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UK Real Estate Insights
Energy Performance Certificates (EPCs) are important tools, both as the main measure for the Minimum Energy Efficiency Standards (MEES) regime, and as a driver for other ESG-related regulation in the property industry. Given this, it is vital that they provide an accurate and reliable assessment of the energy efficiency of a building. In this Insight, we flag recent changes to the methods for calculating EPC ratings and proposals for fundamental changes on the horizon that will significantly impact property owners.
Property owners are being set ambitious targets on the energy efficiency of buildings through the Minimum Energy Efficiency Standards (MEES) regime. Our recent Insight ‘Countdown to compliance with MEES: ‘continuing to let’ commercial property from 1 April 2023’ flagged that landlords of commercial properties must take action now to audit their portfolios and plan for a likely increase in the MEES threshold to a minimum EPC B rating by 2030.
However, any action and strategies to comply with future MEES thresholds will need to consider the impact of recent and future changes to the methods for assessing EPCs.
Rating a building’s energy efficiency – the case for change
EPCs were originally introduced to benchmark energy performance of buildings across the UK and provide cost-effective options for improvement. But they now have many other uses, some with regulatory implications (such as MEES), and are key in delivering government policy on energy efficiency, which in turn forms part of its wider commitment to net zero emissions.
It is widely acknowledged that EPCs are no longer fit for purpose. The main rating shown on domestic EPCs is based on the cost of energy and the main rating for non-domestic EPCs is based on carbon emissions - neither of those ratings gives a complete picture of the energy efficiency of a building. EPCs are also based on predicted or designed performance rather than what energy has been used or measured; they suggest what optimal performance might look like.
The recent independent review of the government’s approach to delivering its net zero target, ‘Mission Zero’, acknowledged that the current EPC measure does not support a move towards net zero emissions in buildings as the measure does not account for the wider benefits from low-carbon heating systems. The EPC rating of a property can sometimes be lower after installing a heat pump because the rating can overestimate the cost of heating due to outdated measures of heat pump efficiency.
Recent changes to methods for assessing EPCs
EPC ratings are produced using methods that derive from Part L (Conservation of Fuel and Power) of the Building Regulations.
Changes to Part L came into force on 15 June 2022 and those changes mean that EPCs assessed before that date may give rise to a different EPC rating if re-assessed now. The 2022 changes took into account changes to grid emissions factors that are used to generate an EPC rating. Back in 2013 (when the previous methodology was issued), carbon emissions from gas were less than half the carbon emissions from electricity. Since then, the electricity grid has been moving towards renewable or low carbon fuels and, in 2020, it was recorded that a record high of 53% of electricity within the grid came from renewable or low carbon sources.
The 2022 changes to Building Regulations reflect that shift – the effect being that properties heated by electricity can expect to achieve an improved EPC rating, whilst gas-heated properties can expect to remain the same or even see a small deterioration.
More change is on its way
Significant changes to EPCs are expected between now and 2030.
The government is progressing a further version of the Standard Assessment Procedure (the EPC methodology that applies to new domestic properties), SAP 11, due to come into force in 2025 (alongside the Future Homes Standard). A report commissioned by the government on the future of SAP sets out twenty-five recommendations for SAP 11, including six recommendations on improvements to the methodology.
A RICS report published in November 2022 ’Decarbonising UK real estate’, containing recommendations for policy reform, goes further. As well as recommending implementation of the twenty-five SAP 11 recommendations, and extending them to non-domestic properties, it suggests significant improvements can be made to the way EPCs are calculated, presented and used, including the following:
‘Mission Zero’ recommends further fundamental reforms to EPCs, including:
There may also be further changes on the horizon for large commercial and industrial buildings (over 1,000 square metres) – the industry awaits a response from the government on its 2021 consultation on introducing a performance-based policy framework in those large buildings. The suggestions put forward include a switch to performance-based assessments, as well as annual ratings and mandatory disclosure.
Clarity on the detail of the policies outlined above and future EPC assessment methods is urgently needed from the government so that the property industry can plan accordingly. Responsibility for much of this now sits with the newly formed Department for Energy Security and Net-Zero and we must wait to see whether it can bring that clarity swiftly to the industry.