New operational energy efficiency standards on the horizon
Policy change is on the horizon for the non-domestic private rented sector (PRS) in the UK. Moving past EPC and MEES, the Government is expected to announce a new policy that focuses on performance-based ratings, accounting for operational energy when determining building energy efficiency. Considering the potential impact for landlords and investors, Erieta Dimitriou explains all.
22 February 2022 | 3 min read
Existing and future MEES regulations
MEES (Minimum Energy Efficiency Standards) regulations have been in effect since April 2018. Currently, landlords are required to make sure their privately rented properties meet a minimum EPC rating (Energy Performance Certificate) of E before granting tenancy to new or existing tenants.
By April 2030, this will change to require a minimum EPC rating of B; a shift that’s expected to mean energy saving retrofitting works are needed for 85% of UK properties.
But this isn’t expected to come into force overnight. The known and expected milestones are shared in the table below1.
The 7-year payback test
It’s important to acknowledge that this requirement is subject to exemptions. The most notable is the 7-year payback test. This allows the requirement to meet EPC rating E to be waived if the landlord can prove the saving they will make on energy bills (over 7 years) is less than the cost to purchase and install energy efficiency improvements. With the EPC B rating likely coming into effect in 2030, we can expect to see more landlords take advantage of the 7-year payback test.
We need performance-based ratings
Recognising this challenge, the Government is proposing that owners and single tenants of large commercial and industrial buildings above 1,000m² will be required to obtain a rating for their building on an annual basis2. The rating will be based on actual energy data from meters and invoices and the subsequent results will need to be disclosed online. At the moment no target has been set, similarly to the Australian equivalent NABERS, but if energy saving needs to accelerate, we could expect to see one introduced.
These types of buildings have been selected first as they account for approximately 53% of the total energy use by private non-domestic building stock. And better yet, this policy could deliver up to 1 megaton of carbon dioxide savings and reduce annual business energy bills by £116m by 2030.
A site visit will likely be required for a building’s first performance-based rating, followed by another every four years - unless the building has undergone a substantial change.
Indicative operational energy rating costs3:
Overall cost (including hassle costs) for 4 years coverage (£ rounded)
- Performance-based framework (first 4 years) = £4,100 - £7,500
- Performance-based framework (subsequent 4 years) = £3,400 - £6,300
Measures voluntarily installed at this first stage are expected to deliver average energy bill savings that are almost twice the size of the associated costs over the 2022-2038 period. A conservative estimate places the average repayment period between two to five years.
Unregulated energy conservation will need to be considered when agreeing any set energy efficiency measures for MEES compliance. Fabric refurbishments, systems retrofits and small power load conservation should be at the top of the agenda.
We can help to shape the most appropriate energy conservation plan for your portfolio and calculate payback periods for the measures implemented. Get in touch to talk to a member of our team.
1The Non-Domestic Private Rented Sector Minimum Energy Efficiency Standards, BEIS, June 2021
2Introducing a Performance-Based Policy Framework in large Commercial and Industrial Buildings in England and Wales, BEIS, June 2021
3The non-domestic-private-rented-sector-minimum-energy-efficiency-standards-research, BEIS, March 2021