GUEST SUBMISSION: As Canada works toward achieving net-zero greenhouse gas emissions by 2050, the role of building retrofits cannot be overemphasized.

Roughly 75 per cent of the buildings that will exist in 2030 are standing today and will require upgrades and retrofitting by 2050. Between 2020 and 2024, more than 600,000 homes were retrofitted nationwide, but activity has dropped following the wind down of federal grants. 

The next phase of decarbonization will depend less on incentives and more on whether retrofit projects can stand on their own as solid investments.

A common misconception about retrofits is that they are inherently too expensive. In reality, many energy efficiency measures already offer a strong economic rationale. Large-scale retrofit programs in Canada have demonstrated energy savings of 15 to 40 per cent for institutional and commercial buildings. Over time, these reductions translate into meaningful operating cost savings, improved asset performance, and lower exposure to energy price volatility.

For households, the impact is equally tangible. Canadians spend an average of $2,200 per year on home energy, with significantly higher costs in older, less-efficient buildings. Even modest efficiency improvements can translate into meaningful savings over time. Importantly, recent federal programs have shown that these investments can deliver net-positive returns at scale, generating billions in projected energy savings that could allow governments to defer large capital expenditures on power plants.

However, the total savings a project generates over its lifetime does not tell the whole story. It is shaped by how projects are financed, how risk is assessed and how investments are sequenced. The major challenge is timing. Retrofit projects typically require upfront capital, while returns are realized gradually through energy savings. For many building owners, that gap makes it hard to justify the spend, even when the long-term numbers are clearly in their favor. 

Financing structures are as important as technologies

Across Canada, retrofits increase when financing is aligned with performance. Models such as on-bill financing and energy performance contracts are effective because they connect repayment directly to energy savings.

In Manitoba, for example, more than $300 million in efficiency upgrades have been supported through utility-based financing programs, enabling repayment through monthly energy bills. Programs like The Atmospheric Fund Retrofit Accelerator are also helping to reduce early-stage barriers by covering up to 75 per cent of non-capital costs, including decarbonization studies and design work, which are critical steps in moving projects from concept to execution and are initial hurdles for many building owners.

Larger-scale financing is also beginning to emerge. A recent $70-million retrofit initiative backed by the Canada Infrastructure Bank, for example, is expected to reduce carbon emissions by approximately 40 per cent across a portfolio of multiresidential buildings, demonstrating that retrofits scale well across portfolios.

The role of cost of capital and risk

Borrowing costs can make or break a retrofit project. Return on investment is highly sensitive to interest rates and to the level of certainty around projected savings.

Where outcomes are unclear, lenders price in additional risk, increasing borrowing costs and weakening the business case. The solution is better data. Standardized ways of measuring and verifying energy performance give lenders and building owners the certainty they need, and over time, that confidence translates into lower financing costs and more projects getting done.

There is also a growing opportunity to attract larger pools of capital. Institutional investors are looking for stable, predictable returns, exactly what a well-structured portfolio of retrofits can offer. Bundling multiple projects together is one of the most practical ways to attract that kind of financing and move the market toward scale.

Further, retrofitted buildings have increased climate resilience, meaning they can have lower insurance costs and avoid costly repairs from extreme weather events. These “de-risked” buildings are becoming more preferred by some institutional lenders and can obtain better financial rates.

Better sequencing improves the economics

The financial success of a retrofit is not just about what changes are made, but also about the order in which they are executed. For example, factors such as project management efficiency, work timing and installation quality all affect overall costs and savings.

Sequencing plays an important role. Envelope improvements, for instance, reduce overall energy demand, which can lower the required capacity and cost of mechanical systems introduced later. When these measures are coordinated, they can improve overall project economics and reduce payback periods.

Bundling projects can further strengthen financial feasibility. Combining shorter-payback measures, such as lighting upgrades, with longer-term investments like insulation helps create a more balanced return profile, making projects more attractive to both owners and financiers.

This kind of integrated approach reflects a broader shift: from viewing retrofits as isolated upgrades to managing them as part of a long-term asset strategy.

Moving from incentives to scale

Incentive programs have played an important role in advancing early retrofit activity. But long-term progress will depend on building a market that can operate with less reliance on direct subsidies.

That means focusing on models that are replicable, financeable and aligned with how buildings are owned and operated. It also means continuing to address practical barriers – such as access to expertise, administrative complexity and competing capital priorities – that influence investment decisions.

Fortunately, many of the necessary tools are already in place. What is needed now is broader adoption and continued refinement.

A practical path forward

Retrofitting Canada’s building stock is a significant undertaking, but it is also a manageable one when approached pragmatically. Strong projects already exist. Proven financing models are in use. And the economic case is well established in many instances.

The next step is consistency. This means treating retrofits less as one-off initiatives and more as a standard part of asset management. It means structuring projects so that savings, financing and delivery are aligned from the outset. And it means giving building owners the confidence that these investments will perform as expected, both financially and environmentally.