IEA (2023), There’s more to buildings than meets the eye: They hold a key to net zero emissions, IEA, Paris https://www.iea.org/commentaries/there-s-more-to-buildings-than-meets-the-eye-they-hold-a-key-to-net-zero-emissions, Licence: CC BY 4.0
Expanding role of buildings in the energy systems
At first look, buildings may appear like inert structures, giant boxes made of concrete, steel and glass. But on the inside, they provide space for many activities, most of which require energy. Energy consumption in buildings is needed for lighting, heating, cooling, cooking and powering all sorts of devices. Buildings account for about one third of the world’s final energy use and are key to achieving net zero emissions by mid-century. But in order to play their role in the transition to net zero, buildings must switch from being passive and inefficient energy consumers into active participants in the energy system.
In a modern net-zero future, most buildings would be equipped with a range of digital technologies together with energy efficiency measures and on-site renewable energy generation and storage. Such a transformation would not only allow buildings to use energy more efficiently, but also to interact with the grid to limit costly demand spikes. Electricity costs would decline for consumers, allowing them to take more control over their energy use and thermal comfort. It would also ease congestion in the grid and reduce the need for fossil-burning power plants and their related greenhouse-gas emissions.
Buildings need to become active players in the energy system
Efficiency, electrification and decarbonisation are key to net zero
It is a fact that energy efficiency is the first step to reaching net zero emissions. In buildings, that’s done by designing or upgrading building envelopes to be more efficient, and using the best-performing appliances and equipment. Government policy packages are key to driving this process. They should include mandatory energy efficiency requirements, incentives for industry and consumers, as well as information tools and other supporting policies.
Globally, 34% of total final energy consumption in buildings is now provided by electricity and therefore going all-electric is the most promising way forward, since electricity has the potential to be completely carbon-free. Solar photovoltaic is the cheapest source of energy today and by 2030, about 40% of all electricity used in buildings could be supplied by solar and wind. Buildings themselves can become sites for electricity generation by installing solar panels.
For heating and space cooling, electric heat pumps are more efficient than most existing systems. In Europe, the REPowerEU Plan aims to quadruple the number of heat pumps by 2030 to reduce region’s reliance on Russian natural gas, while globally 14 million heat pumps need to be installed each month in order to be on track for net zero by 2050.
Existing grids are not ready for electricity-producing buildings but smart digital technology can help
The inherent variable nature of renewable energy creates challenges for power systems, illustrated by the infamous duck curve. Standard grid design hasn’t changed substantially for a century and is mainly intended to operate with large centralised power plants that can dispatch energy at any time. Wind and solar generation challenge the stability of electricity networks because they are decentralised and variable, which is one reason countries such as Vietnam are curtailing excess renewable energy.
Modern electricity grids need to become more flexible to dynamically integrate numerous distributed energy resources, and to interact with buildings. The good news is that smart digital technologies can optimise energy use and renewable electricity generation.
Grids can communicate with buildings through software algorithms and smart controls, for example instructing a connected device or equipment (e.g. a heat pump or cooling system) to temporarily reduce its electricity use (load shedding) or shift it to when electricity is cleaner or cheaper (load shifting). Demand response programmes that manage peak loads (e.g. Saver’s Switch Program in the United States, Demand Response in Singapore) often offer monetary rewards for consumers.
About 90% of electric vehicle global charging stations are located in buildings, and smart charging can determine the best time to charge, based on information from the grid (e.g. Charging Perks Pilot, PLN program in Indonesia), especially if supported by time-of-use tariff mechanisms (like in Italy).
Electric vehicles are essentially batteries on wheels, and can be used to store energy. Bidirectional charging powered by vehicle-to-grid technology can both charge EVs and supply stored energy to the grid to balance demand spikes. Vehicle-to-home is similar, with the energy used to supply a home. A fully charged EV can support an average home for several days, and can produce net zero emissions if combined with a rooftop solar system. Electric water heaters can also be used as storage, if equipped with a storage tank and ”smartened” with special control devices. Heat energy can even be stored in well-insulated building envelopes. In Arizona, customers are paid for making their storage capacity available to the grid, almost like renting out a spare bedroom on Airbnb just for ‘hosting’ electricity.
Virtual power plants -- intelligent digital platforms that can make use of local energy storage, advanced data analytics, smart and innovative technologies (e.g. artificial intelligence, machine learning, blockchain, etc.) -- are already demonstrating benefits for the grid and consumers in Australia, California, Germany, China, and other countries.
Virtual power plants can also facilitate peer-to-peer energy trading, allowing buildings to sell their excess renewable electricity through an online platform. A project like this has been running for several years in a district of Bangkok. There are similar pilot projects in Bangladesh, Australia, United States, Malaysia, Singapore, India and Japan) but for them to scale, not only do buildings and systems need to become more efficient, but grids also need to better manage distributed energy resources. It’s a dramatic shift, akin to going from a single television broadcaster to a new connected world where everyone can create and share their own content.
Policy actions to drive the shift towards buildings-to-grid interaction
There are already various cost-effective solutions to make buildings much more efficient, smart, connected and flexible. However, policies and investments are lagging behind technological progress. Governments need to start seeing buildings as dynamic extensions of the grid that can adjust their consumption and production in reaction to congestion and prices, while providing flexibility and reducing emissions.
For that change to happen, building regulations need to strengthen provisions for energy efficiency, and introduce requirements for on-site solar generation, storage systems, smart EV charging and buildings-to-grid interactions. California has already updated its regulations for new buildings, while EU countries are testing and implementing a smart readiness indicator. Buildings need to be equipped with smart sensors and controls, as well as open communication standards (like OpenADR), to achieve inter-operability across building systems and with the grid.
Regulators can also unlock the potential of efficient grid-interactive buildings by designing electricity markets and retail rates that align consumer interests with the grid’s needs, aggregating distributed energy resources through dedicated actors (like virtual power plants), and allowing them participate in wholesale and ancillary electricity markets (e.g. in case of large consumers in Australia).
Such policy developments and implementation will require significant efforts from policy-makers around the world to analyse opportunities and risks, such as cybersecurity and data privacy. The IEA is already supporting governments to accelerate power system modernisation through its 3DEN initiative and to develop policy packages for energy efficiency in emerging economies under its E4 program.