A Strategic Approach to the New Requirements with the Net Zero Carbon Context
An estimated 1 million non-domestic buildings will need to undergo upgrade works to meet the government’s proposed ‘B’ grade Energy Performance Certificate (EPC) by 2030. The government confirmed this requirement in The Energy Whitepaper at the end of 2020. This significantly steps up the current requirement of an E grade EPC needed for when new leases are put in place, which will be extended to include properties with existing leases on 1st April 2023. The government proposals for raising this standard, which are currently under consultation, also set out a proposed interim step of a C grade by 2027.
These announcements further strengthen concerns that the risk of ‘Sustainable Obsolescence’ in buildings is very real where the required investment for the transition to low carbon is not made. The government is issuing a very clear statement – properties which don’t meet the grade will not be permitted to be let.
It is evident that property owners must adopt a strategic approach when considering how to navigate these requirements within the context of the UK’s wider net Zero Carbon target. Here we set out some key considerations when planning for meeting these compliance duties.
IDENTIFY RISK HOTSPOTS AND OPPORTUNITIES
It is necessary to first identify the risk hot spots within property portfolios. An initial risk analysis should be undertaken which considers latest EPC ratings and what version of software they were produced on, the size of the gap between the current rating and the ultimate B grade required, current EPC expiry dates, as well as properties which currently don’t have a valid EPC. From this a picture can start to build of immediate, short, and medium term risks.
From this, the development of EPC improvement plans need be undertaken for the ‘at risk’ sites, to assess a range of possible measures for improving EPC grade. Such plans should illustrate the impact of each measure on the EPC grade individually, as well as collectively, in order to build up a picture of what a transition to B grade will look. This should include the capital investment required, predicted energy, carbon and cost savings, and the return on investment.
On top of this a review of any existing opportunities where improvement measures easily can be implemented must be considered. What plant replacements are already planned and are changes required to these to go further in light of the B grade requirement? Is there opportunity to refurbish individual floors as occupiers vacate? Are any occupiers undertaking fitouts or refits, or even simply upgrading lighting to LEDs which may have a positive impact on the EPC grade? Working with occupiers to understand the scope of their works, the impact of these on the EPC grade, as well as potentially working collaboratively to make any enhancements to go further, will ensure opportunities and efficiencies are maximised.
MAINTAIN DYNAMIC EPC MODELS
EPCs officially have a ten year validity period. However, the upcoming changes mean that it no longer makes sense to review EPCs at only 10 year intervals. We advocate maintaining dynamic EPC models which are effectively ‘live’ models as they are updated every time there is a change to the building assets including the building fabric and internal systems. At the planning and design stage for the project, the design information can be used to initially re-run the EPC model in draft to assess the impact on the EPC grade. This is important as it for a number of reasons:
- Quality of data input to EPCs is critical. Running the EPC in draft ahead of the project taking place focuses attention on what information must come from the design for the data input. For example, in the instance of a lighting upgrade project where LEDs are replacing fluorescent lighting, it is important to secure the lumens per circuit watt efficiency figure as this is sometimes better than the default ‘LED’ efficiency assigned within the software and may result in a higher score.
- Running the EPC model ahead of the work taking place allows opportunity to play around with design tweaks to understand how these would impact the EPC grade.
- If the draft reveals that the new EPC grade would be one point off the next band, there is still opportunity to tweak the design to see if it is possible to enhance the efficiency to get the extra point, bringing the EPC up to the next grade.
We therefore always recommend running a draft EPC as part of such project work at design stage and working to maximise EPC grade from the project as far as possible. Following the work, a new ‘final’ EPC can be produced and lodged.
Property owners may also wish to consider what level of EPC is produced. There are 3 levels of EPC for commercial buildings with the correct level selected dependent on the complexity and sophistication of Heating, Ventilation and Air Conditioning (HVAC) systems. Level 3 EPCs are used for simple buildings with a heating capacity of less than 100 kW and a cooling capacity of less than 12 kW, with Level 4 used where system capacities exceed these thresholds or where centralised air conditioning systems exist.
A smaller number of commercial buildings with very complex systems require a Level 5 EPC, which uses Dynamic Simulation Modelling (DSM) to account for these complexities. Level 5 EPCs are required for buildings with features such as an atrium, automatic blind controls, or curved glass. DSM is a much more sophisticated level of modelling so provides much greater detail and a more accurate representation of the property. For those property owners proactively looking beyond EPCs and setting Net Zero Carbon targets, the building model can be used for extensive modelling of different scenarios so in some instances it may be beneficial to upgrade to a level 5 EPC, even where this not mandatory.
INCORPORATE WITHIN THE WIDER NET ZERO CARBON CONTEXT
Whilst the proposal for a ‘B’ grade EPC is a significant step up from the current position, it still falls far short of the scale of effort needed for Net Zero. This is in no small part due to the inherent focus of EPCs on potential or theoretical performance rather than actual performance, so there is no guarantee of achieving the deep carbon reductions required for Net Zero Carbon through EPC improvements alone. The 7 year payback exemption also means that some measures may not be required on the grounds of cost.
The government itself states in the consultation document “We estimate that under the EPC B requirement, with the seven-year payback test for a package of measures, only around 35,000 heat pumps will be installed over the period up to 2030. As the majority of the energy used in buildings is used for heating, targeted policy will be required to decarbonise heat in non-domestic buildings if we are to get to net zero.”
For those looking to go beyond the minimum requirements set by compliance and looking at long term carbon reduction or Net Zero targets, it is important that any physical upgrade works being considered feed into the EPC. However, using the EPC as a tool to support de-carbonisation over the long term is not enough. EPCs focus only on the efficiency of assets within the building (such as fabric and HVAC systems) but do not consider the wider behavioural/controls and procedural opportunities for energy reduction. There is also often scope to go further than a grade B in many properties, and this will be critical to making the deep carbon reductions needed for Net Zero.
We therefore urge businesses to ensure that they have a robust strategy in place for managing EPCs, but to also go beyond these minimum requirements set by legislation. The TCFD has coined the term ‘Transition Risk’ which it defines as “the financial or reputational risks that organisations face due to the policy, legal, technology, and market changes that occur as a result of societal efforts to mitigate and adapt to climate change.” It is very clear that whilst legislation has its place, there is a strong need for businesses to go further than this.
Taking this a step further, we believe that ‘Sustainable Resilience’ is the antithesis of sustainable obsolescence, for buildings must be both habitable and desirable to occupants if they are to remain viable in the new world order. We believe that properties which eliminate climate and environmental impacts, enhance occupier wellbeing, and adapt to real world threats (such as climate change itself, along with pandemics, cyber threats, etc.) will develop sustainable resilience into the long term. As a result, we advocate that an approach to compliance with the regulations is developed within a wider strategy underpinned by this wider context, rather than being treated in isolation of this bigger picture.