Written evidence submitted by British Property Federation (ENE0008)

British Property Federation

1.               The BPF represents the real estate sector – an industry that contributes significantly to the UK economy. We promote the interests of those with a stake in the UK’s built environment to government, and our membership comprises a broad range of real estate owners, managers, developers and supporters. Their investments help drive the UK's economic success; provide essential infrastructure and improve society by creating great places where people can live and work.
2.               The BPF has a committee dedicated to sustainability issues, reflecting the priorities that its leading members place upon issues of environmental enhancement, climate change and resource efficiency. We also provide secretariat support to the Green Property Alliance, a group of the leading organisations representing both landlord and tenant interests (membership includes: the Association of Real Estate Funds, Better Buildings Partnership, British Council of Shopping Centres, British Council for Offices, BPF, Investment Property Forum, Royal Institution of Chartered Surveyors, UK Green Building Council and the Urban Land Institute).
3.               We welcome the Government’s long-term commitment to improving the energy efficiency of the UK’s existing and future building stock. The Prime Ministers recent announcement launching the Industrial Strategy Grand Challenge mission to halve the energy use of new buildings by 2030 whilst halving the cost of reaching the same milestone in existing buildings, is laudable for its ambition. However, in light of challenges associated with significant future climate change and associated economic and social hurdles, the decisions we take today must take a long-term view and offer a clear roadmap for industry to viably adapt.
4.               Through this submission we have reiterated a number of key considerations from recent submissions made to the Government relating to the energy efficiency of buildings, in order to draw attention to the questions that must be answered in the short term. 

General Comments

The following key points are provided outside the immediate sphere of the inquiry questions.

5.               Whilst the Sustainability of the UK’s built environment is high on the policy agenda, we believe that existing policy and regulatory instruments have focused too closely on energy efficiency by way of built fabric (which remains important) and that greater attention must be given to the operational efficiency of buildings. This is particularly prudent in a time of significant projected climate change, and whilst this poses some level of uncertainty, the real estate industry will be better able to plan for future investment if government provide a clear long-term trajectory for policy in this sphere.
6.               We would emphasise the role that operational energy performance must play in the future trajectory for reducing consumption by 2030. The current building regulations (and any future update to them) focus activity on designing buildings to comply with those regulations and play a valuable role to that effect. Notwithstanding our opinion that Part L of the building regulations requires review and a subsequent update – particularly as the respective carbon factors are out of date – policy must shift to encourage an environment in which the operation of buildings is better regulated and that higher efficiencies are achieved. Whilst designing business premises to comply with building regulations can provide a worthwhile foundation for sustainability, the differences in operational need within certain sectors such as retail or industrial (where unregulated energy use can be high) make the in-use energy consumption all the more significant. We would therefore recommend that effective building regulations applied in tandem with policies that validate operational energy use would produce better outcomes in the future.
7.               The Department for Business, Energy & Industrial Strategy have identified that (excluding industrial processes) the most significant end use for energy consumption in businesses is heating, which accounts for 49% of the non-domestic building stock’s energy consumption (DBEIS, 2019). with regard to trends in heating buildings, we note that the Government has committed resources to the development and expansion of heat networks in the drive to create efficiencies in the long term. Heat networks can provide a unique opportunity to exploit larger scale renewable and recovered heat sources that could not otherwise be used, and in such cases could be cost-effective and contribute to energy efficiency and emission reductions. This is however largely dependent on context and is not a given. A significant barrier to district heating/heat network implementation is the capital costs involved. Until this hurdle is cleared, the use of such networks may not represent a significant trend. Further, heat networks may not represent the most efficient approach for certain building types - retail and office space in particular- due to relatively low heat loads. We would also note that the requirements for the cooling of retail and office buildings may represent a more prudent issue than that of heating and has thus-far not been given the same level of consideration by government.  
8.               We would encourage the Government to consider the topic of leadership with regard to promoting sustainable planning and associated best outcomes. This is to say that whilst local authorities (and in particular their planning departments) are facing increasing pressures on resources, the associated expertise in delivering sustainable outcomes at a local level have at times been lacking. Our members note from working experience that discussions around planning for the sustainability and resilience of developments is at times less understood by planning officers.

Submission in response to inquiry questions

Are the Government's targets to improve the Energy Performance Certificate (EPC) ratings of our existing housing stock ambitious enough? Is there sufficient support in place to deliver targets for all homes to be EPC band C by 2035?  Is the Energy Company Obligation (ECO) an adequate mechanism to ensure fuel-poor homes are upgraded to EPC band C by 2030?

9.               The Government’s recent consultation document (EPCs in Buildings) states that EPCs were designed to encourage building owners to make improvements to the energy performance of their buildings. It is acknowledged that to date, over 18 million EPCs have been recorded on the central register, and to this effect the initiative has been somewhat successful and the trajectories suitably ambitious. However, the transposition of this number into concrete energy performance improvements has been limited, as the consultation document also notes, surveys show that between 8-17% of those obtaining EPCs have reported acting on the respective recommendations. To this end we would suggest that the ratings themselves (and associated trajectories) are sufficiently ambitious but that more work must be done to overcome some principle deficiencies in the operation and practicability of the regulations. These include: the split incentives for landlords and tenants (although pronounced in non-domestic buildings); uncertainty around the requirements for listed buildings; and the transparency and accessibility of EPC data on the respective registers. In addition to the issues outlined above, EPCs do not offer a measure of a building’s in-practice (in-use) energy efficiency and therefore a significant portion of energy use is not captured or addressed.   

Are the Government's private rented sector regulations for energy efficiency for both residential and commercial buildings ambitious enough? Are there implementation and enforcement challenges that need to be remedied?

10.           We would take his opportunity to highlight a particular implementation challenge pertaining to commercial buildings within the PRS. The requirement to produce an EPC should not be a barrier to the process of selling or letting a building. Our members have however offered working examples of instances in which this is not the case. Namely, there exist examples of landlords seeking to ensure that a vacant unit meets the minimum requirement of an E rating prior to leasing the space, but finding that the EPC process creates a paradox due to the split responsibility between landlord and tenant. One example would be an instance in which the heating in a vacant retail unit is identified as the reason for non-compliance, and that a suitable upgrade will deliver an E rating. However, the responsibility for the final fit out of the unit will be held by the tenant, and should the landlord fit a new heating system, this will be stripped out and replaced by the tenant at their discretion. Notably, whilst the unit is vacant, energy consumption is effectively zero and there is therefore no payback period to be achieved. The result of this is that by the letter of the minimum energy efficiency regulations the unit cannot be let due to its current non-compliant rating, but the reason for the non-compliant rating is that the unit is untenanted. This and wider limitations to the EPC conventions are issues that could proliferate in existing and/or refurbished shell and core schemes, ultimately resulting in additional costs, complexity, and delays to lettings, and therefore requires a suitable resolution. Again, the primary consideration is the workings and practicalities for implementation, not merely the ambitions of the regulations.

What does existing evidence indicate about progress being made towards greater energy efficiency in public and commercial buildings?

11.           Building standards (and specifically Part L of the Building Regulations) have undoubtably contributed to improved energy efficiency in new build business premises (and to a greater extent homes), however the focus on designing buildings and incorporating technologies that provide efficiencies in predicted/theoretical building performance has led to a ‘performance gap’ with actual emissions often being significantly higher. With the use of simplistic modelling at the design stage, and no substantial thought given to the impact of unregulated energy sources, the use of building standards offers limited scope for true efficiency savings. Alongside this, a lack of sufficient enforcement by building control can compound the issue. It should also be noted that the UK’s existing building stock poses a significant challenge for energy efficiency because building regulations will only pick up those that are renovated or rebuilt altogether. Setting aside for now the issues concerning existing building stock, whilst building regulations provide a suitable foundation for improving energy efficiency, the regulations can effectively act as a top-level target (by way of being compliant) rather than a baseline for efficiencies above and beyond the regulations. This is not to detract from the value of the building regulations, but rather to highlight the need for a greater focus on designing buildings with longer term performance in mind. The Better Buildings Partnership in collaboration with JLL in 2012 produced a detailed report which analyses, details, and compares the Energy Performance Certificates (EPCs) of commercial buildings against their actual energy performance (BBP/JLL, 2012). The findings support the conclusion that buildings built to the appropriate building standards, and confirmed to have respectively high ratings through EPCs, do not necessarily correlate with in-use efficiency.
12.           With regard to the existing building stock, the Government (through its Helping businesses to improve the way they use energy consultation) acknowledges the slower rate of progress on existing buildings and that international research has identified a wide mix of actions are needed to increase efficiency in this field through a combination of policy interventions and voluntary standards supported by finance or other incentives. The Government however, only suggest tightening existing minimum energy efficiency standards, and ‘halving the cost of renovating existing buildings to a similar standard as new buildings while increasing quality and safety’ without indicating how this will be achieved. The Minimum Energy Efficiency Standards (MEES) represent a design rating and do not incorporate operational performance, therefore a more ambitious trajectory still raises challenges for operational efficiency, which is a particular issue for shell and core commercial or industrial buildings, as they are subject to split roles between those that occupy and those that design and build.  

Submitted January 2019