A Scenario Analysis of Financing Options for Energy Retrofits Among Irish Mortgage Holders

Abstract

This paper examines household costs and benefits of investing in building energy efficiency. Using a large sample of mortgaged households, we compare long-run benefits (energy and mortgage savings) and costs (loan instalments) across several loan types and scenarios. Our results show that retrofitting generally leads to net lifetime savings for most households. However, these savings are highly dependent on a number of key factors, including energy price assumptions, rebound effects (where energy use increases post-retrofit) and interest rates. In particular, the financial viability of retrofitting improves under scenarios with higher fossil fuel prices and lower electricity prices. Retrofitting through loan financing can create short-term cash flow pressures, where loan repayments exceed energy and mortgage savings, posing a significant barrier for many households. Longer loan terms and, in particular, mortgage top-ups, are the most effective means to smooth costs over time. These findings highlight the importance of tailored financing options and supportive policies to encourage retrofitting at scale, helping Ireland achieve its national climate targets. We note that these results are likely to be at the lower bound of household net benefits, as they do not account for increased wealth (higher property value) or improved comfort and health, all of which can be substantial.