Technical Summary: A Systematic Review of the Economic Feasibility of Implementing Renewable Energy Systems in European Buildings

1. Problem Statement

The building sector is a major contributor to global environmental challenges, accounting for 33% of global greenhouse gas emissions, 40% of resource extraction, and 40% of waste production. Despite the building industry's potential to drive sustainable energy transitions, the adoption of renewable energy systems (RES) in European buildings remains below target levels, constituting only 5.9% of building energy consumption in 2022 against a 2030 target of 11%.

A central barrier to adoption is the uncertainty surrounding the economic feasibility of these investments. Traditional evaluation approaches often rely on single-point indicators or narrow perspectives that fail to capture the comprehensive economic consequences of renewable energy investments across diverse building types and European markets. Furthermore, existing literature exhibits significant methodological inconsistencies, including excessive reliance on simulated data, geographic representation biases (favoring Western/Northern Europe), and inconsistent economic evaluation approaches. These deficiencies undermine the practical application of research findings for stakeholders, including homeowners, investors, and policymakers.

2. Methodology

This study employs a systematic review following PRISMA guidelines to synthesize economic viability studies of renewable energy in European building applications from 2015 to 2025.

• Data Sources: Searches were conducted across Web of Science, Scopus, PubMed, and ScienceDirect, supplemented by expert opinion and reference screening.
• Selection Criteria: The review prioritized peer-reviewed articles containing explicit quantitative economic analysis (NPV, IRR, or payback period) based on empirical data or validated simulation models. Studies were required to cover both mature and developing European renewable energy markets.
• Screening Process: From an initial pool of 1,247 records, 47 studies met the final inclusion criteria after removing duplicates and excluding studies lacking quantitative economic detail, those conducted outside Europe, or those focusing solely on policy without building-specific economic assessment.
• Quality Assessment: A modified Newcastle-Ottawa Scale was used to evaluate study quality, categorizing 12 studies as high-quality, 24 as moderate-quality, and 11 as having methodological shortcomings.
• Standardization: To address heterogeneity in prior research, the review recalculated Net Present Value (NPV) using a uniform 5% discount rate (the median observed in the literature) and converted simple payback periods to discounted payback periods where original rates were not provided.
• Bias Assessment: The review utilized funnel plots and Egger's regression test to detect publication bias and assessed study-level biases, including funding source bias and geographic representation bias.

3. Key Contributions and Results

3.1 Technology-Specific Economic Performance

• Solar Photovoltaic (PV) Systems:

  • Residential Viability: Well-sized residential PV systems demonstrate superior economic performance. A case study in Poland revealed that a 5.70 kWp system (designed for total autonomy) yielded an Internal Rate of Return (IRR) of 15.66% and a Net Present Value (NPV) of €41,765.81 over 30 years.
  • System Sizing Impact: In contrast, a smaller 4.35 kWp system (reflecting common prosumer limitations) achieved an IRR of only 5.85% and an NPV of €8,119.50. The larger system delivered nearly five times the NPV of the conservative installation, with a payback period of under 8 years compared to approximately 17 years for the smaller system.
  • Sensitivity: Profitability is highly sensitive to electricity prices and emission costs but can be negated by high maintenance costs, particularly in undersized systems.

• Heat Pump Technologies:

  • Performance Variability: Heat pumps show high Coefficients of Performance (COP), reaching up to 3.65 in well-designed systems. However, economic performance varies significantly across European climate regions, a factor often inadequately explored in current literature.
  • Integration Synergies: Economic viability improves when heat pumps are integrated with building envelope improvements. Hybrid systems (e.g., Solar-assisted Air Source Heat Pumps) demonstrate superior economic outcomes compared to single-technology installations, offering lower annual operating costs and higher primary energy savings (up to 22%).

• Smart HVAC and Hybrid Systems:

  • Operational Factors: The economic feasibility of smart HVAC systems is heavily influenced by occupant behavior (e.g., "partial time and partial space" heating can reduce consumption by 50%) and building envelope thermal performance.
  • Retrofitting: Heat pump retrofits are most economically viable when replacing radiant floor heating systems or in buildings with poor thermal insulation. The payback period decreases significantly as building insulation improves.

3.2 Impact of Government Support and Policy

• Policy Mechanisms: Government support mechanisms, including subsidies, tax relief, and Feed-in Tariffs (FiT), are crucial. Hybrid schemes combining multiple instruments generally perform better than single-policy mechanisms.
• Regional Disparities:
  • Western/Northern Europe: Countries like Germany, Denmark, and the UK have achieved higher deployment levels through stable FiTs, reliable legal protection, and long-term policy guidance.
  • Southern/Eastern Europe: Despite initial market expansions, countries in these regions face challenges due to policy instability, fiscal constraints, and administrative complexities. The review notes that institutional capacity and governance effectiveness are as critical as the design of incentives themselves.
• Cost-Effectiveness: Comparative analysis (Table 3) indicates that countries with stable, long-term FiT legislation (e.g., Germany, Spain) achieve consistent IRRs (6–12%) and payback periods (7–14 years). However, the magnitude of subsidies shows diminishing marginal returns; policy stability is more critical for market growth than the sheer size of the subsidy.

3.3 Methodological Deficiencies Identified

The review identifies critical gaps in current research:

• Simulation Reliance: An excessive dependence on simulated data rather than long-term empirical performance data creates uncertainty regarding actual economic outcomes.
• Geographic Bias: Research is heavily concentrated in Western and Northern Europe, leading to an overestimation of universal applicability and under-examination of implementation challenges in Southern and Eastern markets.
• Inconsistent Metrics: The lack of standardized discount rates (ranging from 3% to 8% in the literature) and economic evaluation approaches hinders comparative analysis.
• Risk Assessment: Most studies provide point estimates (NPV, IRR) without comprehensive uncertainty or sensitivity analyses across the full range of variables.

4. Significance and Claims

The paper claims that while renewable energy technologies are economically feasible in European buildings, this viability is context-specific rather than generic. The study challenges the assumption of worldwide viability for renewable energy, demonstrating that economic outcomes are defied by variations in technology, region, and policy context.

Key Claims:

1. System Sizing is Critical: The dramatic difference in returns between optimally sized and conservatively sized systems suggests that current installation practices systematically under-optimise economic potential.
2. Institutional Capacity Matters: The persistent adoption gap between Western/Northern and Southern/Eastern Europe is driven not just by policy design but by institutional capacity and governance effectiveness.
3. Need for Integrated Analysis: Current economic analyses often treat renewable energy installations as discrete measures. The paper argues for integrated strategies that combine system sizing, climate-responsive technology selection, and building envelope optimization to capture full economic potential.
4. Methodological Reform: Future research must address methodological deficiencies by standardizing economic appraisal techniques, expanding geographic scope, and validating simulation-based projections with long-term empirical data.

The review concludes that successful investment and policy-making require moving beyond generic performance assumptions to adopt context-specific strategies that account for regional, technological, and institutional variances.