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.

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.


The challenge with EPCs

An EPC provides an indication of how much it will cost to heat and power a property. However, a building’s true energy performance will depend on how well the building is being maintained and its operational energy levels. EPCs don’t account for unregulated energy, such as IT equipment, small power, lifts, escalators and external lighting. This is where the new performance-based policy framework comes in.

Office space with computers and seating

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.


Retrofitting energy upgrades – what does this mean for landlords?

For commercial and industrial buildings with a floor area of over 1000m2, both MEES (EPC rating B) and operational energy requirements will apply.

The EPC looks at a building’s ‘inputs’ (predominantly the quality of the building’s fabric and services) and assigns a rating based on the energy use anticipated by a typical occupant. The Government’s proposal for a performance-based rating will just measure building ‘outputs’; the energy performance of the building based on actual meter readings.

It’s expected that landlords may be able to agree the energy saving measures they are required to install under ND PRS MEES (Non-Domestic Private Rented Sector Minimum Energy Efficiency Standards); likely with the scheme administrator at the first performance-based rating. If they can meet these criteria, landlords may no longer have to meet both EPC and MEES regulations.

To comply with ND PRS MEES they will need to:

  • Get an annual performance-based framework rating and make sure it’s disclosed online
  • Provide proof of installation of the set of measures, agreed when the building is onboarded, by 2030

What next?

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

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