Minimum energy consumption standards for products and rented homes have galvanised improvements in energy efficiency in recent years, argues Andrew Warren, chairman of the British Energy Efficiency Federation in an article on the Business Green website.
Why the government should stick with sticks to deliver energy efficiency
Effective energy saving programmes need three mutually supportive facets to succeed. As does getting donkeys moving.
In the case of donkeys, the initiatives required can be described simply as carrots, to encourage greater action; sticks, to enforce greater action; and tambourines, noises to alert the donkey to take action.
At the start of the century, UK energy policy makers seemed to understand this symbiosis.
Grants programmes were combined with tighter minimum energy consumption standards. Together with public information drives, these led to regular year on year drops in overall consumption of fuel. Between 2005 and 2015, final consumption of all types of fuel had dropped by 16.2 per cent, from 159,676 kilotonnes of oil equivalent (ktoe) to 137,430ktoe.
The biggest sectoral drop was in natural gas, down 32.8 per cent within 10 years. No wonder the shares of Centrica had such a rocky time.
Subsequently, grants programmes have almost vanished; witness the subsequent 90 per cent drop in household insulation measures.
Multi-billion long term programmes like the Green Homes Grant come and go after a few months. Government surreptitiously scraps its much-heralded Energy Efficiency Deployment Office. It blocks the Zero Carbon Homes timetable. It stops appointing Ministers with special responsibility for energy efficiency. So silent is the Government now about the desirability of energy saving that it was seldom even whispered as a potentially valuable response to last April’s energy price hikes.
So, few carrots. Tepid tambourines. What is there left to stimulate donkeys into action?
Do not despair. There seems a growing appreciation of the value of sticks to ensure greater energy efficiency. Much is made of the enormously powerful effect that tightening minimum energy consumption standards has achieved in the products sector. From commercial refrigerators via washing machines to industrial pumps and lighting outputs, all are now far more energy efficient than in 2000, sometimes three or four times as efficient
It was in these sectors that the concept of producing consumer-friendly labelling from A to G first evolved- and is still improving. Back in 2005, the first Energy Performance Certificates (EPCs) were issued. Initially dismissed as uninteresting bureaucratic bumpf, these simple categories have gradually moved into common parlance.
Estate agents now automatically have to provide the rating details in every advertisement. Solicitors now require details to be available before conveyancing processes can progress. Academic surveys now conclude that improving a home’s energy grade increases its sales value – not often by a large percentage, but sufficiently to reward vendors who spend money on prior upgrading.
Initially, everybody forgot that EPCs were relevant to the rental sector as well. Freedom of Information surveys disclosed that only a minority of tenants ever were told about any EPC rating before moving in, frequently because the landlord hadn’t bothered to acquire an EPC, or because the result was so bad they didn’t want to draw attention to it.
No longer. Many – sadly not yet all- local authorities do check up on recently let properties, and take action against recalcitrant landlords. Such actions were stimulated by initiatives taken under Theresa May’s government, outlawing the letting of F and G rated properties.
This is understandable. Subsequent empirical work undertaken by the UCL Smart Energy Research Lab (SERL), which monitored energy consumption levels in 13,000 homes, has revealed that during last year’s winter, F and G rated homes bought almost twice as much fuel A and B rated homes (97.0kWh per day, as opposed to 47.1 kWh per day).
The present government is apparently determined to go further. Last year, it proposed to ensure that from 2025 all new rental agreements can only be for properties that have a minimum EPC rating of at least a C. This commitment is already shaping investor buying behaviour.
Additionally, all existing lets are due to be improved to a C standard by 2028. Threats of fines of up to £20,000 for missed deadlines are being mooted, well over double current fine sizes for transgressors. UCL’s SERL has also just revealed that the median home with a D rated EPC over the last year was using 27 per cent more gas, and 18 per cent more electricity, than the median home with a C rated EPC.
While the proposals still remain formally just at the consultation stage, many landlords are already hedging their bets, and scrambling to buy energy efficient properties to let out. So far this year, the share of homes bought by investors with an EPC rating of A-C is running at 50 per cent, the highest figure on record. That is up from 39 per cent in 2021 and 33 per cent in 2020. In London, the proportion is now 66 per cent.
This uplift has been driven by two factors. Firstly, landlords have bought more energy-efficient homes where improvement works have already been done. Secondly, there has been a shift towards buy-to-let investors purchasing newer homes, particularly flats, built within the last decade. Aneisha Beveridge, of estate agents Hamptons, said: “Given it will prove impossible for all homes to secure an EPC rating of at least a C without significant cost, it’s likely to mean older homes will become considerably less attractive to landlords.”
Investors keen to get ahead of the incoming rules have been buoyed by a growing number of banks and building societies offering lower mortgage rates to landlords buying more energy efficient properties. Eight more lenders are offering these green mortgages to landlords since August last year, according to Angus Stewart of Property Master, a buy-to-let broker. He told the Telegraph in February: “Lenders are now willing to offer landlords preferential mortgage rates if they are buying a property with a higher EPC rating, so we are seeing an increase in investors doing just that. These landlords are saving on their finance costs and avoiding having to do work on properties they are buying now, to make sure they meet these requirements when the regulations change in 2025.”
Carrots and tambourines may be in short supply right now. Moving to minimum band E only affected around 200,000 of the least efficient buy-to-let properties. But moving to band C must improve well over two million properties. The government needs to formally reconfirm that 2025 timetable deadline immediately.
Sticks work. The government must stick with them.