23
Apr

Wood and Insulation

Wood Insulation

Authors: S.C., J.H.

 

1. The Environmental Role of Thermal Insulation

Building insulation plays an essential role in the decarbonisation of the building sector. According to a study by the Buildings Performance Institute Europe (BPIE)[1], it should be possible to achieve energy savings of ca. -45% with appropriate building insulation in selected European countries. According to the U.S. Government initiative Energy Star, sealing and insulation combined should reduce heating and cooling energy consumption by -15% on average, with peaks of -20% in Northern areas[2], compared to a “typical” U.S. home (built according to standards prevalent between 1970-1989).

There are several insulation materials on the market, ranging from fossil-based products such as XPS or PIR to bio-based products such as cellulose and wood-fibre insulation. The most common types as well as bio-based insulation materials are briefly listed below.

Insulation manufacturers, from an environmental impact point of view, are a perfect example of Scope 4 effects: the use of their products avoids emissions thanks to the savings on energy consumption. A study by Sadowski (2023) estimates the carbon payback time of different types of insulation applied to different types of walls. The chart below shows the ranges of carbon payback times (in years) for slag concrete walls under different energy source assumptions (electricity, gas, oil and district heat). Payback times are calculated relative to embodied carbon. In the study, cellulose strongly outperforms the other materials, although all have overall very short payback times, highlighting the strong Scope 4 return on embodied carbon.

Figure 1: Carbon payback times for different insulating materials, building energy sources, in the case of slag concrete wall setup. Wood heating has been excluded due to biogenic carbon accounting comparability. Source: Sadowski (2023).

 

While the strong outperformance of cellulose in that study might be due to biogenic carbon accounting, another study (Grazieschi et al., 2021) estimates cellulose insulation to have one of the lowest average embodied energy values of a broad range of insulation materials. Estimates for wood fibre insulation can vary strongly, but generally show significantly higher embodied energy – wood fibre, however, can provide a more carbon-effective use for wood and wood residues, with longer-term carbon storage instead of incineration for bioenergy.

 

[1] Putting-a-stop-to-energy-waste_Final.pdf (bpie.eu) supported by a leading insulation manufacturer (Knauf). The European Commission’s website also refers to this study Insulation opportunities to save energy for EU households | BUILD UP (europa.eu).

[2] https://www.energystar.gov/saveathome/seal_insulate/methodology

[3] https://www.steico.com/en/solutions/product-advantages/steico-insulation-materials

[4] https://www.researchgate.net/publication/323843942_Wood_waste_as_an_alternative_thermal_insulation_building_material_solution

[5] https://www.dezeen.com/2021/06/30/carbon-sequestering-hemp-darshil-shah-interview/

 

2. Timber Construction and Insulation

Compared to other building materials like bricks and concrete, timber has significantly better insulating properties, with lambda values (thermal conductivity – the lower the better) around 0.13 for timber components (such as CLT[7]), compared to bricks with 0.80 and reinforced concrete with 2.30 W/mK[8]. In the chart below, a comparison of the required thickness for a given U-Value in the range of 0.23-0.26 W/m2K. The calculations are based on estimates by Stora Enso[9], a leading CLT manufacturer, and Greenspec[10].

Figure 2: Required thickness for equivalent insulating property of different wall and insulation setups. Sources: Stora Enso, Greenspec.

 

Most studies on the carbon impact of timber construction focus on embodied carbon (that is, the carbon emissions related to the building materials), but some studies also evaluate the effect of timber construction on operating emissions. While two of three studies identified are geographically focused on Asia, it is nevertheless worth considering their results. A Finnish study by Schenk & Amiri (2022) analyses through literature review both embodied carbon and operating emissions of timber, concrete and steel structures. It uses 64 timber building scenarios, 29 for concrete and 7 for steel, and it should be noted that the samples are not uniform and entirely comparable. That said, timber buildings had operational energy consumption -12% less than concrete while embodied energy was -28% lower. Tsai and Lin (2022), from the National Taiwan University of Science and Technology, analyse the energy consumption of timber (CLT) structures compared to reinforced concrete (RC) modelled in different Asian cities. According to their analysis the two structures yield comparable results in Singapore, while the advantage of a CLT structure is more evident in colder climates like in Northern China, with up to -46% less energy consumption. It should however be noted that the RC structure’s walls had no additional insulation layer in the modelling. A Chinese study by Dong et al. (2019) compares the energy efficiency of a CLT and a RC structure for an office building in different Chinese cities with different climates. In this study both the cement structure and the CLT structure are complemented by an EPS insulation layer, with total thicknesses of 290mm for RC and 240mm for CLT. The study estimates a significant outperformance of the CLT structure in colder regions and some underperformance in warm periods where cooling is required, with savings on heating energy of -12% in Harbin (North) and -22% in Beijing, while total energy consumption at the building level (which includes also lighting, water heating, ventilation and appliances) was up to -4.1% lower in Beijing.

 

[7] https://www.greenspec.co.uk/building-design/crosslam-timber-performance-characteristics/

[8] https://blog.passivehouse-international.org/ug-uf-uw-uwhat-an-intro-to-the-u-value-and-those-most-important-to-passive-house-design/

[9] https://www.storaenso.com/-/media/documents/download-center/documents/product-specifications/wood-products/clt-technical/clt-by-stora-enso-technical-documentation—building-physics–2021-9-en.pdf

[10] https://www.greenspec.co.uk/building-design/u-value-introduction/

 

3. Wood-Fibre and the Insulation Market

Wood-fibre insulation is a niche product in the broader context of the building thermal insulation market. Crossing sources, wood-fibre market share in Europe is estimated at roughly low-single-digit[11]. As of 2014, the traditional non-biogenic insulation materials were estimated to represent 99% of the market[12]. The figure below shows the market share by product category as of 2015 in Europe from a study by Pavel and Blagoeva (2018) for the European Commission.

 

Figure 3: European insulating materials market share. Source: Pavel and Blagoeva (2018).

 

More recent estimates by market research companies still show a comparable overall picture – the market has been evolving relatively slowly (which can be a positive for long-term investors) and innovations such as aerogels are taking time to become economically competitive in the construction sector, where existing solutions are well received and capital intensity limits the disruption potential at scale. This, however, does not mean that there is no innovation in the sector – companies keep refining their product portfolios and innovating on specifications, service and convenience.

From an environmental point of view, wood-fibre insulation has some interesting benefits:

  • It is manufactured from a renewable resource.
  • It provides for durable carbon storage.
  • It reduces energy consumption and associated emissions (like every insulating material, of course)
  • It uses wood residues, providing for a circularity benefit that can avoid unnecessary emissions from the incineration of wood waste[13]

From a business point of view, wood-based insulation materials with carbon-storing capabilities offer growth potential in the context of the recent bio-based building materials trend. The interest in the niche by larger players like Kingspan (see more below) shows such potential.

 

[11] At best EUR 0.9-1bn market out of over EUR 20bn for the thermal insulation market based on various sources such as Surging Demand in Europe Highlights Need for North American Wood Fiber Production – TimberHP, thermal-insulation-press-release-2023.pdf (ialconsultants.com); Holzfaserdämmstoffe-Steckbrief-Planer-DBU.pdf (holz-von-hier.eu) estimates 4%; others estimate higher Wood fibre insulation: Why use anything else? : TDUK (timberdevelopment.uk) at 6%

[12] https://publications.jrc.ec.europa.eu/repository/bitstream/JRC108692/kj1a28816enn.pdf

[13] Wood waste as an alternative thermal insulation for buildings – ScienceDirect, Wood Fibre Insulation – Advantages and Disadvantages (eco-home-essentials.co.uk), MDF recycling plant will produce natural wood fibre insulation | RIBAJ

 

4. Companies in the Sector

The main player in the wood fibre insulation market is Steico. The German specialist is being acquired by Irish insulation and steel components group Kingspan, whose product portfolio includes several PIR and PUR products as well as silicon-based and resol-based (phenolic) foams, and bio-based insulation under the BioKor brand. Kingspan announced the acquisition of a 51% stake in Steico in July 2023 and another majority stake in hemp insulation company HempFlax shortly thereafter.

The mineral wool space is dominated by Danish Rockwool (listed) and German family owned Knauf. St. Gobain, the French building materials group, manufacturers through different subsidiaries a diversified range of insulating materials, including plaster, PIR, mineral wool, but also more niche products such as wood fibre insulation (e.g. through its Isover brand). While those listed above are key players in the European insulation market, other (smaller) players exist, both private and listed.

In the U.S. Owens Corning is a major player, offering mineral wool (both glass and stone) and XPS, as well as its proprietary foamglas insulation. Carlisle, with a broad product portfolio for roofing and weatherproofing, also offers various insulation products, such as EPS, XPS, polyisocyanurate insulation and insulation spray foams. Always in the U.S., given the country’s focus on timber frame construction, some engineered wood products manufacturers such as Louisiana Pacific produce insulated OSB panels that combine OSB with Owens Corning’s XPS foam.

 

 

5. Growth and Profitability Profile

Insulation manufacturers have enjoyed robust growth over the last economic cycle. Returns on capital employed have been robust. Wood-fibre insulation specialist STEICO has a structurally lower return on capital, but this has been compensated by strong top-line growth over the years, supported by continued capital investments in new capacity. Kingspan was another insulation company with particularly strong growth, and it also enjoys very strong returns on capital. Interestingly, both companies – Steico and Kingspan – have been ran by their founder resp. a descendent of the founder and Kingspan last year acquired a majority stake in Steico, resolving the succession question at the German company.

Figure 4: Operating Margin, Return on (Tangible) Capital Employed and Revenue CAGR over a full economic cycle. Sources: Bloomberg, companies’ reports, Timber Finance.

 

Going forward, the sector should continue to find support from the building decarbonisation trend, also thanks to policies supporting energy efficiency on both sides of the Atlantic. In Europe, the green deal implemented through the Energy Performance of Buildings Directive (EPBD) requires[14] all new buildings to be zero-emission as of 2030, while primary energy reductions of at least -16% must be ensured by 2030 vs. 2020 by member states and -20% by 2035. Also, the majority of these decreases has to be driven by renovation of the worst-performing residential buildings. Although there are several ways to achieve such improvements, insulation appears to be a no-brainer. In the U.S., the Inflation Reduction Act very explicitly highlights the role of insulation for energy efficiency and provides annual tax credits until 2032 for the installation, among other measures, of insulating materials. The ageing housing stock in the U.S. and the high proportion of inefficient homes in Europe provides a tailwind for the years to come.

 

[14] https://www.europarl.europa.eu/doceo/document/TA-9-2024-03-12_EN.html#title7_2

 

6. Sustainability Case Study – STEICO

As mentioned, the sustainability benefits of insulation can be multi-faceted. In addition to the avoided emissions from energy savings, in the case of biomaterials there is potentially stored carbon in the product itself. To avoid double counting, we define the product carbon balance as the durable carbon storage in products less the emissions (fossil & biogenic) generated in production. Steico reports total durable carbon storage in products of 830 kt CO2-eq and we estimate a net carbon balance in products between 60 kTCO2eq (full weight to biogenic emissions) and 550 kt CO2-eq (carbon neutral biogenic emissions). Studies such as Guest et. al (2013) suggest that the climate impact of biogenic emissions is related to both the rotation period of the forest and the life expectancy of the product. In their view, under certain assumptions, biogenic emissions are weighted up to 0.44 in the worst case. Under this assumption Steico would have a carbon balance of roughly 334 kTCO2eq (Figure 5).

Figure 5: Estimates of CO2-equivalent storage in products and production emissions. Biogenic emissions weighted using 0.44 factor described above. Sources: Steico Annual Sustainability Report, Timber Finance

 

The avoided emissions from energy savings are more difficult to quantify, but we do believe that they can be substantial. Steico manufactures enough insulating materials to fully insulate 57,000 homes a year[15]. For a German single-family home, it is estimated that ca. 16.7 MWh p.a. can be saved through insulation relative to a non-insulated baseline[16]. At ca. 0.4 tCO2/MWh[17], this corresponds to 6.7 tCO2 per single-family unit per year, or 380 kT when multiplied by 57k homes. And this should be further multiplied by the years in operation. Even a conservative 20-year useful life estimate would result in over 7 megatons of avoided CO2eq emissions from each year’s production, eclipsing the company’s annual fossil emissions by 25-30x. The order of magnitude would be consistent with that reported by companies like Rockwool, which estimates emissions savings of ca. 100x the emissions caused in the manufacturing process[18]. While these numbers should be taken with a lot of care, as they can only provide a very rough order of magnitude, they still provide a feeling for the magnitude of Scope 4 effects provided by insulation companies (see Figure 6).

Figure 6: The estimated net carbon balance vs. avoided emissions from expected lifetime energy savings for 2022. Sources: Steico Annual Sustainability Report, Timber Finance

 

[15] Indicative estimation by the company

[16] https://www.verbraucherzentrale.de/wissen/energie/energetische-sanierung/rechenbeispiel-fuer-eine-fassadendaemmung-8192

[17] https://www.umweltbundesamt.de/themen/klima-energie/energieversorgung/strom-waermeversorgung-in-zahlen#Strommix

[18] https://www.rockwool.com/group/about-us/sustainability/environment/decarbonisation/

 

7. Literature

Schenk D and Amiri A (2022) Life cycle energy analysis of residential wooden buildings versus concrete and steel buildings: A review. Front. Built Environ. 8:975071. doi: 10.3389/fbuil.2022.975071

Tsai, M. T., & Lin, W. T. (2021). Efficiency of energy consumption between reinforced concrete structure and cross-laminated timber based hybrid structure in East Asian cities. Energies, 15(1), 165.

Dong, Y., Cui, X., Yin, X., Chen, Y., & Guo, H. (2019). Assessment of energy saving potential by replacing conventional materials by cross laminated timber (CLT)—a case study of office buildings in China. Applied Sciences, 9(5), 858.

Pavel, C. C., & Blagoeva, D. T. (2018). Competitive landscape of the EU’s insulation materials industry for energy-efficient buildings. PUBSY No. JRC108692 EUR, 28816.

Grazieschi, G., Asdrubali, F., & Thomas, G. (2021). Embodied energy and carbon of building insulating materials: A critical review. Cleaner Environmental Systems, 2, 100032.

Sadowski, K. (2022). Comparison of the Carbon Payback Period (CPP) of Different Variants of Insulation Materials and Existing External Walls in Selected European Countries. Energies, 16(1), 113.

Guest, G., Cherubini, F. and Strømman, A.H. (2013), Global Warming Potential of Carbon Dioxide Emissions from Biomass Stored in the Anthroposphere and Used for Bioenergy at End of Life. Journal of Industrial Ecology, 17: 20-30. https://doi.org/10.1111/j.1530-9290.2012.00507.x

 

 

Credits (images):

  • Wikimedia Commons: FMI Fachverband Mineralwolleindustrie. CC Attribution-Share Alike licence
  • Wikimedia Commons: CC Attribution-Share Alike licence
  • Wikimedia Commons: CC Attribution-Share Alike licence
  • Wikimedia Commons: thingermejig. CC Attribution-Share Alike licence

 

 

8. Disclosures and Conflicts of Interest

Some or all the companies mentioned in this report may be included in the Timber Finance Forest-Based Construction Basket tracker and are part of the Timber Finance Carbon Capture & Storage Index. Timber Finance Management and/or the Timber Finance Initiative may have commercial relationships or be in discussions with some of the companies mentioned in this report. Specifically, Stora Enso is a member of the Timber Finance Initiative association.

Please note that this research is prepared for information purposes and targeted to institutional investors in Switzerland. It does not represent investment advice and does not take into consideration the individual requirements, risk tolerance and goals of an investor. Recipients who are not Swiss institutional investors should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents.

The information presented in this report is obtained from several different public sources that we consider to be reliable. Nevertheless, we cannot guarantee the accuracy of the presented information. The information used may change quickly and we are not committed or obliged to modify the reports base on new information. The opinions and views expressed in this report reflect those of the author at the point in time of its compilation and may vary at any time. Valuation methods like DCF and any other analysis or expert judgement do not provide any guarantee that the target price or fair value will be reached, for example because of unforeseen changes in financial or economic conditions.

For more details and questions, please do not hesitate to get in touch with us at info@timberfinance.ch or:

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General disclaimer © 2023 Timber Finance Management AG (“Timber Finance”). All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of Timber Finance. Timber Finance Management AG makes no representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and Timber Finance Management AG and its third-party licensors shall have no liability for any errors, omissions, or interruptions of any index or the data included therein. All data and information is provided by Timber Finance “as is”. Past performance is not an indication or guarantee of future results. This document does not constitute an offer of any services. It is not possible to invest directly in an index. Exposure to an asset class represented by an index may be available through investable instruments offered by third parties that are based on that index.

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