Residual Value – Financial trigger for stimulating circular construction

Dutch version

Stimulate circular construction with the residual value of construction products

Problem description

The built environment is responsible for 35% of all CO2 emissions and 50% of the worldwide use of materials. By dismantling buildings at the end of their life and reusing the building products released, fewer new materials need to be used, existing materials are used more efficiently, and a significant proportion of CO2 emissions can be reduced.

However, nowadays most buildings are demolished: reusable products are dismantled. A lot of value is lost in this process. Reuse of products from the construction industry does not yet pay off.

In order to stimulate reuse of building products, a financial trigger is needed for several parties in the chain. First of all, the value of a product must be determined at the end of its useful life, so that it can be financially recorded, for example, in the financial annual accounts. However, determining the value of construction products after a lifespan is not easy.

The solution

The solution is a widely supported calculation method for calculating the residual value of construction products. This method was developed by TNO in cooperation with C2C ExpoLAB and reflects the residual value of construction products.

The residual value is currently built up from a number of cost items, including: material costs, assembly & disassembly costs (including detachability), quality, transport and storage, labour costs and repair & maintenance costs.

Insights into the residual value is advantageous for several parties in the chain:

• For the manufacturer – a basis to explore take-back and lease business models
• For the user of the product – lower operating costs because the product has a demonstrable value at the end of its useful life (and can be sold, for example).
• For funders – the possibility to develop new circular funding based on a validated methodology
• For society – more efficient use of materials and CO2 savings

New business models
In addition to residual value, the calculation model also provides insight into three business models: a linear business model, a buy-back business model and a lease business model. This gives the producer insight into whether it pays to switch from a production-oriented business model to a maintenance & repair-oriented business model.

In addition, the residual value calculation gives the producer insight into how the residual value of his product is built up: when a product is difficult to dismantle, the residual value will decrease. In this way, we want to encourage people to think about the design of products so that they can be used again: design-for-recycling.

Involve the entire supply chaing
At the moment, residual values have been calculated for various building products by means of existing case studies in the facade sector. This will be further expanded in 2020.

As mentioned earlier, the concept of ‘residual value’ will have to be accepted by the entire chain: when tendering for products with a high residual value, this will stimulate the entire market. That is why, in collaboration with a number of tenderers (including municipalities), a study has been carried out into how and when residual value can be included in the procurement process.

The impact

The impact can be divided into two factors: financial and ecological impact.

The financial impact has been briefly described for the various parties above: new business models and financing possibilities come to light when significant value retention takes place.

If it is financially attractive to reuse products, this also has an ecological impact. This is expressed in both CO2 equivalents and MKI values in the calculation methodology. If residual value is applied across the entire construction sector, 50% CO2 emissions could be saved.

The role of EIT Climate-KIC

Circular construction requires co-creation in the chain. EIT Climate-KIC ensures that companies and knowledge institutions are brought together. A consortium of companies (including Deloitte, Madaster, Shuco, Al Kondor, Kawneer, Blitta, Pilkington) and knowledge institutes (TNO, TU Delft) ensures that the data used in the residual value calculation method is validated and usable in the market.

In addition, EIT Climate-KIC provides financial support for this project, which currently anticipates market developments.

For more information see the website of TNO (Dutch version).

In support with Klaske Postma, Regeneration Design