One of the aspects of the Government’s new Ten Point Plan is to make homes and public buildings greener. According to Government figures, homes in the UK made up 15% of greenhouse gas emissions in 2018, or 22% if electricity consumption is included.
The Government anticipates £11 billion of private investment in this area over the next decade. The new plans announced will produce savings of 71MT of CO2 between 2023 and 2032 which is equivalent to 16% of 2018 UK emissions, the Government calculates.
In 2021, the Government will publish its Heat and Buildings Strategy. While we await further detail, the Government has announced several targets and ambitions for making UK buildings greener over the next ten years.
There is likely to be an increase and acceleration of energy efficiency building standards. The Government says it aims to implement the Future Home Standard, that was announced last year, as quickly as possible. At the moment, the Future Home Standard is expected to come into force in 2025. There will be a consultation on increased standards for non-domestic buildings soon, the Government states.
Minimum Energy Efficiency Standards (MEES)
The introduction of the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (the MEES regulations) was an attempt by the Government to improve the energy efficiency of both domestic and commercial rented property, by imposing minimum energy efficiency standards that had to be met before the property could be rented (subject to certain exclusions). The current minimum standard is an Energy Performance Certificate (EPC) rating of between A to E. Anything below E (i.e. F or G) is considered to be “sub-standard”.
However, soon after the MEES Regulations were introduced, the Government signalled its intention to raise the bar with regards to the minimum standards, and in October 2017 in its “Clean Growth Strategy” paper, indicated that it aimed to upgrade as many privately rented homes as possible to a grade C or higher by 2030. On the commercial front, in October 2019, the Government issued a consultation in which it sought opinions on its proposals that by April 2030, all non-domestic rented property should be achieving an EPC rating of B or higher or, at the very least, a C rating where achieving a B rating is not cost effective. The outcome of this consultation is awaited, but it is obvious that the Government has set itself ambitious targets with regards to improving energy efficiency in privately rented premises in the coming decade.
On 18 November 2020, as part of the Government’s ambition to create a green home finance market, the Government issued a consultation on the introduction of disclosure requirements for lenders on energy performance of homes on which they lend. This is with a view to improve the energy performance of domestic properties with a mortgage through obligations on lenders. The consultation sets out proposals for annual disclosure of portfolio-wide Energy Performance Certificate data and the gross value of lending for energy performance improvement works. This is in order to better allow comparisons to be made between lenders and for determination of how energy performance is influencing lending decisions. The Government is seeking feedback on how much response could be expected through a voluntary policy and is considering making the disclosure requirements mandatory. The consultation also considers new voluntary energy performance improvement targets for lenders. The consultation is open until 12 February 2021 and the Government response is expected later in 2021.
As part of the announcement on greener buildings, the Government referred to several existing funding schemes available to improve the energy efficiency of buildings:
- The Green Homes Grant will be extended by one year, continuing until March 2022. The voucher scheme funds two thirds the cost of green home improvements up to the value of £5,000, or 100% of the cost for homeowners on low incomes, up to £10,000.
- The Public Sector Decarbonisation Scheme, which was part of the Chancellor’s ‘Plan for Jobs 2020’ to support the UK’s economic recovery from Covid-19, will be further funded. The scheme provides grants for public sector bodies to fund energy efficiency and heat decarbonisation measures. By 2032, the Government expects the public sector to have reduced direct emissions by 50% compared to a 2017 baseline.
- The Social Housing Decarbonisation Fund Demonstrator is a £50 million programme that was announced in July 2020. It aims to support social landlords to retrofit social housing at scale over 2020 and 2021. The main scheme is expected to start in FY2020-21 and in the Ten Point Plan, the Government has committed to further funding for the scheme.
The energy efficiency requirements for private sector landlords will be strengthened, including the extension of the Energy Company Obligation to 2026.
The Government also intends to improve energy efficiency standards for household products. In 2021, a policy framework for energy-related products will be launched. Under the framework, products will need to use less energy, fewer resources and materials.
The Government will improve the Energy Technology List website. This is a Government list of energy efficient plant and machinery including boilers, electric motors, air conditioning and refrigeration,
The Government expects and intends there to be a gradual shift away from fossil fuel boilers over the next 15 years as people replace appliances and are offered a lower carbon, more efficient alternative. Properties which are off the gas grid, often in rural areas, may need alternatives which might include hydrogen heating, electrified heating systems or a mixture of both. See our article on Hydrogen for more information about hydrogen and heat.
UK heat pump manufacturing will be developed further with supply chains expanded in order to meet a target of 600,000 heat pump installations per year by 2028. The Government is looking to introduce an incentive framework and bring forward regulations in this area.
Delivering efficient and green energy solutions
The construction sector is a key part of any solution to more energy efficient and sustainable development. As these issues become more and more important, developers are likely to increasingly engage with the supply chain to seek commitments to energy and environmental performance improvements, explore new ideas over conventional approaches, generate whole life cost and programme efficiencies and reduce carbon footprint.
It will be key to successful outcomes that energy efficiency and performance and other sustainability requirements and targets are made central to project planning and design at an early stage. With capital budgets inevitably constrained, mandatory requirements could be coupled with processes designed to secure stretch targets through competition, innovation and/or incentives.
Whilst sustainability issues have tended to be matters for specification and design, an evolving view is that contractual provisions can also support more sustainable construction solutions. For example, the philosophy of the Chancery Lane Project – a philanthropic organisation supported by many well-known legal and academic organisations and publisher of a playbook of climate-related ‘model’ clauses – is that businesses wanting to take the lead in climate change can use contractual provisions to increase the speed of change. New contract norms can reduce barriers to policy changes and allow for more ambitious rules and regulations, and contracts can reach across borders to link and influence multinational supply chains.
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2021