Incentivising net zero in operation

12 important things to consider about the Government’s proposed new mandatory energy ratings.

The government is asking developers and operators of both commercial and industrial buildings for feedback on a proposed new annual mandatory energy disclosure requirement, as part of a drive to help meet the ambitious target of zero carbon emissions by 2050 in the UK.

The consultation aims to reduce the energy consumption of commercial and industrial buildings by 30% compared with 2015 levels, with annual ratings and mandatory disclosure as the first step. The consultation can be accessed here and the deadline for responses is 9th June 2021. We urge you to take part and express your views.

It can be a complex area, so to aid you we’ve examined the proposals thoroughly and distilled 12 key elements to think about for your building. We’ve also summarised the key proposals and effect on ‘business-as-usual’, providing some pointers on what you might need to have in place should the new legislation be adopted. This could take place as soon as 2022, so there is no time to waste.

Current obligations and requirements

To put things into context, as developers, owners or operators you are currently required to comply with Part L of the building regulations on completion of a new construction or refurbishment. In addition, every building is required to have an Energy Performance Certificate (EPC) on construction and at the point of sale or lease, which then needs to be updated every 10 years and publicly displayed in all buildings above 500m2 in area. However, we know that Part L and EPC are largely benchmarking tools and do not accurately predict a building’s energy consumption; and Part L only regulates some of the energy used in buildings.

As a result, many new properties are far less energy efficient than was predicted at design stage, and existing properties have little if any incentive to improve their energy performance; hence both produce more carbon.

Looking to the future

The government is clearly keen to tackle this issue and, in this case, appear to have looked across the globe for inspiration. A similar policy – introduced in Australia over a decade ago – had a significant positive effect on real energy consumption in commercial buildings:

Actual energy consumption from offices in Australia, showing the effect of mandatory energy disclosure policy in 2010 on real energy performance (Source: NABERS Australia).

This decision is part of a growing body of evidence, indicating that without this and other aligned policies, we are unlikely to meet the UK’s Zero Carbon target.

Whether you are trying to make a significant difference in light of the Climate Emergency, have insight into the effect of such policies on the real estate sector, or just want your voice to be heard – this consultation is good news.

So, what are the key elements to think about?

  1. Metering will need to be upgraded: Improved infrastructure for all utilities may be needed to help you monitor your data, understand your energy consumption, troubleshoot faster, avoid estimates and boundary disputes with tenants. This means smart meters and submetering for a finer grain of energy monitoring, the extent of which is being questioned in the consultation.
  2. Facilities Management will need to be upskilled: This is needed in order to gather data and process the annual energy rating. It may be possible to employ 3rd party energy analysis services to do this, but they should also be able to provide tailored advice .
  3. Building inspections: A chartered professional will need to inspect your building and energy disclosures every four years. This will cost between £3,400 and £7,500 for each inspection.
  4. Public rating: Your building will be publicly rated (in the building and online) against peers and relative to the net-zero trajectory. We anticipate that high ratings will attract more market attention and add asset value.
  5. Support for SMEs: The consultation is asking what support SME’s are likely to require. This is a good chance to make your voice heard, if applicable to you.
  6. Replace EPCs: The Government is asking whether the new rating should replace the EPC. We believe that the EPC is still relevant because it is an indicator that drives energy efficient design and procurement, while the proposed new metric drives real energy efficient operation.
  7. Size matters: Is the 1,000m² minimum threshold a reasonable one? “Only 7% of non-domestic buildings are above 1,000m² in England and Wales. [However,] these buildings account for approximately 50% of the total floorspace, and we estimate these buildings use over 53% of the total energy used in non-domestic buildings.” This is the threshold used for Display Energy Certificates and is observed to be the threshold above which systems become more complex and energy use increases.
  8. Increase scope: Should the Government increase the scope of the rating to water, waste and air quality in a similar way to NABERS in Australia? These are neglected but critical aspects of the Climate Emergency, and we believe that they should initially be declared on a voluntary basis at least, with a timeline to future implementation.
  9. Carrot, stick or both: The Government is proposing incentivising year-to-year improvements through financial incentives in existing tax reliefs or other structures, conversely non-compliance will either be publicly disclosed in a list or a financial penalty applied.
  10. Tenant rating: The Government is considering developing a voluntary tenant rating for multi-tenant spaces, potentially for large tenants with spaces over 1,000m². We have started to see tenant agreements for lease change where a NABERS rating is committed by the landlord, and collaborations on anything from fit-out spec, to hours of operation and maintenance regimes become extremely critical in this interface. This is because multi-tenanted buildings, especially those served by central HVAC plant, have overlapping energy use responsibilities, e.g. the relationship between on-floor tenant cooling and central cooling operation.
  11. Soft start: The consultation includes suggestions for a softer start of the new metric, e.g. publicising top performing buildings, or special recognition of building owners or business that achieve high ratings.
  12. A NABERS approach: We believe that new buildings and refurbishments have a much better market position for the next decade if they adopt a NABERS Design for Performance approach now.

If you are interested in responding to the consultation, or would like to find out more about how it will affect your business, please get in touch. Hilson Moran has 45 years of experience in operational building improvements, environmental building design and energy assessments.

Marie-Louise Schembri, Design Director.

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