Cities Are Turning Energy Savings Into Infrastructure Capacity

Buildings account for around 40% of the European Union’s energy consumption. Better insulation, intelligent controls and flexible electricity demand can reduce the pressure on urban networks, giving cities another way to accommodate growth without relying entirely on new infrastructure.

Europe’s cities face growing demands on their electricity networks as transport, heating and other activities shift away from fossil fuels. Electric vehicles require charging infrastructure, heat pumps bring additional loads into residential neighbourhoods, and new commercial developments compete for capacity that local networks cannot always provide immediately.

Grid operators are investing in additional cables, substations and other equipment, but buildings already connected to the network offer another source of capacity. Reducing their energy requirements and controlling when they consume electricity can release capacity for other users, particularly where demand is concentrated at particular times of day.

The International Energy Agency estimates that buildings account for approximately 30% of global final energy consumption. In the European Union, the European Commission puts their share at around 40%, reflecting the extensive energy requirements of heating, cooling, lighting and building services.

Much of this consumption comes from buildings constructed before modern energy-performance standards. Their heating systems, insulation and ventilation equipment were often designed without the sensors and controls now available to adjust energy use according to occupancy and operating conditions.

Existing Buildings Offer More Than Energy Savings

The traditional case for renovating buildings has concentrated on reducing energy bills and emissions. Insulation limits heat loss, more efficient heating systems require less energy, and upgraded ventilation equipment reduces the resources needed to maintain indoor conditions.

Modern building management systems extend these improvements by controlling how equipment operates throughout the day. Sensors can monitor temperature, occupancy, air quality and equipment performance across different parts of a building. Rather than running heating, cooling and ventilation according to fixed schedules, building operators can adjust them to match actual demand.

The IEA’s Energy Efficiency 2025 report estimates that digital optimisation can typically deliver energy savings of 5% to 40% in commercial buildings, depending on the technologies installed and the characteristics of individual properties.

The opportunity is especially apparent in offices, hospitals, universities and shopping centres, where large heating and cooling systems serve spaces with changing occupancy patterns. Poorly calibrated equipment can consume energy long after occupants have left, while heating and cooling systems sometimes operate simultaneously because of faulty settings or insufficient coordination.

Automated fault detection helps building managers identify these problems, while continuous monitoring allows them to evaluate whether repairs and system adjustments deliver the expected savings. A building that consumes less electricity also places a smaller burden on the network supplying it. When reductions occur during periods of peak demand, the benefits can extend beyond the building owner’s energy bill.

Peak Demand Determines How Much Infrastructure a City Needs

Electricity networks must be capable of meeting demand during their busiest periods, even when the equipment supplying that capacity remains underused for much of the year. A neighbourhood can have adequate electricity supply on an annual basis but face local constraints during winter evenings, when residents return home, heating systems operate and vehicles begin charging.

The network must accommodate the combined demand at those times. Distribution companies assess the available capacity of cables, transformers and substations before approving additional connections or planning upgrades.

Energy efficiency reduces total consumption, but its contribution to network capacity depends on when the savings occur. Reducing the electricity used by office lighting during the working day will not necessarily relieve a residential network facing its greatest demand in the evening. Improving heating efficiency in homes, by comparison, can reduce electricity requirements during cold periods when heat pumps operate simultaneously.

Building operators can also shift selected activities to periods when the network has more capacity. Thermal storage allows heating and cooling systems to prepare buildings in advance, within suitable operating limits. Hot-water tanks can store heat, while automated charging systems can schedule electric vehicles around other electricity requirements.

These approaches are grouped under demand-side flexibility. Their purpose is to influence the timing of consumption rather than simply reduce the total amount of energy used.

Britain Has Begun Paying Consumers to Shift Electricity Demand

Great Britain’s National Energy System Operator provides a practical example of how electricity demand can become a resource for managing the power system. Its Demand Flexibility Service allows households and businesses to receive financial rewards for reducing or moving electricity use during specified periods.

During the winter of 2024–25, the programme recorded 1.98 million registered participants and delivered 3,917.7 MWh of demand reduction or shifting across 44 events. Participants adjusted activities such as appliance use and electric-vehicle charging, while approved service providers coordinated their participation.

The programme has moved from an emergency-oriented winter arrangement towards a year-round commercial balancing service. Its operation shows how electricity consumers can participate in system management rather than remaining passive recipients of power.

National Grid Electricity Distribution has also expanded its local flexibility markets, paying providers to adjust demand or generation where that helps manage constraints on its distribution network. Local flexibility programmes can reduce peak power flows, support maintenance and manage periods when network assets approach their operating limits.

The practical value depends on the location and reliability of the flexibility offered. Reducing demand in one neighbourhood does not automatically resolve a capacity constraint in another, and a system operator must be able to depend on the promised reduction when it is needed.

Building Controls Are Becoming Part of Urban Infrastructure

Energy management technology is giving buildings a more active role in the operation of electricity networks. A large commercial property can combine metering, occupancy sensors, heating controls and electricity-price signals in a single management system. Its operator can then adjust selected equipment in response to internal needs and external network conditions.

For example, an office building with an appropriate heating or cooling system can temporarily alter its operation while keeping indoor temperatures within acceptable limits. A residential development can coordinate heat pumps, hot-water storage and vehicle charging to avoid unnecessary simultaneous demand.

Such systems require more than installing sensors. Buildings need equipment capable of responding to control signals, dependable communications and operating rules that protect occupants and maintain essential services.

Hospitals and other critical facilities face additional restrictions because certain equipment must remain available regardless of electricity prices or network conditions.

Older buildings present technical challenges. Heating systems can have limited controllability, metering arrangements can be incomplete, and different manufacturers’ equipment does not always communicate easily.

The potential benefits therefore vary between properties. Well-designed digital controls can improve an existing system, but they cannot compensate fully for inadequate insulation, unsuitable equipment or major structural deficiencies.

Cities seeking to use buildings as flexible energy resources need to consider the condition of their existing building stock alongside investments in digital technology.

European Renovation Rules Are Increasing the Pressure to Act

The European Union’s revised Energy Performance of Buildings Directive provides a policy framework for improving building efficiency. The Directive entered into force in May 2024, with a general deadline for member states to transpose its provisions into national law by 29 May 2026. It introduces updated requirements for non-residential buildings, national renovation trajectories for residential properties and provisions supporting the adoption of efficient heating, renewable energy and building technologies. The European Commission estimates that approximately 75% of the EU’s building stock has poor energy performance, while the annual renovation rate remains around 1%. In July 2026, the Commission opened infringement proceedings against all 27 member states for failing to transpose the revised Directive fully by the deadline.

The implementation difficulties illustrate the scale of the transformation facing European cities. Building renovation involves millions of individual owners, public authorities, housing providers and businesses, many of whom operate with different financing arrangements and technical capabilities.

Energy-performance requirements can encourage investment, but achieving large-scale improvements also depends on access to contractors, building assessments, finance and reliable information about expected savings.

Local governments can play a coordinating role through the renovation of municipal buildings and the management of public housing portfolios. Schools, administrative facilities and sports centres give cities opportunities to combine physical upgrades with monitoring and more responsive energy management.

The Economics Depend on Location and Timing

An energy renovation typically generates financial returns through lower consumption and reduced operating costs. Electricity-network benefits introduce another source of value, although capturing it is more complicated. A building owner pays for insulation, controls or heating equipment, while some of the resulting network benefits accrue to the utility or other electricity consumers. If a project reduces demand during periods when a local transformer is overloaded, it can help delay or reduce the scale of a network upgrade. The same project undertaken elsewhere can generate substantial energy savings without affecting the network’s investment requirements. Distribution companies therefore need detailed information about local demand patterns before assigning a capacity value to building improvements. Smart meters and network monitoring can help identify where constraints occur. Building-level information allows operators to assess the scale and timing of potential demand reductions.

Financial arrangements must then determine who receives the benefits. Flexibility contracts, payments through aggregators and network-service markets can reward buildings for reducing or shifting demand when operators request it. The resulting revenue needs to be weighed against the cost of equipment, maintenance, control systems and any disruption to building operations. The IEA’s estimated 5–40% range for digital optimisation illustrates the potential variation in energy savings, but it cannot be applied directly as a forecast of released network capacity. A building’s contribution to peak-demand reduction has to be established from its actual consumption profile.

Cities Need to Measure What Their Buildings Deliver

The next challenge for municipal energy planning is to connect building renovation programmes with the practical requirements of electricity networks. Local authorities traditionally evaluate energy upgrades through consumption, emissions and operating costs. Grid operators examine peak demand, connection capacity and the performance of individual network assets.

Coordinating these assessments gives cities a clearer view of how building investments affect the infrastructure serving them. A renovation programme covering several municipal properties can measure electricity consumption before and after improvements, identify changes in maximum demand and determine whether automated controls deliver consistent results during busy periods.

The same information can inform decisions about electric-vehicle charging, heat-pump deployment and future development. Cities will continue to require new electricity infrastructure as more activities become electrified. Building efficiency and demand flexibility cannot replace every cable, transformer or substation upgrade, particularly where existing assets are already near their limits. 

They can, however, change how much additional capacity a network needs and when investment becomes necessary. Buildings that once consumed energy according to fixed schedules can now participate in managing demand, making the performance of existing properties part of the city’s wider infrastructure planning.