation. To reduce energy costs, enhance operations and offer demand response flexibility to the grid, these devices can adjust the energy consumption of loads such as heat pumps and water heaters in response to price signals or grid conditions. Smart meters are an example of IoT devices that measure the energy fed into energy networks and consumed by them, providing real-time data to both consumers and suppliers (IRENA, 2023).
• Artificial Intelligence (AI). AI enhances IoT data and communications, particularly in developing predictive energy consumption models for buildings. These models consider factors such as thermal characteristics, meteorological conditions, solar irradiance, wind velocity and user behaviour. AI-based approaches improve accuracy in forecasting short-term fluctuations, thus enabling better control applications. AI also enhances energy efficiency by forecasting heating and cooling demands, managing loads and optimising heating and cooling storage facilities. This facilitates greater utilisation of renewable energy sources (IRENA, 2023).

Demand response and flexibility

Demand-side flexibility refers to the portion of demand that can be reduced, increased or shifted over a specific period of time to facilitate the integration of variable renewable energy (VRE). This can be achieved by reshaping load profiles to align with VRE generation, reducing peak load and seasonality, and lowering electricity generation costs. In residential and commercial buildings, this flexibility can be achieved through sector coupling (such as power-to-heat and smart charging of EVs).

In buildings, the following technologies can provide demand-side flexibility:

• Power-to-heat. Technologies such as heat pumps, electric boilers and thermal storage can contribute to VRE integration and offer more flexibility. For instance, systems comprising a heat pump coupled with thermal storage can absorb excess VRE when it is available, store it in the thermal storage and then release it later to meet heating demand when electricity prices are high or VRE generation is low.
• Electric vehicles (EVs). EVs can also offer flexibility by integrating the transport and power sectors through smart charging strategies. This optimises the charging process based on distribution and transmission grid constraints, local availability of renewable energy sources and customers’ preferences. EV charging in commercial buildings and public spaces can facilitate the integration of a greater amount of solar PV generation, thereby reducing carbon dioxide emissions and overall production costs. In residential properties, EVs can help integrate a higher amount of VRE, primarily from wind power, by shifting electricity demand from peak price periods to off-peak periods or by providing reserves (IRENA, 2019)

For more information, refer to IRENA’s (2019) report: Demand-side flexibility for power sector transformation.

Other storage technologies, such as batteries, also offer flexibility by allowing electricity storage during periods of excess VRE and lower electricity prices. This stored energy can then be used during times of low VRE is generation when prices are higher.

Energy-efficient appliances and equipment

Electrical appliances and lighting consume electricity, while space cooling largely depends on air conditioning units that also use electricity. To achieve decarbonisation, it is crucial to not only improve the building envelope and utilise renewable electricity, but also to replace appliances and equipment with more efficient alternatives. This approach directly benefits consumers by lowering energy bills.

• Space cooling. The share of electricity consumption attributed to cooling in buildings is expected to rise in the future due to a warmer climate and increased ownership of air conditioning units (IRENA, 2025). Therefore, installing higher-efficiency equipment is essential to reduce demand.
• Electric appliances. Electric appliances should be upgraded to more efficient ones to lower energy bills.
• Lighting. Replacing lighting equipment with more efficient technologies could significantly reduce electricity consumption from this energy service.

Enforcement of MEPS, together with the labelling of appliances, highly incentivises the replacement of less-efficient appliances and equipment.

Space heating and domestic hot water account for the largest share of total final energy consumption in residential buildings (78%) and over half of these energy services’ demand is met directly by fossil fuels ² (European Commission, 2024). Decarbonising heating services should be a top priority.

Renewables-sourced space and water heating

Decentralised, renewables-sourced heating refers to heat supplied to individual buildings or households produced that is generated from renewable sources. Several technologies commonly used for heating in buildings are outlined below.

As highlighted in IRENA’s (2025) EU RETO report, heat pumps are among the leading technologies that should be widely deployed to decarbonise space and water heating. They can also be utilised for space cooling ³ .

Other technologies to consider for space and water heating include electric boilers, biomass boilers, solar thermal systems and district heating. All of these technologies are mature and are already employed in numerous European buildings. It is important to note that heat pumps and electric boilers must utilise renewables-sourced electricity to be deemed suitable for decarbonisation.

Specific aspects must be taken into account when integrating decentralised low-temperature heating systems into existing buildings to replace fossil fuel heating systems, as illustrated in Table 1.

District heating and cooling

District heating and cooling systems are centralised systems capable of meeting the heating and cooling needs of multiple buildings. The most commonly used renewable-energy-based technology for district heating is biomass heating, particularly prevalent in Europe. Countries such as Sweden, Denmark and Austria have achieved significant shares of renewables in their district heating mix, often exceeding 50% through biomass solutions (Fournier, 2025). Other technologies increasingly adopted for district heating include electric boilers, large-scale heat pumps, geothermal energy, solar thermal systems and waste heat. ⁴

The aforementioned technologies used for district heating can also be adapted for district cooling; however, the system must incorporate suitable conversion technologies, such as absorption chillers or heat pumps, to facilitate cooling. While district heating is already widespread, district cooling is just beginning to develop; yet, it holds significant potential, particularly in relatively hot regions. Another method for providing cooling in district systems through the use of free cooling (IRENA, 2021).

Building integrated photovoltaics (BIPV) and rooftop photovoltaics

BIPV refers to PV materials that are directly incorporated into the building envelope, including façades, roofs, skylights and windows. These materials function both as essential building components and as energy generation technologies. As part of the building envelope, BIPV must fulfil various functionalities such as providing shading, protecting against outdoor conditions, offering thermal insulation and ensuring occupant comfort, all while integrating seamlessly with the building’s design and architectural style. In contrast, building-attached PV systems – such as rooftop PV – are simply mounted on the existing roof of the building and are solely dedicated to electricity generation.