Mark O’Neill: Changes in EPCs ratings welcome news to building owners and occupiers

Mark O'Neill: Changes in EPCs ratings welcome news to building owners and occupiers

Mark O'Neill

Mark O’Neill from Hardies Property & Construction Consultants tells SCN why the latest changes to Energy Performance Certificate (EPC) ratings are very significant for building owners and occupiers.

Commercial buildings across the UK are more energy efficient. At least that is what the outcomes arising from building energy ratings from EPCs prepared during 2023 would suggest.

Earlier this year the software tool for the assessment of non-domestic buildings underwent a further revision. This in itself is not an event of note, given that over the last 14 years the approach and methodology of building energy assessments have been continually tweaked to make the assessment of buildings more rigorous and meaningful.

So why is this latest alteration to the assessment of the energy efficiency of buildings worth paying attention to?

In Scotland at least, the default thinking of ‘oh, it’ll be a G’ is no longer applicable. Since last Spring, the energy team at Hardies began to notice quite dramatic shifts in building ratings.

Buildings which we would regularly anticipate an F or G, are now attaining ratings of D, C or B and in some cases even an A rating. And these changes are almost universal across all property types, sectors and uses.

From our own research, where we have been able to compare previous building assessments to new assessments undertaken under the new regime, we have seen improvements in building assessment of up to 75%, with an average improvement of 41% across the sample of buildings assessed.

This means for a building rated G a new assessment is likely to yield a D or E rating, and for a building rated E, it will, more often than not, be rated as a B.

The outcomes Hardies has viewed in its research mirror closely similar research conducted by Elmhurst Energy, leading us to conclude that previous building energy assessments are all but obsolete.

Such changes in EPCs ratings can only be welcome news to building owners and occupiers.

With institutional lenders subject to carbon reporting regulation, many are actively seeking to decarbonise their lending books and will be reluctant to accept poorly performing property assets as security for lending.

For prospective property purchasers or borrowers seeking to use their property as security for commercial lending, the new assessment outcomes will, in many cases, facilitate loan applications to proceed.

Indeed, in recent months Hardies has undertaken building re-assessments to achieve this very result for a number of clients whose lenders will not consider property with poor energy ratings as suitable security.

With regards to building occupiers, an improved building assessment must be a positive, in that their carbon footprint, at least in relation to their occupational profile and needs, is less than before.

For commercial landlords, with reference to England and Wales where MEES regulation make it unlawful to let a property with an energy rating poorer than a D, improved ratings may allow regulatory compliance without the need for significant capital spend on improvements.

Additionally, an improved EPC rating will make their building more attractive to prospective tenants, particularly those with corporate ESG policies in place which might preclude considering a building with an EPC rating poorer than a D.

However, in Scotland, for those buildings impacted by Section 63 assessments – buildings with an assessment area of more than 1000 sq.m., and which have not been built to or adapted to meet the 2002 energy standard – the improved ratings do not appear to have made any impact, as the building benchmarks seem to have moved in line with the revised assessment standards.

So why do commercial buildings appear on the whole more energy efficient and owners and occupiers seem to be benefitting from the most recent revision of the assessment approach? What has changed?

The cause of all this positive news is how the carbon content or weighting of grid-based electricity is now calculated within the building assessment.

In 2022, over 50% of all electricity in the UK was generated from non-carbon rich fuel or renewable sources. This is a significant increase from when the building assessment methodology was developed in the late 1990s. Consequently, the carbon weighting of grid electricity has been significantly improved to reflect the expansion of renewable energy in the generation mix of electricity in the UK.

Without doubt this recent change has been long overdue, but it doesn’t come without some issues. Yes, building energy ratings are being enhanced, reflecting reduced carbon content in electricity. And yes, revised building energy ratings are making buildings appear more attractive to occupiers, lenders, and owners, but something fundamental is being overlooked.

The change to the assessments is serving to mask a lack of change in real energy efficiency – the amount of energy being consumed to derive the same or better outcome and may indeed serve to increase energy use due to the perception that a building is energy efficient.

Just because it was previously rated a G but now is rated a D, does not in practice equate to a more energy efficient building. Without physical improvements the modelled or actual energy consumption remains the same or increases as the consumption of the equation is overlooked.

A reassessed, but unimproved, building, will still lose the same amount of heat through poor fabric and poor insulation. It will still use the same amount of energy to light the interior using out-dated lighting fixtures. It will continue to burn fuel unnecessarily due to old heating and cooling systems and through poor control measures.

But it is no longer G rated and the need to attain a D has been achieved by the software.

So, at a time when energy costs remain stubbornly high for many users, the idea of a building being more energy efficient solely down to its EPC rating resulting in misplaced perceptions may transpire to be costly.

It would be churlish not to recognise the positives to be had from less carbon intensive energy sources – this is to be applauded. However, the old adage that the least expensive unit of energy you can obtain is the unit you didn’t actually use remains valid. And one that shouldn’t be overlooked.

Hardies’ energy team – the top energy consultant in Scotland by volume – can undertake building energy assessments across all building sectors in the UK providing EPC assessments, advice, and guidance on energy efficiency regulatory issues and building energy efficiency improvement consultancy.

  • Mark O’Neill is head of energy at Hardies Property & Construction Consultants
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