Housing and Natural Gas: A Dependency That Has Gone On Long Enough

Summary

The building sector is the largest consumer of natural gas in France, accounting for 61% of final consumption, with more than half of that coming from the residential sector alone. The available measures to reduce this dependence are well known but are struggling to be implemented on a scale and at a pace sufficient to address current and future economic and climate challenges. In this article, we will analyze two of the main levers for reducing the housing sector’s dependence on natural gas, while adhering to the greenhouse gas emissions reduction framework defined by the SNBC, namely (i) thermal retrofitting and (ii) the decarbonization of energy sources used for heating and domestic hot water production. We will focus in particular on quantifying the impact of these two concrete measures on two key indicators: (i) final natural gas consumption in the residential sector and (ii) the financial impact of this transition on household energy bills. Through these analyses, we will examine the technical and financial conditions for a transition in the residential sector and, more broadly, the transformation of practices and the building industry that must be envisaged and planned for quickly to ensure that this transition actually takes place.

Europe must reduce its dependence on fossil fuels

The past few months have reminded us of Europe’s heavy dependence on fossil fuels—and France’s in particular. Indeed, as Alexandre Joly pointed out in March^[1], Europe's energy self-sufficiency rate in 2019 was only 40%, while France's did not exceed 52%.

Since crisis situations generally call for rapid and far-reaching decisions, it is necessary to take a step back to ensure that the solutions identified today are consistent with long-term objectives. It is therefore important to recall that the French government has committed to complying with the Paris Agreements^[2], any decision made to reduce dependence on fossil fuels must therefore also ensure a consistent path toward reducing greenhouse gas emissions, particularly in line with the objectives of the National Low-Carbon Strategy (SNBC).

For this reason, the models presented in this article will be aligned with the framework for reducing greenhouse gas emissions defined by the SNBC and, more specifically, with the model used in the publication “Neutrality and Housing.”^[3].

Aware of these global challenges, the International Energy Agency published a 10-point plan in March 2022 that meets these requirements^[4]. The construction sector plays a key role here: three measures directly concern it, while the sector can also contribute to two other measures.

Adapted from the “10-Point Plan to Reduce the European Union’s Dependence on Russian Natural Gas”^[4]

Housing on the Front Lines

It is no coincidence that the construction sector is so well represented in the IEA’s action plan. According to figures from the 2020 report on the National Low-Carbon Strategy (SNBC) and the Multi-Year Energy Plan (PPE)^[5], the building sector accounts for 61% of final natural gas consumption in France, with the residential sector alone accounting for more than half of that. The vast majority of this natural gas consumption is related to heating and domestic hot water production (94% of final consumption in 2020 in the residential sector, according to figures from CEREN^[6]).

Given these figures, it stands to reason that the building sector—and more specifically the residential sector—offers significant potential for reducing natural gas consumption. Furthermore, if we take another look at the IEA’s three proposals related to the building sector, we find the usual three pillars of the low-carbon transition: conservation, efficiency, and decarbonization of energy.

These three courses of action are therefore relevant not only for reducing our dependence on natural gas imports in the short term, but also for contributing to national greenhouse gas emission reduction targets in the long term.

What is the actual impact on the amount of gas consumed by the residential sector?

Two quantified action areas

We will not discuss the third lever (energy efficiency)—namely, reducing the set temperature—in detail here, although it is essential to the sector’s overall transition. It is indeed difficult to quantify its absolute effects (differences in initial conditions, the need for sustained implementation over time, and whether it can be implemented before or after renovation work). Nevertheless, it is possible to estimate the average impact of such a measure: ADEME estimates that lowering the thermostat by 1°C reduces energy consumption by 7%.^[7].

We are therefore interested here in quantifying the potential impact of the first two identified levers:

^[8]

Two scenarios modeled based on these factors

Based on these two courses of action, we consider two types of scenarios:

"Thermal retrofitting" includes the complete insulation of the building envelope, the replacement of exterior windows and doors, and the installation of an active ventilation system (see technical appendix).

Scenario 2 assumes a level of renovation equivalent to that in Scenario 1; the only addition is the change in energy source.

We do not consider any scenario that does not involve renovation and a transition to alternative energy sources for reasons of physical and technical consistency, given that optimizing energy needs must be a necessary prerequisite for an optimal transition to alternative energy systems, as detailed in several recent research projects^[9]. However, it should be noted that the practices actually observed in the field unfortunately differ significantly from this basic principle, resulting in performance levels that fall short of the established targets (equivalent to BBC).

An impact analysis conducted at two levels

The impact analysis is conducted on two levels:

* The single-family home in question is a 100-square-meter, uninsulated building heated by natural gas and built between 1948 and 1974 (there were approximately 2.8 million such homes in the residential housing stock in 2015, representing 17% of all single-family homes). This type of home was selected because it has the highest rate of natural gas connection.

The scale of single-family homes will, in particular, allow us to expand our analysis to include the financial aspect of this housing stock transition project, using the indicator of changes in household utility bills.

Results of the modeling at the level of the French residential housing stock

Modeling Scenario 1

“ "Energy-Efficient Renovation Without Changing Energy Sources"across the entire fleet

The models for Scenario 1 meet the constraints defined as necessary to comply with the target energy envelope of the National Low-Carbon Strategy, namely:

1. The renovation of the entire fleet of housing units built before 2000
2. A treatment for theall insulation packages unless there are specific technical constraints (median strip, distinctive facade, etc.)^[11]
3. The impact of minimum performance levels on insulation lots equivalent to those in the EEC standardized operation sheets^[12]
4. Special attention is paid to interfaces, with careful handling of thermal bridges and the airtightness of the building envelope

Modeling Scenario 2

“ "Energy-Efficient Renovation with a Switch to a New Energy Source"across the entire fleet

The models for Scenario 2 are subject to the same constraints as Scenario 1 (since the thermal retrofit phase is also implemented) but go a step further by replacing most of the gas-fired heating and domestic hot water systems in order to comply with the energy mix defined by the National Low-Carbon Strategy. These additional constraints are as follows:

1. Given the maturity of existing alternative solutions, the Gas systems in single-family homes should primarily be based on thermodynamic systems (Heat Pumps, Thermodynamic Water Heaters)
2. Given the existing and planned infrastructure, the Most gas-fired collective heating systems should be connected to district heating networks
3. Approximately One-quarter of multi-unit residential buildings heated by individual boilers will have to switch to thermodynamic systems individual or group

Results of the modeling at the scale of a typical single-family home^[13]

Modeling Scenario 1

“ "Energy-Efficient Renovation Without Changing Energy Sources"on the scale of a single-family home

The modeling assumptions for Scenario 1 at the single-family home level are the same as those outlined for the French housing stock as a whole (consideration of all insulation measures, minimum energy performance levels aligned with the Energy Efficiency Code (CEE), and specific attention paid to thermal bridges and airtightness).

Modeling Scenario 2

“ "Energy-Efficient Renovation with a Switch to a New Energy Source"on the scale of a single-family home

Consequently, all single-family homes equipped with dual-purpose heat pumps and wood-fired boilers would no longer consume any gas at all, while those equipped with hybrid heat pumps would see their annual gas consumption decrease as described below.

Quantification exercises—first conducted at the level of the French housing stock and then at the level of a typical single-family home—identify significant potential for reducing natural gas consumption, in the range of 85% by 2050.^[16]. However, achieving these levels of reduction in natural gas consumption will only be possible if all available measures are implemented, namely the thermal retrofitting of buildings (insulation, exterior windows and doors, ventilation) and the transition to new energy sources for heating and domestic hot water production.

Beyond quantifying this technical potential for reducing natural gas consumption, it is also necessary to consider the underlying cost of such a transition. The following section addresses this issue by estimating how the energy bill for a household in a single-family home would change under the two scenarios presented.

A Closer Look at the Financial Impact of Such a Transition on Household Bills

To quantify the financial impact of these two scenarios on household energy bills for single-family homes, we consider two main factors:

The annual energy bill consists of three components: the cost of the energy service contract and the cost of energy consumption^[17] and maintenance costs. All costs are stated in constant euros, including all taxes (€TTC).

The energy costs considered in this modeling exercise are based on regulated energy rates as of May 1, 2022:

• Gas: 0.088 € (including tax) per kWh;
• Electricity: 0.174 € (including tax) per kWh.

In this analysis, we considered a regulated energy price as of May 1, 2022. However, these prices reflect a specific situation, as a “rate cap” has been in place for several months now. Without this measure, the regulated gas rate as of May 1 would have increased by 78.3% including tax.^[18] (in fact, there has been no increase since October 1, 2021), while the cost of electricity is said to have risen by 35.4% including tax^[19] as of February 1, 2022 (compared with a 4% increase, including tax, as of the same date).

Methodological note:

We also assume that energy costs will remain constant over time for the projections we have made, although this assumption certainly does not reflect the reality of how the energy market will evolve in the coming years. However, since changes in energy costs—and more specifically, the ratio between the cost of a kilowatt-hour of electricity and a kilowatt-hour of natural gas (which is one of the key issues here)—are impossible to predict, any other assumption regarding cost trends would be just as questionable from the perspective of the future evolution of the energy market.

Financial Modeling for Scenario 1

“ "Energy-Efficient Renovation Without Changing Energy Sources"on the scale of a single-family home

^[20]

As a reminder, the typical single-family home considered in this example is a 100-square-meter, uninsulated building heated by natural gas and built between 1948 and 1974.

In addition, the thermal retrofit measures implemented under Scenario 1 are the same as those described in the previous models for Scenario 1 at the single-family home level.

Before Renovation

The total amount on the invoice is annual energy bill as described above (service charge, consumption, and maintenance) for a single-family home that has not been renovated and is heated by gas(€1,974). As a result, the situation is similar whether or not the renovation takes place.

The Year of Renovation

1. The total bill, excluding renovation costs, is always equal to only the Annual energy bill for a single-family home that has not been renovated and is heated by natural gas (€1,974) ;
2. The total bill, including renovation, amounts to Annual energy bill for a renovated single-family home heated by natural gas(€1,016), in addition to theCost of the energy-efficiency renovation work without changing the energy source (€38,623).

Cumulatively, over 20 years

1. The total bill, excluding renovation costs, is 20 years of energy bills for an unrenovated single-family home heated by natural gas(€39,485) ;
2. The total bill, including renovation, comes to 20 years of energy bills for a renovated single-family home heated by natural gas (€20,321), in addition to theCost of the energy-efficiency renovation work without changing the energy source (€38,623).

Modeling of This energy-efficient renovation, which does not involve switching energy sources, therefore leads to a 50 percent reduction in households' energy bills but this requires a a significant initial investment for which the return on investment depends heavily on financial assistance provided to these households.

Financial Modeling for Scenario 2

“ "Renovation with an Energy Upgrade"on the scale of a single-family home

As a reminder, the typical single-family home considered in this example is always the same 100-square-meter, uninsulated building, heated by gas and built between 1948 and 1974.

Furthermore, the thermal retrofit measures implemented under Scenario 2 are also the same as those described in the previous models for Scenario 2 at the single-family home level.

Before Renovation

The total amount on the invoice is Annual energy bill as described above (service charge, consumption, and maintenance) for a single-family home that has not been renovated and is heated by natural gas (€1,974). As a result, the situation is similar whether or not the renovation takes place.

The Year of Renovation

1. The total bill, excluding renovation costs, is always equal to only the Annual energy bill for a single-family home that has not been renovated and is heated by natural gas (€1,974) ;
2. The total bill, including renovation, amounts to Annual energy bill for a renovated single-family home heated with electricity using a dual-purpose heat pump(650 €), in addition to theinvestment required for energy-efficiency renovations and the replacement of heating and domestic hot water systems (€51,440).

Cumulatively, over 20 years

1. The total bill, excluding renovation costs, is 20 years of energy bills for an unrenovated single-family home heated by natural gas(€39,485) ;
2. The total bill, including renovation, comes to 20 Years of Energy Bills for a Renovated Single-Family Home Heated with Electricity Using a Dual-Purpose Heat Pump(€12,992), in addition to theinvestment required for energy-efficiency renovations and the replacement of heating and domestic hot water systems (€51,441).

This second model, which includes a switch to a different energy source in addition to the building’s thermal retrofit, results in a two-thirds reduction in household energy bills but requires an even larger initial investment (thermal retrofit + energy transition), making financial assistance necessary to achieve a satisfactory return on investment.

Conclusion

The French residential sector shows a a long-standing, very heavy reliance on natural gas which still accounts for 39% of final energy consumption in France today. However, the comprehensive building renovation offers significant opportunities to reduce this consumption while ensuring the climate transition planned for the sector under the National Low-Carbon Strategy.

The quantification exercises conducted for this article identify a significant potential for reducing natural gas consumption across the entire fleet (-86% by 2050^[21]) provided that we make full use of all available tools, namely the energy-efficient building retrofits (insulation, exterior windows and doors, ventilation) and the transition to new energy sources for heating and domestic hot water production. This reduction potential is also evident—with similar figures (85% of final gas consumption after renovation)—in single-family homes, which are particularly affected by high rates of natural gas connection.

However, financial modeling also shows that if The transition of France's housing stock will lead to a significant reduction in household energy costs, but it will also require substantial initial funding. This initial modeling shows that the combined amounts of MaPrimeRénov’ and CEE grants should provide the necessary funding for households in the lowest income brackets. In other cases, out-of-pocket costs ranging from approximately €5,000 to €15,000 are observed, depending on income levels.^[22]. Since the impact of this out-of-pocket cost varies greatly from household to household, the overall and collective transition of the residential housing stock can only take place if the issue of financial assistance for renovations is given a central role in future policies, in order to remove this barrier to the necessary initial investment.

Further Reading

More broadly, the analysis of natural gas consumption in the residential sector reveals a high direct dependence to this fossil fuel. It would therefore be appropriate—much like a greenhouse gas emissions assessment—to consider the the sector's indirect dependence on this energy source. For example, the metallurgical industry, which is essential to the manufacturing of steel and aluminum products The construction sector relies on natural gas for its steel and metallurgy processes, just as the flat glass industry does for the glass production It is also a major consumer of natural gas for its manufacturing processes^[23]. Conversely, it is also observed that the carbon footprint associated with the manufacture of insulation is more than offset—over the life cycle of buildings—by the reduction in emissions resulting from the improved energy efficiency achieved through the installation of this insulation.

Finally, in order to ensure that this global transition in the housing sector actually takes place, it will also be important to keep in mind Two key issues for this transition: (i) the availability of skilled workers to carry out these renovations, and (ii) the need for a strict regulatory framework for new construction.

Regarding the first point, the lack of the skills needed to carry out these renovations is already, in many cases, the a factor limiting progress toward achieving the ambitious goals for renovating the housing stock and this phenomenon is likely to grow rapidly, as indicated by recent analyses conducted by The Shift Project^[24] as part of the PTEF, estimating the additional needs for the renovation, amounting to approximately 100,000 FTE. The same report also identifies two main levers to be utilized to achieve this objective, namely an increase in initial and continuing education on topics related to comprehensive renovation but also the necessary planning and organizing the transfer of workers from new construction projects.

Finally, with regard to new construction, it is also essential to steer the sector toward the implementation of highly efficient low-carbon solutions starting now, in order to drastically reduce the need for energy-efficiency renovations in the future. Indeed, Any regulatory concessions regarding the carbon footprint of solutions implemented in new construction will subsequently lead to a necessary tightening of restrictions on renovation projects.

Technical Appendix

Table 1: Technical and financial assumptions for the energy-efficiency retrofit projects included in the models

Table 2: Technical and financial assumptions for the replacement of heating and domestic hot water systems included in the models