Royal London Asset Management
“Offices, retail space, hospitality and industrial buildings account for around 80% of private sector buildings’ energy demand. Around a half of all energy consumed in commercial and industrial buildings in England and Wales is in the rented sector, placing the onus on landlords to make energy efficiency and heating improvements.” HM Government; Energy White Paper, Powering our Net Zero Future; December 2020
The Energy White Paper, published by HM Government on 14th December 2020, reaffirms their intension to ‘tighten energy standards’ for the commercial and industrial properties by making the minimum EPC Band requirement a ‘B’ by 2030, ‘where cost-effective’. This followed from BEIS’ public consultation ‘Non-Domestic Private Rented Sector Minimum Energy Efficiency Standards: The Future Trajectory to 2030’, which closed in January 2020. This alone is newsworthy, but it is only a small part of what the Paper reveals.
Before going on, however, there are already a few concerns with this statement. In the first instance, the verification of cost-effectiveness needs to be robust and very carefully managed through existing and improved regulatory enforcement mechanisms. Part L2B of the Building Regulations, which is used for energy improvements in the refurbishment of non-domestic buildings, is already teeming with loopholes that are open to interpretation and negotiation. On the other hand, landlords often struggle to make significant refurb viable within the constraints of planning costs and restrictions. Likewise, the complexities of working within an existing myriad of spaces and services can, ultimately, make it a challenge to deliver a return on investment.
Secondly, the industry has known for some time, and now has clear measured evidence, that EPCs do not represent the real energy consumption of buildings because their performance is more heavily reliant on the way buildings are used and managed than the design intent (see image below). The current energy rating methodology is over-simplified and is not intended to be a prediction of real performance. Nevertheless, is continues to be paraded as the driver for carbon emission reduction in national policy!
Copyright Better Buildings Partnership
This week the Government published their Future Buildings Standard consultation, which proposes new minimum energy and fresh air regulatory requirements for non-residential refurbishments (and new builds). For better compatibility with heat pump technology, it includes proposals for higher fresh air requirements and lower heating distribution temperatures. While not groundbreaking, they are positive steps in the right direction. Unfortunately, it does not overcome the inadequacy of the regulatory framework for predicting real carbon emissions.
The White Paper, however, goes on a little further; and this is where it gets interesting. It proposes three new consultations for 2021:
So while we wait for more details of the consultations, we have an opportunity to do some ground work. What are the obstacles of energy efficiency improvements to the existing non-residential stock? Where are the opportunities? What are the incentives? What will make existing auditing mechanisms more clear, useful and accessible?
We find ourselves at a time when office, hospitality and retail floorspace have been underutilised for months. Developers and landlords are rethinking design for a future where user expectations and patterns of work may look very different and the market is more likely to be after smaller, smarter and highly flexible space or leasing arrangements. This may drive a higher rate or depth of refurbishment than is typical between leases, presenting an unprecedented opportunity for energy efficiency improvements at scale (and embodied carbon conservation). The time for this conversation has never been more critical.
However, we rarely see energy efficiency as a key driver or priority for change. A small percentage of the market is demanding Net Zero Carbon premises and are driving change like never before, but it is still a small fraction of the market share and certainly not enough in an emergency. The mentions of performance-based and financial stimulation in the White Paper are very welcome, but if the consultation process is restricted to leading questions and the full spectrum of realities are not accounted for, we will be waiting another five years for meaningful change. Can planning bodies offer tax-breaks for verified energy efficiency and carbon performance, improving viability in city centres? Is enough being done about utilities capacity to speed up the phasing out of natural gas combustion in dense urban environments?
The way forward likely needs to be multi-pronged and involve all key players of the refurbishment process, from utilities providers to end users. This is the first step towards influencing real change in the sector in decades. Let’s get onto it!
For more information, please contact Marie-Louise Schembri
(1) ESOS is a mandatory energy audit for organisations in the UK that meet the qualification criteria.
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