Green Buildings: Prioritising Energy Efficiency in the UK | JD Supra
Green Buildings: Prioritising Energy Efficiency in the UK JD Supra
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Energy Efficiency in Commercial Buildings: The Impact of MEES Regulations
Introduction
As the focus on Environmental, Social, and Governance (ESG) issues continues to grow among corporates, investors, and lenders, the Minimum Energy Efficiency Standards (MEES) Regulations have highlighted the immediate need for energy efficiency in commercial buildings in the UK.
The Impact of MEES Regulations
From 1 April 2023, it has become unlawful to let a commercial property with an ‘F’ or ‘G’ Energy Performance Certificate (EPC) rating, even if the lease was granted prior to the introduction of the MEES Regulations in 2018. Breaching these regulations can result in fines of up to £150,000 and reputational risks. Furthermore, it is expected that the requirements under the MEES Regulations will be tightened in the coming years, with government consultations indicating a plan to raise the minimum standard to ‘C’ by 2027 and ‘B’ by 2030.
The Cost of Non-Compliance
Commercial real estate with poor energy efficiency ratings has become unlettable and unfinanceable without significant capital expenditure. Even properties that were once considered acceptable will soon face the same fate. Avison Young estimates that achieving the 2030 MEES requirement (EPC ‘B’ rating) for industrial stock in the UK will cost approximately £30.5 billion, averaging £334,000 per building. The high cost is mainly due to the difficulty of retrofitting energy efficiencies into older assets, with 80% of industrial stock in the UK being more than 20 years old.
The Green Premium and Brown Discount
The question arises whether the cost of improving a property’s energy efficiency can be offset by rental increases. The difference between the “green premium” and the “brown discount” varies across asset classes and regions. However, a green premium for best-in-class assets is already evident across all asset classes and localities, and it is expected to increase as energy efficiency requirements become stricter. This will create a split market between buildings that meet the new performance standards and sub-standard buildings that risk becoming obsolete.
Calculating EPC Ratings
To understand the cost of improving an EPC rating, it is crucial to know how it is calculated. Assessors consider factors such as insulation levels, heating systems, lighting, ventilation, building age and construction, and renewable energy usage. Investors must actively review their portfolios, especially in light of updated EPC criteria. Energy-efficient improvements should be identified early to avoid enforcement action. It is also important to be aware of exceptions and exemptions available under the MEES regulations, such as short-term leases or properties that do not require EPCs.
Enforcement Challenges and Market Forces
Enforcement of the MEES Regulations is expected to be challenging for local authorities, who may have limited resources. However, market forces can play a significant role in driving energy efficiency. Tenants, particularly large corporates with their own ESG targets, are actively choosing high-performance buildings. In the office sector, there is a post-COVID-19 trend of corporate tenants sacrificing space for best-in-class buildings. Tenants are also seeking “green clauses” in their leases to ensure ongoing energy efficiency and compliance with their ESG agenda.
The Future of Energy Efficiency in Buildings
The trend towards increased energy efficiency and performance in buildings is expected to continue throughout the decade. Non-performing assets that are not economically viable for improvement works will become obsolete, leading to revised property values. Lenders will also need to consider the energy performance of buildings when assessing loan security.
SDGs, Targets, and Indicators
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SDG 7: Affordable and Clean Energy
- Target 7.3: By 2030, double the global rate of improvement in energy efficiency
- Indicator 7.3.1: Energy intensity measured in terms of primary energy and GDP
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SDG 11: Sustainable Cities and Communities
- Target 11.6: By 2030, reduce the adverse per capita environmental impact of cities, including by paying special attention to air quality and municipal and other waste management
- Indicator 11.6.1: Proportion of urban solid waste regularly collected and with adequate final discharge out of total urban solid waste generated, by cities
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SDG 13: Climate Action
- Target 13.2: Integrate climate change measures into national policies, strategies, and planning
- Indicator 13.2.1: Number of countries that have communicated the strengthening of institutional, systemic, and individual capacity-building to implement adaptation, mitigation, and technology transfer, and development actions
Analysis
The article highlights the Minimum Energy Efficiency Standards (MEES) Regulations in the UK, which focus on energy efficiency in commercial buildings. Based on the content of the article, the following SDGs, targets, and indicators can be identified:
1. SDG 7: Affordable and Clean Energy
The article discusses the need for energy efficiency in commercial buildings, which aligns with SDG 7’s goal of ensuring affordable and clean energy. The MEES Regulations aim to improve energy efficiency in buildings, contributing to the target of doubling the global rate of improvement in energy efficiency by 2030 (Target 7.3). The indicator for this target is energy intensity measured in terms of primary energy and GDP (Indicator 7.3.1).
2. SDG 11: Sustainable Cities and Communities
The article emphasizes the importance of energy efficiency in buildings for sustainable cities and communities. The MEES Regulations contribute to reducing the adverse environmental impact of cities by improving energy efficiency (Target 11.6). While the article does not mention a specific indicator related to this target, Indicator 11.6.1, which measures the proportion of urban solid waste regularly collected and adequately discharged, can be indirectly linked to the overall goal of reducing environmental impact.
3. SDG 13: Climate Action
The article acknowledges the role of energy efficiency in mitigating climate change. The MEES Regulations integrate climate change measures into national policies and planning by setting energy efficiency requirements for buildings (Target 13.2). The article does not mention a specific indicator related to this target, but Indicator 13.2.1, which measures the strengthening of capacity-building for climate action, can be relevant in assessing progress towards implementing energy efficiency measures.
Table: SDGs, Targets, and Indicators
| SDGs | Targets | Indicators |
|---|---|---|
| SDG 7: Affordable and Clean Energy | Target 7.3: By 2030, double the global rate of improvement in energy efficiency | Indicator 7.3.1: Energy intensity measured in terms of primary energy and GDP |
| SDG 11: Sustainable Cities and Communities | Target 11.6: By 2030, reduce the adverse per capita environmental impact of cities, including by paying special attention to air quality and municipal and other waste management | Indicator 11.6.1: Proportion of urban solid waste regularly collected and with adequate final discharge out of total urban solid waste generated, by cities |
| SDG 13: Climate Action | Target 13.2: Integrate climate change measures into national policies, strategies, and planning | Indicator 13.2.1: Number of countries that have communicated the strengthening of institutional, systemic, and individual capacity-building to implement adaptation, mitigation, and technology transfer, and development actions |
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Source: jdsupra.com
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