environmental focus, November 2021

e.nvironmental focus Working together for a better future November 2021

The government has finally published its long-awaited Heat and Building Strategy. The strategy is the government’s roadmap for tackling UK carbon emissions in homes and businesses, to meet its net-zero target by 2050.

Decarbonising energy used in buildings is a key part of the Clean Growth Strategy and underpins the Prime Minister’s Ten Point Plan for a Green Industrial Revolution to “build back better and build back greener”.

The strategy outlines the government’s vision for a greener future through a transition from fossil fuel heating systems, using green energy to power homes, reducing the cost of electricity bills, and increasing energy efficiency through home improvements..

The government also aims to encourage the growth of the businesses and markets required to move the country to low carbon heat by reducing the cost of renewable technologies by stimulating demand and upskilling our workforce.

What is the government’s rationale behind the strategy?

The government states: To meet Net Zero by 2050, virtually all heat in buildings will need to be decarbonised. The benefits of more efficient, low-carbon buildings for consumers are smarter, better performing buildings, reduced energy bills and healthier, more comfortable environments. Additionally, studies indicate that more energy efficient properties typically have a higher value than less efficient ones. Evidence from a study commissioned by BEIS indicated that properties with an EPC C rating were worth around 5% more than those currently at EPC D rating Decarbonising buildings can provide a major economic stimulus, creating new highly skilled jobs, products, markets, and supply chains in the UK, fit for a Net Zero future

Fairness and affordability are at the heart of their approach. Investing in energy efficiency will bring down bills for millions of households and businesses.

They are working with industry to reduce the costs of heat pumps by 25-50% by 2025 and will help low-income households with the cost of upgrading whilst offering £5,000 Boiler Upgrade Scheme grants to early adopters Net Zero will mean gradually, but completely, moving away from burning fossil fuels for heating and the ambition is to phase out the installation of new natural gas boilers from 2035

They will continue to develop hydrogen technology, consult on making all boilers hydrogen ready by 2026 and take major strategic decisions on the role of Hydrogen for heat by 2026 They need to act now to develop the market and bring down costs of energy efficient low-carbon heat and grow the supply chain. They are investing £338 million over the next four years to scale up low-carbon heat network deployment The journey to Net Zero buildings starts with better energy performance and a commitment to supporting businesses and households to upgrade buildings to higher levels of energy efficiency in a way that will ensure low-carbon heating systems work properly

All new buildings in England will be ready for Net Zero from 2025 A co-ordinated system-wide approach to decarbonise cost effectively includes the generation, distribution and storage of energy and investment in the infrastructure. There is also the need to rebalance energy prices to ensure heat pumps are no more expensive to run than gas boilers.

So, what will homeowners have to do?

The strategy identifies three measures that property owners will need to implement, including improving energy efficiency, measuring and controlling the use of energy, and using low carbon heating sources.

By 2050, buildings should make use of a combination of technologies to minimise their carbon emissions and maximise energy performance thereby achieving the best environmental impact rating possible for that building.

using smart technologies (that respond to price signals and give the consumer more control over their demand) and more efficient building management policies to manage building energy consumption, alongside measures to better monitor energy usage

Measures include: insulation, draught-proofing and double or triple glazing within buildings, which will reduce energy demand for heating through improving thermal efficiency using low-carbon sources to heat all buildings using the right radiators and underfloor heating systems which will ensure heating appliances can work more efficiently and provide lower temperature heat

energy storage, to help provide energy when grid electricity is expensive and carbon intensive, through thermal storage, hot water tanks or battery storage using efficient energy-related products that will require less energy to run buildings producing their own power through microgeneration, which can be sold back to the grid to generate income when the electricity is not needed in the home.

Will EPCs remain the measurement tool for energy efficiency?

The government will continue to use EPCs as the metric of choice. It is working on improving EPCs to ensure that they are accurate, reliable and support action to reduce energy use in buildings. SAP 11 is due to be rolled out 2025 which will make assessments more accurate.

What role will green finance have moving forward?

The government states that a range of private finance options, alongside government support, is needed to ensure affordable, accessible decarbonisation for all. It wants to stimulate the finance markets to provide innovative financial support for those homeowners not eligible for grant support. The aim is to grow a green finance sector which is self-supporting and encourages the private sector to continue to evolve and improve the green finance options available to consumers.

Estimates suggest that upgrading as many homes as possible to EPC band C by 2035 will require mobilising up to £65 billion of investment. The government will target support for those less able to pay but it is urging financial institutions to step up to the mark and develop a fit-for-purpose green finance market that provides a range of finance options for homeowners which may include unsecured loans and green mortgages.

A green home finance programme is being launched in the Spring of 2022 which will provide grant funding to stimulate more innovation in the UK green home finance market.

The government sees banks as having a major role to play in building a competitive green finance market and influencing homeowners at certain trigger points to improve the energy efficiency of their homes. These trigger points include at the point of purchase, renovation, or re-mortgage.

But do we think the strategy has any teeth and does it go far enough?

There does seem to be positive intent but very little actual detail in terms of delivering results.

The government is investing £1425 million into the Public Sector Decarbonisation Scheme to 2025. However, the strategy does not contain an overarching retrofit programme or substantial funding for improving the energy performance of private homes. It could be argued that this is much needed if the process is going to be completed fairly, in a timely manner and at scale.

The Climate Change Committee has called for programmes to deliver the retrofitting of one million homes a year for the next 30 years to meet the government’s net zero target. We are nowhere near that scale of activity. The government states in the strategy that ‘we know that upfront costs, low awareness and a lack of finance options can act as barriers to installation of energy efficiency measures’ but other than competitions funded by the Energy Innovation Programme, they fail to identify how they are going to really help overcome these blockers.

There is support for low-income households but there are no financial incentives for other homeowners to take action to improve the energy efficiency of their homes and to kickstart the journey. And critically, there are no proposals on regulations for mandating minimum EPC standards for privately owned homes which would drive action.

In addition, there is no mention of a successor for the poorly received Green Homes Grant voucher scheme. The Green Homes Grant scheme was scrapped before it could really get going and was deemed far too complicated thus discouraging homeowners from applying for the funding. But could it not of been ‘tweaked’ rather then closed completely?

If the government wants to encourage homeowners to take up green funding options, it needs to develop a simple grant system which is a permanent fixture – not something that constantly changes every few years. No scheme is perfect but changing the goal posts continually is confusing and is not helping to instil confidence in the market or in homeowners.

The focus of the strategy is on the installation of heat pumps and the government is encouraging homeowners to move to this technology by offering a £5,000 grant from next spring. But we need to make sure all homes are well insulated first enabling low carbon heat solutions to work more effectively. If this step isn’t taken, homes won’t be warmer and fuel bills won’t be cheaper and you could run the risk of overloading the electricity grid at peak times. And then there is the point that the £5,000 grant towards the cost of a heat pump can offer less of a financial incentive than the Renewable Heat Incentive Grant which is due to end in March 2022.

And how may the strategy impact on the housing market?

That remains to be seen. Without mandatory regulation for owner occupiers to improve the energy efficiency of their homes, the effect of the strategy may be muted in terms of any significant or immediate impact on values.

The government is looking to mortgage lenders to encourage homeowners to improve the energy performance of their properties at certain trigger points. This will bring EPC ratings more into the consciousness of the average homeowner if this comes to fruition.

And there is more evidence that buyers are starting to take notice of energy efficiency when they are looking and bidding on homes, and that energy efficiency measures add value, but it is hard to quantify at present.

The Halifax has identified that environmentally conscious buyers are willing to pay a ‘green premium’ for a more energy efficient house. It found that the difference between the average property price of a home with an EPC rating of E compared to C is £11,000.

Nationwide also conducted some research, and they found a ‘brown discount’ is more likely for homes rated F or G of 3.5 per cent.

Nat West has launched a Green Homes Attitude Tracker which reviews buyer attitudes to ascertain how much importance buyers are attributing to energy performance. At present the consideration is 8th in a list of 12 ‘green’ points they presently consider with 15% of buyers saying that an EPC rating of A to C is an essential consideration.

What is clear is that the green agenda, sustainability, climate change, EPC ratings and energy performance are gaining momentum. And as awareness rises, their importance and impact on property values will undoubtedly increase moving forward.

What are industry figures saying?

There is concern over the failure of the government to set out a clear strategy for upgrading owner-occupied homes. Riba president Simon Allford said the strategy “does not go far enough”.

“The Government has clearly stated and shown an ambition to lead, but to do so it must urgently change gear,” he said, while calling for tax incentives and “sustained funding” to encourage homeowners to take action on retrofitting their homes.

The UKGBC has responded to the Government’s Heat and Buildings Strategy and although they welcomed the report and the Governments recognition that the UK must move away from using fossil fuels to heat our buildings, the UKGBC doesn’t think the goals are ambitious enough. They also state that the £5,000 grants towards the cost of installing heat pumps will help just 30,000 households – a drop in the ocean in the context of the 900,000 annual installations that need to take place. The UKGBC also points out that there is no targeted financial help for low-income households to transition to clean electric heating. The UKGBC’s is calling for a large scale domestic retrofit programme.

Brian Berry, chief executive of the Federation of Master Builders, said that grants for heat pumps were “a step in the right direction”, but that incentives were also needed to make existing homes better insulated.

Sue Riddlestone OBE, chief executive of sustainability charity Bioregional, said that crucial elements of decarbonising UK buildings remained unresolved. “The UK desperately needs a campaign to insulate our leaky homes, supported by clear regulatory and fiscal incentives ...’

“Without a long-term national retrofit strategy, including a proper skills plan and communications campaign, regular consumers won’t know what action they need to take, nor feel it’s within their grasp.”

The full Heat and Building Strategy can be accessed here Heat and buildings strategy (publishing.service.gov.uk)

Further discussions We welcome the opportunity to discuss with you the challenges you are facing and explore the ways in which we could support you to overcome them.

If you would like to arrange a meeting to discuss any of the indicatives featured in this update, please email Corrina Jones at corrina.jones@esurv.co.uk.