According to a report published by Copernicus Climate Change Service (C3S), 2023 was the hottest year ever measured. Europe is now also facing the effects of climate change in the form of extreme weather events such as floods and fires. It is therefore no surprise that up to almost 80% of Europeans see climate change as a very serious problem.

Having already recognised the scale of the challenge in the face of the threat of environmental degradation and living conditions on the European continent, the European Commission in December 2019 adopted an action plan called the European Green Deal. This is a package of policy initiatives that aim to put the European Union on the path to a green transition and, ultimately, to achieve climate neutrality by 2050. It is also intended to support the transformation of the European Union into a modern, resource-efficient, and competitive economy.

In order to bring Europe closer to the ambitious goals of the European Green Deal, in July 2021 the European Commission presented the so-called ‘Fit for 55’ package, which consists of 12 proposals for legislative changes on climate and energy, covering almost all sectors of the EU economy, from energy to transport, construction, waste management, industry, but also agriculture and forestry.

The Construction Sector: one of the European Union’s priorities for energy reduction

One of the most important elements of the European Green Deal is to improve energy efficiency in the building sector. This is because buildings are Europe’s largest energy consumer – they account for around 40% of EU energy consumption, more than half of gas consumption (mainly through heating, cooling, and domestic hot water), and 35% of energy-related greenhouse gas emissions. Today, around 35% of buildings in the European Union are over 50 years old and almost 75% of buildings are energy inefficient. At the same time, the average annual renovation rate of buildings is only about 1%. Decarbonising this sector is therefore crucial to achieving Europe’s climate neutrality goals.

Therefore, because of the implementation of the ‘Fit for 55’ package, the European Parliament in April 2024 adopted an amendment to the Energy Performance of Buildings Directive (EPBD), the so-called ‘Buildings Directive‘. The Buildings Directive has already been described as an energy revolution in the construction industry and is generating considerable debate in the European public space. An important subject of debate in the context of the Buildings Directive is the discussion about sources of financing for investments to achieve the energy reduction targets set in the Directive, as well as how to implement the energy transition in a fair manner, with the aim of evenly reducing ‘energy poverty’ at a reasonable cost.

The Buildings Directive has already been described as an energy revolution in the construction industry and is generating considerable debate in the European public space. An important subject of debate in the context of the Buildings Directive is the discussion about sources of financing for investments to achieve the energy reduction targets set in the Directive, as well as how to implement the energy transition in a fair manner, with the aim of evenly reducing ‘energy poverty’ at a reasonable cost.

It must be admitted that the targets are extremely ambitious. Indeed, the Buildings Directive aims to achieve a reduction in greenhouse gas emissions in the European building sector of at least 60 per cent by 2030 compared to 2015 and the full decarbonisation of the building stock by 2050. Each European Union Member State will be required to reduce the average primary energy consumption of residential buildings by 16 per cent by 2030, and by as much as 20-22 per cent by 2035. For non-residential buildings, EU Member States will have to renovate 16% of the worst-performing buildings by 2030 and 26% of the worst-performing buildings by 2033. – 26% of the buildings with the worst energy performance.

At this point, European Union Directives are so-called ‘secondary legislation’, which means that the provisions of the Directives oblige the Member States to introduce into the national legal order legal solutions enabling the achievement of the results set out therein. They do, however, leave national authorities the freedom to choose the form and means of implementation, so that the social, economic, and legislative specificities of the European Union country in question can be considered. A directive must be transposed into the national legal ordinance within the time limit set out in the directive.

This means that, also in the case of the Buildings Directive, each EU country will be obliged to achieve the results set out therein (about which more later in this article), while the Member States will be free to choose how to reduce average energy consumption in buildings.

However, there is no doubt that the Buildings Directive will force each Member State to increase the rate of renovation of energy – inefficient buildings. This means several challenges for the construction sector in terms of energy retrofitting existing buildings, both around housing and public buildings.

Obligations under the Buildings Directive for public buildings

Let us therefore look at the most important obligations that the Buildings Directive imposes on Member States from a public building perspective:

New public buildings constructed from 1 January 2028 must be “zero-emission”

This commitment means that from 2028 onwards, newly constructed public buildings in the European Union (and from 2030 onwards, all other newly constructed buildings) are to be carbon-free from fossil fuels. In practice, this will result in new buildings moving away from coal or natural gas heat sources. In contrast, a maximum threshold for the energy demand of a ‘zero carbon building’ is to be set at the national regulatory level. However, this does not mean that, until then, newly constructed public buildings will not have to meet the emissions requirements of the Buildings Directive. Indeed, the Directive obliges Member States to ensure that all newly constructed public buildings by 2028 are at least ‘nearly zero energy’ buildings and meet minimum energy performance requirements for buildings. According to the Buildings Directive, a ‘near-zero energy building’ means a building whose energy demand is derived ‘to a very high degree from renewable energy sources’. This means in practice that already before 2028, new developments in the public building sector will have to meet high energy efficiency requirements and will have to be equipped with at least hybrid heating systems, combining, for example, a boiler with a solar thermal system or a heat pump. This will be a challenge for many EU countries, including Poland in particular, where, as in India, coal is still the main fuel in the energy sector, accounting for more than two-thirds of the country’s energy production and the main source of energy supplied to buildings.

From the end of 2026, photovoltaic installations must be installed on all new public buildings with a floor area over 250 m2

Importantly, the above obligation will also apply to all existing public buildings. According to the Buildings Directive, the obligation to install solar energy installations will cover existing public buildings with a floor area of more than (i) 2000 m2 (starting from the end of 2027); (ii) 750 m2 (starting from the end of 2028); (iii) 250 m2 (starting from the end of 2030). In turn, from 2029 onwards, the obligation to install photovoltaic installations will extend to all new residential buildings. Investments where the installation of photovoltaic installations is not “technically suitable and economically and functionally feasible” will be excluded from the above obligations. This means that any deviation from these obligations will need to be justified at the investment design stage.

From 2033 onwards, public buildings must have infrastructure for the installation of electric vehicle charging points for at least 50% of car parking spaces

In the above regard, it should be noted that the Buildings Directive already requires from 2027 the installation in all non-residential buildings with more than 20 car parking spaces of at least one charging point for every ten parking spaces or the provision of ducted infrastructure for at least half of the parking spaces.

Commitment to energy certification of public buildings

Energy certification consists of issuing so-called ‘energy performance certificates’ to buildings. An energy performance certificate is a document containing a data set of energy indicators for a building, which specifies its total energy requirements. By 31 December 2025 at the latest, the energy performance certificate shall be issued according to an adopted standardised template. This certificate shall specify the energy performance class of the building on a closed scale, using only letters A to G, where letter A corresponds to zero-emission buildings. In the case of public buildings, the Buildings Directive requires the introduction, at the national level, of minimum energy performance standards for such a building. The energy performance certificate of a public building will additionally have to be posted in a place visible to the public.

Member States will be obliged to support citizens in the energy transition

The energy transition of the European Green Deal will also affect housing. For example, traditional heating methods previously used in buildings in Poland, such as fuel cookers, will have to be phased out (until they are completely phased out by 2040) in favour of installations using ‘green’ energy, including solar energy. From January 2025, subsidies from the central government for the installation of fossil-fuel-fired boilers (including gas-fired boilers) will be stopped. The phasing out of the use of traditional energy sources in housing and the reliance on modern heating technologies will also require Member States to provide substantial support for residents to carry out thermo-modernisation and the installation of environmentally friendly heating systems – not only financially, but also in terms of education.

There will be no turning back from investments in improving energy efficiency in Europe

Regardless of the legislative solutions that will be applied at the national level in individual EU countries, there will be no turning back on investments in improving energy efficiency in the construction industry. This is because, in proportion to the growing requirements for energy efficiency in the building industry, the expectations of residents regarding the quality of use of the infrastructure – particularly public infrastructure, including educational establishments and health care facilities – will also increase. At the same time, not all investments in this sector will be able to be met from European Union funding. Therefore, irrespective of the financial support system for energy modernisation by the central government, local authorities should not give up looking for financing in the private sector, which additionally has access to new technologies and know-how in the field of efficient energy management in buildings. This is more so as investments in modern heating technologies and ‘zero-emission’ buildings require the acquisition of new competencies by the public sector.

Energy performance contracts

In the light of the above, it is important to look at the legal models available for effective cooperation between the public sector and the private sector, which have proven to work well in the past for public investment in the area of energy efficiency, based on experience from the Polish market. In this context, it is first and foremost worth noting the legal model that enables the implementation and financing of energy efficiency improvement projects based on an Energy Performance Contracting (EPC). The basic premise of this model is that a private entity carries out an energy efficiency improvement project in a comprehensive manner and assumes responsibility for the energy savings resulting from the investment. In practice, the selected contractor (Energy Savings Company – ESCO) will carry out the design work, implement the energy efficiency investment, provide the financing, and then be responsible for achieving the savings specified in the bid (e.g. through energy management, appropriate servicing of equipment, etc.). The remuneration of the ESCO-type energy – saving company will depend on the savings generated by the project.

Example of EPC project model

An example of an energy performance contract would be one where the ESCO undertakes to:

  • provide financing for investments in energy efficiency improvements (either from own resources or by using financing institutions/investment funds);

  • to carry out energy efficiency measures (e.g. major renovation of the building, replacement of heat sources, installation of a photovoltaic system);

  • the provision of a savings guarantee – the ESCO company guarantees that the savings generated by the optimisation measures undertaken will cover the costs incurred and that the investment will ‘pay for itself’ in energy savings. Most often, the contract specifies the sharing of the generated savings between the public and private parties.

As a result of the commitments given, the ESCO, for the duration of the contract, bears the risk of obtaining a return on investment, by correctly identifying the guaranteed level of savings and the corresponding share of the financial savings generated in relation to the expenses incurred. At the end of the contract, the public institution is the full beneficiary of the benefits of the energy savings achieved.

At the same time, it should be emphasised that only the allocation of risks specified in the EPC contract will have a decisive impact on the classification of financial obligations from this type of contract. Nonetheless, the above assumptions for the implementation of an EPC contract indicate that naturally the risks of execution of the investment and its result (or the greater part of them) rest on the ESCO company.

Hybrid projects in the energy efficiency sector

There are many indications that, in the coming years, energy performance contracting (EPC contracting) will not only be an instrument to support the implementation of energy efficiency improvement projects in the public sector but will also be an important element to support the absorption of EU funds aimed at achieving the objectives set out in the Buildings Directive. Indeed, as indicated in the preamble of the Buildings Directive, “Financial mechanisms and incentives, as well as the mobilisation of financial institutions for the energy refurbishment of buildings, should play a central role in the national building renovation plans and should be actively promoted by Member States. Such measures should include the promotion of energy-efficient mortgages for certified energy-efficient building renovations, the promotion of investments by public bodies in energy-efficient building stock, for example through public-private partnerships or energy performance contracting, or the reduction of the perceived risk of investments.” This process will be realised through the implementation of energy efficiency improvement projects involving a combination of preferential grant funding (e.g. from European Union funding) and capital provided by private businesses, so-called hybrid projects. Such a solution is expected to optimise project costs and enable implementation in a more efficient manner than in the case of traditional forms of financing public tasks (credits, loans).

Public-private partnership (PPP)

Also for investments in the construction of low-energy-demand buildings (zero-emission buildings) for energy, where new and efficient technologies will have to be used, cooperation with the private sector can bring tangible benefits. Therefore, the public-private partnership (PPP) model may be applicable to this type of investment. As in the case of energy efficiency contracts, public-private partnerships are a special form of cooperation between public entities and entrepreneurs, with the aim of achieving public tasks based on private capital and knowledge over the long term. Public-private partnership cooperation is based on entrusting each party to the contract with such tasks that it will perform better than the other party to the contract. According to this approach, partners complement each other’s resources, achieving the most effective result of cooperation in the creation of infrastructure and provision of public services. The long-term nature of the cooperation is also a distinguishing element of this form of project implementation. The rationale for concluding such long-term contracts is the fact that the subject of a public-private partnership agreement is often the implementation of infrastructure investments requiring the involvement of significant financial resources of the private investor, which, combined with the public entity’s desire to guarantee a high level of services provided, argues for entrusting the private partner with the implementation of the project for a longer period. As the very essence of public-private partnership shows, entities participating in PPP projects are characterized by a different legal status, and, as a rule, they have different goals connected with their activity. On the one hand, we are dealing with the public sector, whose task is to provide public services in the long term, and on the other, with an entrepreneur acting to make a calculated profit. Public-private partnership has a legal definition under European Union law. According to Article 2 (23b) of the General Regulation on EU Cohesion Policy 2014-2020, public-private partnership means forms of cooperation between public authorities and the private sector aimed at increasing the efficiency of the implementation of infrastructure investments or other types of operations, concerning public services, by sharing risks, drawing on the expertise of the private sector or obtaining additional sources of capital. Article 2 (23a), on the other hand, refers to the concept of a ‘PPP operation’ indicating that it is an operation that is or is to be carried out under a public-private partnership structure. As can be seen, this definition is very broad and covers various forms of interaction between the public and private sectors related to the implementation of public tasks. In the context of the above, it is projected that the PPP model can play a significant role in the energy transformation of public buildings due to its potential:

  • the provision of capital by the private sector to carry out the so-called ‘energy modernisation wave’;

  • to use the knowledge and experience of the private sector in the use of efficient technical and technological solutions to improve the energy efficiency of buildings (e.g. passive building technologies);

  • long-term cooperation that allows for monitoring of investment results by the public sector and the ability to enforce them against the private partner.


In conclusion, notwithstanding the energy reduction targets for the building sector indicated in the Buildings Directive, there will still be many challenges ahead for EU Member States in making investments in energy efficiency improvements in the building sector. The implementation of these commitments will undoubtedly require large financial resources, which may not be sufficient in the public sector at national levels. Thus, local authorities will have to look for efficient ways of financing, and taking steps to modernise public infrastructure, including through cooperation with the private sector. Therefore, in the perspective of the next few years, in addition to the traditional ways of financing and implementing this type of investment, both central and local authorities will look for complementary solutions, i.e. energy efficiency contracts, hybrid projects or public-private partnerships.


Advocate Michal Lizewski, Partner at LEGALLY.SMART


The views are personal and for general informational purposes only, and may not reflect the current law in your jurisdiction. It should not be construed as legal advice.

Editorial Team:

Managing Editor: Naman Anand
Editor in Chief: Abeer Tiwari and Harshita Tyagi
Senior Editor: Muskaan Aggarwal
Associate Editor: Debashri Chowdhury
Junior Editor: Parmi Banker

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