At the beginning of this year, the Department for Business, Energy & Industrial Strategy (BEIS) consultation into the minimum energy efficiency standards (MEES) for non-domestic and privately rented properties ended. It sought to gather feedback and ideas on how the current system is working, and when and where the targets need to be moved to ensure continuous improvement in energy savings as the UK looks to create a zero-carbon future. It presented two clear options: either that all non-domestic privately rented buildings achieve a MEES of an EPC B or an EPC C by 1 April 2030.
As we await the final results of the consultation, we ask what would be the benefit of setting a higher standard and what potential stumbling blocks need to be considered?
What are the limitations of the current MEES?
It has been over two years since MEES for the non-domestic, private rented sector were brought into force. They have been vital to providing a clear incentive to upgrading the energy efficiency of the country’s existing building stock, helping businesses to save money on energy bills, and reduce their carbon footprint. However, the initial iteration of the standard only required properties to meet an EPC rating of E when they are up for lease, or when their existing lease is renewed. As well as setting the bar low, the likelihood of further improvements on this target was not made clear enough. Those who have already invested in improvements to meet the minimum standard will now potentially be faced with further cost to ensure their buildings do not fall short of the mark once more.
Therefore, this time around, it makes more sense to set a higher standard in the first place, with support and suitable caveats for buildings that would struggle to meet that. But how stringent should the improvement be?
Should the MEES be set at EPC B or C?
Whilst setting the EPC requirements to the lower rating of C could be more easily and cheaply achievable for landlords and tenants, this trajectory would not deliver the energy or carbon savings required from this sector. The government estimates that it will only bring 42% of properties into scope of the regulation, compared to 85% with an EPC B trajectory. As well as demanding a higher standard of energy efficiency, this increase in scope at EPC B is the source of the majority of the additional savings compared to an EPC C aim.
Starting with the goal of EPC B also sends a clear message to the sector, showing private landlords how energy efficient our buildings will need to be in ten years’ time to keep the country on track with its carbon reduction targets, and compels them to take decisive action to futureproof their investments. It also encourages the creation of attractive properties which carry a higher rental value, offering tenants the possibility of lower energy bills and improved environmental credentials for their businesses, as well as enhanced health and comfort.
Of course, there will be some buildings which cannot achieve an EPC B by 2030 cost effectively, and exceptions will have to be made. However, by aiming for a higher rating, buildings will generally fall somewhere in the higher EPC bands. For example, government modelling suggests 64% of buildings will be able to reach an EPC B, with a further 20% failing to meet an EPC B but able to reach an EPC C.
What are the challenges to achieving an EPC rating of B?
Setting such an ambitious target will not be easy, and it will be vital to ensure the standard is delivered in a way that is cost- and time-effective, adequately policed and that the measures that are taken will continue to perform in the long term.
The biggest challenge facing landlords will be finding the upfront capital to improve their buildings, especially within the SME and Public Sector. This could be addressed by the government through low-cost building improvement loans or tax breaks. Similarly, rent rebates, leases which include the sharing of costs, or proportionately reducing refunds could be used in circumstances where the tenant is willing to fund all or part of the building improvements. Measures should also be taken with long-term performance in mind. For example, ensuring better fabric performance by replacing single-skin or poorly insulated roofs and walls with high performing insulated panels can not only enhance the thermal efficiency and air tightness of the building with minimal deterioration throughout its lifetime, but also requires virtually no maintenance, making it an attractive option for landlords and tenants alike.
The consultation also asked whether respondents considered a single backstop date in 2030 or phased milestones to 2030 to be the more effective method for implementing either of the trajectory options. It is EPIC’s view that phased milestones would be more effective to ensure positive action is taken straight away, not at the last minute. However, the final trajectory must be made absolutely clear and landlords encouraged to aim for maximum improvements from the outset.
But what about the timing of the actual work to be done? Whilst there are natural void periods in leasing a property, for example in between tenants when refurbishment would normally take place, where a significant upgrade is required, the proposals may increase this void period. As well as being financially disadvantageous for landlords, this may also have an impact on a tenant’s ability to conduct business, especially in situations where the building has been leased for a long time and is simply up for renewal. Employing building methods that allow for a fast-track renovation without compromising on energy performance will be vital. Insulated panel systems allow for quick recladding of stripped buildings in a single fix, making the building weathertight again quickly and work to be completed within shorter timeframes than built up systems. These also often offer easy integration with renewable energy technologies such as solar PV systems which can further improve EPC ratings.
Internal fit out involving cold storage or clean rooms can also be expedited with the use of high performance insulated panel systems – an area that is particularly crucial during the current pandemic when the safe storage and distribution of food and the development of pharmaceutical facilities has become even more essential.
Whatever the outcome of the consultation, improving the energy efficiency of existing buildings will be a priority over the coming years, and refurbishment has been identified as one of the key sectors in the governments construction Roadmap to Recovery. Repair, Maintenance and Improvement (RMI) represents 32% of the value of the sector, with 16% relating to the non-domestic market. Insulated panel systems can provide a high-performance external envelope solution that is quick to install, delivering long-term energy and cost savings and achieving the necessary improved EPC ratings, whilst also helping to stimulate the economy.