Energy Retrofitting in Public Housing and Fuel Poverty Reduction: Cost–Benefit Trade-Offs

The Italian housing stock is one of the least energy-efficient in Europe. The residential sector accounts for 36% of primary energy consumption, and nearly 76% of Italian dwellings were built before 1981 (49% are more than 50 years old). According to the Italian Ministry of Economic Development, almost 90% of the Italian building stock exhibits an excessive energy demand. This condition widely affects public properties and specifically public housing. Due to the lack of financial resources, public-housing energy retrofitting is nowadays a critical issue in Italy. Nonetheless, energy retrofitting may play a key role in reducing fuel poverty, especially in public-housing contexts where there is a convergence of factors aggravating it: low-income households, which cannot afford high energy prices, and poor energy efficiency of homes due to the lack of insulation and/or inefficient heating systems. Although the urgent need for investments in the improvement of public-housing energy performance to comply with the Directive 2010/31/EU (recast in 2018—Directive 2018/844/EU) is widely recognized, the spread of good practices is strongly hampered by their cost-effectiveness and the split incentive issue. The aim of the paper is to provide a methodological framework to identify cost-effective and cost-optimal strategies of intervention that match technological advancements and knowledge in energy retrofitting, with both social and environmental needs and end-users behavior. We take into consideration the adoption of basic energy efficiency measures involving the building envelope, HVAC and domestic hot-water systems. We compare costs (e.g., investment and operating costs) and benefits (e.g., energy cost savings) and determine how far and how much it is optimal to push on retrofitting of public-housing assets. To solve this issue, we proposed to split monetary benefits due to energy savings between landlords and tenants to find a compromise solution that accounts for both landlords’ and tenants’ interests. Our results show that installation of building envelope thermal insulation guarantees paying back investment costs as quickly as possible. Nonetheless, this investment is not the most profitable from tenants’ perspective, due to relatively small monetary benefits obtained after a discounted payback period. From the tenants’ perspective, the replacement of existing boilers and the installation of building envelope thermal insulation proved to be the most profitable with respect to our split incentive hypothesis.