A new report from the Smart Cities Marketplace Focus group warns that Europe's drive to decarbonise its housing stock is being held back by an inconsistent regulatory interpretation that treats deep retrofit performance-based service contracts as consumer credit agreements.
The findings come from the Focus Group “Deep Retrofitting Energy Performance Contracts for Private Homes” (2024–2025), which examined how Energy Performance Contracts (EPCs) — long-term agreements guaranteeing energy savings and comfort levels — could be used to fund deep home retrofits.
While EPCs are already common in the public sector, their use for private homes is blocked in several EU Member States because national financial authorities interpret them as consumer credit agreements. This misclassification subjects EPC providers to complex credit regulations designed for loans, not for performance-based services.
The report argues that this interpretation undermines the EPC model’s advantages — guaranteed energy savings, stable bills, and no upfront debt — and prevents third-party investors from financing home renovations. Without change, an estimated €300 billion in potential private investment could remain untapped each year, jeopardising progress towards the EU’s 2050 climate-neutrality target.
The Focus Group calls for the European Commission’s energy and justice departments (DG ENER and DG JUST) to issue a joint interpretative note clarifying that EPCs meeting specific performance and risk-transfer criteria should be classed as service contracts, not consumer credit. This would align with existing Eurostat accounting guidance and remove one of the biggest obstacles to scaling renovation finance for private homes.
Member States are urged to embed this clarification into their transpositions of the Consumer Credit Directive (EU 2023/2225), due by November 2026, and to coordinate between ministries of finance, energy, and housing.
Pilot examples from Latvia, Hungary, the Netherlands, and Belgium show that performance-based models are feasible but face regulatory uncertainty. In Latvia, the LABEEF project successfully refinanced long-term EPCs for apartment buildings without classifying them as credit, offering a blueprint for other countries.
The Focus Group concludes that European-level guidance is essential to harmonise national laws, attract private investment, and enable large-scale deep renovation of privately owned homes — a cornerstone for achieving the EU’s energy efficiency and building performance goals.
Disclaimer
The information, opinions and recommendations presented in this report/news item are those of the members of the Focus group. They do not necessarily reflect the views of the European Commission or the Smart Cities Marketplace. Neither the European Commission nor the Smart Cities Marketplace can be held responsible for any use that may be made of the information contained herein.