Our Head of Policy and Public Affairs Elena Pérez Celis has responded to the Energy Performance Certificate (ECP) reform consultation by the Scottish Government which has closed today (16 October). You can read some of our of responses below.
Domestic Energy Performance Certificate Metric Reform Proposals. Do you agree with the set of metrics that we propose to display on the reformed EPC?
The Scottish Government should consider reforming the EPC methodology by exploring alternative approaches. Some suggestions include the Building Renovation Passport proposed by the Green Finance Institute in 2021, as well as the PAS 2030 and 2035 standards introduced by the British Standards Institute. Implementing such reforms would enhance the trust of mortgage providers in the fundamental standards that form the basis of their green product offerings.
A solution can be to supplement the ‘normalized’ performance ratings with in-use data and also make the EPC a more live package of information, forming part of a building passport, with tolls to better interrogate the data and to make decisions.
The current EPC ratings are failing to enhance the evaluation of decarbonised homes and accurately depict the nation’s progress in enhancing the energy efficiency of its housing stock. It is imperative to revamp this system by not only disclosing fuel costs but also including energy and carbon metrics within its primary rating. The eventual replacement of the EPC system with building renovation passports holds the potential to offer more precise data on energy consumption and furnish homeowners with long-term renovation strategies that minimize disruptions to their residences. If implemented nationwide, these passports could serve as a catalyst for accessing green financing, benefiting both homeowners and private sector landlords. Digital building passports would also increase the reliability of information and enable EPCs to be updated more frequently when changes are made to a property or measurements of energy performance are taken.
Considering our proposal to include a Fabric Rating on EPCs, do you think this metric should include domestic hot water heat demand?
EPCs need to be supplemented and eventually replaced by in-use performance data. This data should capture the annual heating and hot water supplied on an annual basis alongside the energy demand for that location to maintain a given temperature level over the course of that given year.
Should not include, please give reasons for your views
Do you agree with our proposal to give more prominence to the energy efficiency features of the home (such as the depth of loft insulation)?
There is a crucial need for coordination between a building’s environmental performance and its actual operational performance. However, current Energy Performance Certificates (EPCs) fall short in considering key building conditions, such as insulation and heating. Real-world performance often diverges from EPC predictions, as these assessments are intentionally standardized, relying on floor area, standard temperatures, and heating periods, aspects not always observed by occupants. To address this disparity, EPCs should transition away from providing specific recommendations for building owners. Instead, they should focus on identifying potential improvement areas based on data collected through SAP/RdSAP or building passports. Users can then be directed to information about available options and relevant tools (e.g., checking the suitability of a heat pump). Additionally, EPCs should incorporate information from Local Area Energy Planning and other local or national policies/plans affecting decision-making. Looking ahead, there is a potential for EPCs to be linked to personalized retrofit plans for properties, facilitating a more accurate and tailored assessment.”
Do you agree with us that the primary role of the EPC should be to provide basic energy efficiency information for the purpose of comparison and act as a prompt to consider retrofit options.
An EPC is intended to inform potential buyers or tenants about the energy performance of a building, so they can consider energy efficiency as part of their investment or business decision to buy or occupy that building. It is inadequate for deciding upon a retrofit plan or intervention in its current form. That is why EPC reform is needed.
If you disagree, or have further comments about the role of the EPC, please provide your comments.
Initially, EPC ratings were never designed to be a measurement tool. EPC ratings are not fit for purpose as the current metrics do not accurately incentivise the energy efficiency and heating solutions required to deliver the Government’s net-zero strategy.
Achieving net-zero housing represents a financial process, as estimated by the Climate Change Committee, which suggests that the UK will require £55 billion in investments for home energy efficiency measures by 2050. Consequently, it becomes imperative to focus on the role of the financial system in facilitating an equitable transition within the housing sector. However, the necessary influx of investment for a just housing transition faces various obstacles stemming from structural policies, market dynamics, and socio-economic factors.
Financial institutions are ultimately risk averse, in that they don’t understand things, they won’t finance them thus they need to understand this matter in fairly granular detail. Financial institutions need to be able to track the value of their green loans and currently there is no assurable way to do this right now without basing this on estimates. Financial institutions heavily rely on this information when making lending decisions. EPCs are not providing financial institutions with the accurate information they need about the energy efficiency of properties. This data is crucial for assessing the long-term viability and potential risks associated with financing projects or properties.
That is why in order to unlock finance towards retrofit at scale, we need accurate data that reflects progress on energy efficiency measures on a granular basis. Mortgage providers have expressed concerns regarding EPC methodology, particularly regarding its underlying assumptions and its accuracy to measure energy efficiency. Moreover, there are concerns that if homeowners are unable to enhance their EPC ratings, it could expose them to certain risks. This could include the risk of being mortgage prisoners with limited market value growth or having restricted access to specific financial products.
Overall, EPC reform is crucial for financial institutions as it enhances risk management, ensures regulatory compliance, contributes to sustainable finance practices, and aligns with evolving market expectations related to environmental responsibility and energy efficiency.
Do you agree that the validity period of EPCs should be reduced from 10 to five years?
Yes, the reduction of the validity of EPCs from 10 years to five years aims to ensure that the energy efficiency information, which property owners and occupiers rely on, as well as many government schemes, remains current and pertinent.
We welcome any views on the usefulness of our proposals for other relevant policy areas, such as fuel poverty or the delivery of government schemes. Please provide any comments you wish to share.
The current economic challenges stemming from the pandemic and the Russian invasion of Ukraine have underscored how British households are susceptible to energy price fluctuations. According to National Energy Action’s estimates, the number of individuals experiencing fuel poverty surged from approximately 4 million in the summer of 2020 to 6.7 million by October 2022. A significant structural factor contributing to this issue is the inadequate energy efficiency of homes in the UK. Specifically, 56% of privately rented homes and 69% of owner-occupied residences have energy performance certificate (EPC) ratings below a C grade.
Funding programs, including grants, loans, favourable interest rates, and tax incentives and waivers, can be directed towards enhancing properties that have EPC ratings below a designated threshold or toward increasing the EPC rating of residences to a predefined level.
The EU Taxonomy imposes a requirement for green bond issuances related to energy efficiency to demonstrate a two-band improvement in the EPC rating. Given the existing challenges with the current EPC system, assessing this improvement becomes challenging. Consequently, financial institutions are cautious about investing in green mortgage bonds, which otherwise could unlock significant opportunities for transforming the market.
Another challenge that extends beyond the financial sector is the scarcity of skilled labour and robust supply chains across all regions of the country, hindering the execution of even pilot projects designed to test such innovative products and initiatives.
Elena Pérez Celis,
Head of Policy Public Affairs