As part of the wider ambition to meet the ‘net-zero-carbon’ challenge by 2050, social housing providers have been set a target to attain a C rating on Energy Performance Certificates by 2035. Colin Farrell of Faithorn Farrell Timms LLP outlines some considerations and guidance for housing associations to take on board to help achieve this.
Through the Clean Growth Strategy, the UK government has set a target for social housing providers to attain the minimum rating of Energy Performance Certificate (EPC) C for rented properties by 2035 (2030 for ‘fuel poor’ households). This is an important milestone towards the longer term, and much more ambitious and challenging aspiration, to make all homes ‘net-zero-carbon’ by 2050.
What is the scale of the challenge for housing associations?
According to the 2019 English House Condition Survey, the average Standard Assessment Procedure (SAP) rating of the social housing stock in England and Wales is 68.4, and 44% of dwellings have an energy efficiency rating below EPC C (SAP 69).
Social housing performs better than other tenures. As an example, Faithorn Farrell Timms’ (FFT) analysis suggests that, across England, the energy efficiency of 60% of homes across all tenures falls below EPC C, with more than 40% at EPC D.
FFT has carried out several studies for housing associations to establish the baseline energy efficiency (SAP) and environmental performance of their housing stock and, building upon this, identify the range, scope and indicative cost of improving stock to initially meet the EPC C milestone.
Our work in this area has produced some common conclusions, and top tips, which we think are worthy of consideration in developing an investment strategy:
- EPC C is generally not a very high performance bar (at the lower SAP 69 end anyway). A complex calculation is required to assess individual property performance, and there are multiple permutations that affect the SAP and environmental performance rating. But in terms of ‘typical’ social housing, most flats or terraced houses built since 1990, with a reasonably modern and efficient heating system, plus loft and cavity wall insulation and double glazing will often achieve EPC C.
- Start with the basics to avoid regrets and be careful of unintended consequences. A fabric first approach to optimise the thermal efficiency of the external fabric, coupled with the most efficient heating system and low energy lighting is often sufficient to achieve EPC C. If tempted, or necessary, to go further, consideration must be given to capital cost plus ongoing maintenance and lifecycle liabilities associated with solar, heat pump and mechanical ventilation systems.
- Properties that are in the lower EPC Bands E, F and G often coincide with under-investment and/or technical constraints. We occasionally assess homes with SAP ratings below 20. This often arises where heating is provided by a solid fuel fire and/or portable heaters, rather than central heating. A combination of older inefficient heating systems, such as ageing electrical storage or gas wall heaters, coupled with solid walls, single glazing and little or no loft insulation would also typically result in a low EPC rating. While increasingly rare, this can occur when residents have preferred to retain older heating systems rather than modernising.
- EPCs are not always as reliable as you might expect. Introduced in 2008, EPCs have become the default method of assessing energy efficiency and environmental performance in existing dwellings. Most housing associations have built up a reasonable representation of their stock through EPCs produced at re-letting stage and via stock condition survey programmes. But quality is variable and the fundamental ‘standard assumptions’ used cannot reflect the true and actual performance and fuel use of individual properties. EPCs are legally valid for 10 years, but the certificates are static, and unless housing associations integrate the source data into suitable asset management software and update this to reflect the impact of investment work, some ‘ratings’ held by organisations understate the true position. The ability to establish the baseline position with confidence is essential to devising and quantifying a robust investment plan.
- Improving a dwelling from EPC D to EPC C can be challenging. We have found that a significant proportion of social housing falls into EPC D. This should be a strategic focus area for housing associations as much of this stock is either built, or has been improved, to a fair thermal performance standard. It might be necessary and appropriate to consider installation of renewables in these cases.
- Retrofit can lead to premature component renewal. EPCs may recommend upgrading otherwise satisfactory components, with a remaining serviceable life, in order to improve energy efficiency. In such cases there is a risk that components, such as boilers or windows, would be replaced on the basis of performance rather than condition. Risk of premature renewal and write-off can be mitigated through identification and programming of ‘business-as-usual’ planned maintenance activity before the 2030 (or 2035) deadlines. Care must be taken to specify works and components that deliver the required performance improvement.
- There is a place for renewables too. Other options, including heating fuel conversions, installation of air source heat pumps and/or solar panels, will undoubtedly improve energy efficiency but (depending on the starting point) might result in performance ‘skipping’ straight to EPC B. If funds are limited, this might not offer organisations the best overall value in the short term. In any case, we would suggest renewables and alternative fuel source conversions are only considered after the ‘fabric first’ approach of optimising thermal insulation has been tackled.
So what will it cost?
There is much speculation and many studies about the financial investment requirement to achieve these targets. The proper answer is: ‘it depends’. While there are commonalities in approach, the SAP assessment methodology is complex and with so many constructional, situational and services permutations affecting energy rating, there is no single solution that will apply and be appropriate in every case.
Our studies have considered multiple solutions across a wide range of property archetypes, and using bespoke schedules of cost rates. From this, in the round and with all the usual caveats, we have concluded that the mean average ‘extra-over’ cost of improvement work to EPC C, is in the region of £3,000 - £4,000 per unit. This assumes that fabric and services improvements including heating systems and window renewals would be delivered through established investment programmes.
The additional investment that is usually excluded from ‘BAU’ activity would include measures such as:
- Additional and exceptional thermal insulation treatment of external walls
- Roofs (and in some cases floors)
- Improved / modified and ‘fuel-switch’ heating and hot water systems (including installation of air source heat pumps)
- Low energy lighting
- (where necessary) Solar PV and solar thermal panels.
On a case-by-case basis, extra-over unit costs can range from as little as £1,000 but in the most challenging cases, this can exceed £25,000 per property.
Grant funding is available, and is likely to continue from time to time, but this is likely to only support targeted projects rather than entire portfolios.
Strategic asset management
It remains to be seen whether, in the case of those particularly challenging and hard-to-improve properties, exemptions may apply, as is the case in the private sector under the Minimum Energy Efficiency Standards (MEES). Also, whether more widespread funding might become accessible, and/or whether housing associations will apply strategic asset management appraisal principles to dispose of or redevelop assets that are demonstrably inefficient and unable to provide a sufficient return to justify the exceptional levels of investment required.
The clock is ticking
What is certain, in this period of uncertainty, is that 2030 / 2035 will soon be here, and there is plenty of work to do for housing associations to assess and fully understand the scale of the challenge, as well as implement plans for hitting the intermediate EPC C target, before wrestling with the much more complicated issue of ‘net-zero-carbon’.