1. The four components of the return
The return on an energy retrofit is not simply the energy saved. It has four components, and the economist has to reflect all of them to produce a complete and honest calculation.
One, the direct energy saving: the reduction in annual consumption in kWh multiplied by the price of energy. It is the most tangible component, and the one whose projection is least certain, since the future price of energy is unpredictable.
Two, the grants and tax relief: the retrofit grant, the energy certificates, the reduced VAT rate and the interest-free loan. These reduce the net cost of the works, and reflecting them is indispensable to calculating the real payback.
Three, the effect on property value: a dwelling rated A or B sells on average 5 to 20 % higher than one rated E or F of the same area in the same location. That uplift is a real component of the return, and is routinely ignored.
Four, the value in use: better thermal comfort, less noise where insulation and windows are renewed, better air quality with heat recovery ventilation. These benefits are hard to monetise, but they weigh in the client's decision.
2. The savings by retrofit measure
| Measure | Estimated annual saving per m² | Typical rating gain | Indicative cost per m² | Gross payback | Net payback with average grants |
|---|---|---|---|---|---|
| Roof space insulation | 4 – 8 € a year | One band | 30 – 60 €/m² | 5 – 10 years | 3 – 6 years |
| Ground floor insulation | 3 – 6 € a year | Half a band | 25 – 50 €/m² | 6 – 12 years | 4 – 8 years |
| External wall insulation | 6 – 12 € a year | One to one and a half bands | 100 – 200 €/m² | 12 – 25 years | 8 – 16 years |
| Replacing the windows | 3 – 6 € a year | Half a band | 80 – 150 €/m² | 18 – 35 years | 12 – 22 years |
| Gas boiler replaced by an air-to-water heat pump | 8 – 18 € a year | One and a half to two bands | 80 – 140 €/m² | 5 – 10 years | 3 – 6 years |
| Heat recovery ventilation | 2 – 4 € a year | A third of a band | 25 – 50 €/m² | 10 – 20 years | 7 – 14 years |
| Whole-building retrofit | 18 – 35 € a year | Three to four bands | 400 – 800 €/m² | 15 – 25 years gross | 8 – 14 years net |
The three most profitable measures, roof space insulation, the heat pump and the whole-building retrofit, share a strong impact on consumption and a net payback under ten years. External wall insulation takes longer, 8 to 16 years, but delivers a bigger rating gain, and it is indispensable on a building with no perimeter insulation at all.
3. The method, step by step
Step 1, establish the starting position
The performance certificate before the works is the basis of the calculation. It gives the consumption in kWh/m² a year and the current energy bill. If no certificate exists or it is out of date, an energy audit or a fresh certificate has to be commissioned; that is the first expense of the exercise.
Step 2, estimate the consumption after the works
Estimating consumption after the works rests on a thermal simulation, carried out by an engineer or included in the energy audit. It gives the projected rating for each retrofit scenario. For feasibility purposes, the savings per measure in the table above give a sufficient estimate.
Step 3, calculate the annual saving
The annual saving is the difference between consumption before and after, multiplied by the current price of energy. The calculation has to be done by fuel, gas, electricity, oil, at each unit price. Use today's price: do not extrapolate future rises, which are too uncertain to be relied on.
Step 4, calculate the net cost after grants
The net cost is the gross cost including VAT at 5,5 %, less the retrofit grant and the energy certificates. The interest-free loan does not reduce the net cost; it funds the balance at zero interest. It has to be treated separately, comparing the monthly instalment against the monthly saving.
Step 5, calculate the payback
The gross payback is the gross cost divided by the annual saving. The net payback is the cost after grants divided by the annual saving. The net figure is the one to give the client, not the gross.
Step 6, reflect the effect on property value
On a dwelling worth 250 000 € rated F, moving to a B rating can add 15 000 to 40 000 € on resale, 6 to 16 % depending on the location. That uplift belongs in the overall return, reducing the effective net cost of the works.
4. A worked example: 120 m², from rating F to rating C
| Parameter | Before | After | Calculation |
|---|---|---|---|
| Rating | F, 280 kWh/m² a year | C, 120 kWh/m² a year | Estimated from the energy audit |
| Annual consumption | 33 600 kWh | 14 400 kWh | 120 m² × the rate per m² |
| Annual energy cost at 0,17 €/kWh | 5 712 € | 2 448 € | Consumption × unit price |
| Annual saving | 3 264 € | 5 712 less 2 448 € | |
| Works cost, net of VAT | 68 000 € | Insulation, windows, heat pump, ventilation | |
| VAT at 5,5 % | 3 740 € | 68 000 × 5,5 % | |
| Gross cost | 71 740 € | 68 000 plus 3 740 € | |
| Retrofit grant, middle income | – 12 000 € | Estimated on the scale in force | |
| Energy certificates | – 4 500 € | Estimated by measure | |
| Net cost after grants | 55 240 € | 71 740 less 12 000 less 4 500 € | |
| Gross payback | 22 years | 71 740 ÷ 3 264 € a year | |
| Net payback | 17 years | 55 240 ÷ 3 264 € a year | |
| With an interest-free loan over 15 years | 307 € a month | 55 240 € ÷ 15 years ÷ 12 months | |
| Monthly saving | 272 € a month | 3 264 € ÷ 12 | |
| Net monthly effort | 35 € a month | 307 less 272 €, close to neutral |
ℹ The tipping point: savings against the loan instalment In this example the loan instalment of 307 € a month sits very close to the monthly saving of 272 €, leaving a net effort of only 35 € a month for fifteen years. That is the key message for the client: the retrofit does not cost 55 000 €, it costs 35 € a month for fifteen years, during which the household saves 272 € a month on energy. The net value of the decision is clearly positive from the outset.
5. Four scenarios compared
The economist's real work on a retrofit project is to put a comparison of scenarios in front of the client, not a single figure. Each has a different return profile according to the owner's time horizon and situation: a landlord facing a letting ban, an owner-occupier under no constraint, an investor holding for the long term.
| Scenario | Measures | Net cost after grants | Rating gain | Annual saving | Net payback | When it fits |
|---|---|---|---|---|---|---|
| A, minimal measure | Heat pump alone | 8 000 – 12 000 € | One and a half bands | 1 500 – 2 500 € | 4 – 6 years | Short term, a dwelling caught by the current letting ban |
| B, partial retrofit | Heat pump, roof insulation, windows | 28 000 – 38 000 € | Two bands | 2 500 – 3 500 € | 10 – 14 years | Good performance, outside the 2028 obligation |
| C, whole-building retrofit | Heat pump, external insulation, roof, windows, ventilation | 55 000 – 75 000 € | Three to four bands | 3 000 – 4 500 € | 14 – 20 years | Optimal for grants, the enhanced scheme applies |
| D, full retrofit | Scenario C plus ground floor insulation and controls | 65 000 – 90 000 € | Four bands | 3 500 – 5 000 € | 16 – 22 years | Maximum comfort and the largest effect on value |
Scenario C is generally the most rational for an owner who wants to maximise the grants: it is the only one that reaches the eligibility threshold for the enhanced retrofit grant, which requires a gain of at least two rating bands. Scenario A is the emergency answer for a landlord whose dwelling is caught by the current ban, but it does not solve the 2028 and 2034 thresholds.
6. What the payback does not tell you
Every payback calculation rests on assumptions, and presenting them honestly to the client is an intellectual obligation of the economist.
The price of energy is uncertain: a 20 % rise mechanically improves the return, a fall degrades it. Projections over 15 to 20 years are trends, not certainties.
The rebound effect: a better-insulated dwelling is often heated warmer. Part of the theoretical saving is spent on additional comfort; the rebound is estimated at 10 to 30 % depending on the study.
Maintenance costs: a heat pump lasts 15 to 20 years and costs 150 to 300 € a year to service. Those costs belong in the whole-life calculation over the payback period.
The effect on value is local: the premium a good rating commands on the sale price depends on the local market. It is strong in the larger cities and weak in rural areas with low demand.
In summary
The return on an energy retrofit has four components: the direct energy saving, the grants and reduced VAT, the effect on property value, and the value in use. The three most profitable measures are roof space insulation with a net payback of 3 to 6 years, the heat pump at 3 to 6 years, and the whole-building retrofit at 8 to 14 years. The method runs in six steps: initial rating, projected consumption, annual saving, net cost after grants, net payback, effect on value. On the 120 m² example moving from F to C, the net cost is 55 240 €, the net payback 17 years, and the loan instalment of 307 € a month sits against a saving of 272 €, a net effort of 35 € a month for fifteen years. The whole-building scenario maximises the grants and is the most rational choice for an owner under no immediate constraint.
The nature of the figures quoted
The percentages and amounts quoted on this page are orders of magnitude for framing, not measurements. They illustrate mechanisms and proportions, and they substitute neither for a tender exercise nor for an estimate prepared on drawings.
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Sources: the BT construction cost indices published monthly by INSEE on its 2010 base, used to update the figures · construction cost statistics from SDES, the statistical service of the ministry responsible for construction · regulatory texts published in the Journal officiel and consolidated on Légifrance for the requirements cited.