Insights from Colin Wood, Director, Artelia UK. Colin spearheads Artelia UK’s growth in commercial property and construction, bringing more than two decades’ experience of London and European markets.
In a bid to fast-track efforts towards achieving net zero carbon emissions, the UK Government unveiled its ambitious ten-point plan for a Green Industrial Revolution in 2020. This comprehensive strategy urges industries across the board to prioritise their environmental commitments and take significant steps towards a sustainable future.
Among the key measures outlined, is the requirement for both public and private sector landlords to fully grasp and comply with the Minimum Energy Efficiency Standards (MEES) requirements, while also staying mindful of the specific compliance windows.
However, at Artelia, we believe that MEES compliance shouldn’t just be viewed as a mandatory obligation, but as a catalyst for unlocking opportunity and gaining a competitive edge. In complying with MEES we can help you boost a property’s energy efficiency, elevate its value, attract discerning tenants, and position your organisation as leaders in sustainability.
Effective from April 1, 2023, landlords of non-domestic properties falling under the scope of the Minimum Energy Efficiency Standards (MEES) Regulations will face new restrictions. The updated legislation explicitly prohibits landlords from continuing to lease properties with an energy performance certificate (EPC) rating of F or G, even for existing tenancies. With few exceptions, landlords are now compelled to make energy efficiency improvements to their properties to meet the prescribed standards.
In a bid to further raise the sustainability bar, proposed updates effective from April 1, 2025, will require leased properties to have a minimum C-rating. Landlords will be granted a two-year grace period, ending in April 2027, to bring their properties up to the minimum C-rating.
It is imperative for landlords to take note of the financial consequences that loom over non-compliance with the MEES Regulations for ongoing tenancies. Those who fail to meet the prescribed standards will face significant financial penalties. For breaches lasting less than three months, the fines can be the greater of £5,000 or 10% of the rateable value, capped at £50,000. However, for breaches that persist beyond three months, the fines can escalate to the greater of £10,000 or 20% of the rateable value, capped at £150,000.
From April 1, 2030, the UK Government has a loftier ambition for commercial property and plans to raise the minimum EPC requirement for leased properties to an impressive B-rating. Whilst it may be tempting for landlords to settle for an EPC rating of E as a short-term solution during property upgrades, it is imperative to bear in mind that this rating represents the bare minimum acceptable standard and may actually result in a devaluation of the asset.
Choosing to future-proof your buildings, can, however, bring a host of long-term benefits, ranging from significant cost savings to enhanced marketability and the attraction of tenants who share a strong commitment to Environmental, Social, and Governance (ESG) goals. Moreover, forward-thinking landlords can catch the eye of prospective buyers and investors who prioritise sustainable and responsible property investments.
For public sector organisations, there is the opportunity to unlock financial support for reducing energy consumption and carbon emissions. The Public Sector Decarbonisation Scheme (PSDS) offers grants for implementing energy efficiency improvement measures in buildings, including schools, NHS hospitals, and council buildings. This invaluable initiative, launched by the Department for Business, Energy and Industrial Strategy (BEIS), aims to drive sustainability and support the development of energy-efficient and heat decarbonisation projects. Additionally, improved energy performance has the benefit of long-term operational cost savings and creating healthier, more comfortable environments for staff and local community building users.
BEIS launched Phase One of the PSDS in autumn 2020, providing a generous £1 billion grant fund as a much-needed boost to organisations seeking to make their buildings more heat and energy-efficient.
A further phase of PSDS will commence in September 2023. Similar to previous phases, it will operate on a first-come, first-served basis, with the fund closing once the applications surpass the available funds. Therefore, it is crucial for public sector organisations to develop an early plan to ensure they are fully prepared to submit their applications promptly when the fund opens.
Clients embarking on the process of assessing their Energy Performance Certificate (EPC) ratings should begin by verifying the date of their certificate. Changes to the EPC methodology took effect in June 2022, potentially leading to inaccuracies in existing ratings. This is primarily due to the updated methodology incorporated in the latest Part L building regulations, which now considers shifts in grid emissions factors.
Back in 2013, when the previous version of Part L was released, the electricity grid heavily relied on fossil fuels. As a result, the carbon factor used to calculate a building’s emissions for EPC ratings was influenced by the energy sources it consumed. Consequently, heating a building with gas or other fossil fuels was perceived as more favourable than electricity, mainly due to the significantly lower carbon emissions associated with gas usage at the time.
However, the landscape has evolved since then, and significant strides have been made in transitioning to cleaner energy sources for electricity generation. The updated Part L regulations now reflect these changes, incorporating the latest grid emissions factors.
As the government continues to decarbonise the grid, properties heated by electricity can now expect an improved EPC rating based on the current methodology. Meanwhile, gas-heated properties may remain the same or experience a slight deterioration.
After establishing the accuracy of the EPC, clients should consider the following steps:
To gain a comprehensive understanding of their property’s carbon footprint, clients should conduct a thorough energy audit and carbon assessment. This evaluation should encompass energy consumption, HVAC systems, lighting, insulation, and other pertinent factors. By analyzing the collected data, clients can identify the areas that contribute the most to emissions and develop effective strategies to reduce their carbon footprint.
Decarbonising real estate can be achieved through retrofitting and implementing energy-efficient measures. Upgrading HVAC systems, installing LED lighting, improving insulation, and optimising energy management systems significantly reduce energy consumption and associated emissions. Although the upfront costs may seem substantial, landlords should consider the long-term financial benefits, including lower energy bills and increased property value.
Transitioning to renewable energy sources is crucial for decarbonisation. Clients can explore options such as installing PV panels, wind turbines, or geothermal systems based on location and feasibility. Incorporating renewable energy into the real estate portfolio not only reduces carbon emissions but also demonstrates a commitment to sustainability, attracting environmentally conscious tenants and investors.
The emergence of smart building technologies offers innovative ways to optimise energy usage and reduce environmental impact. Leveraging Internet of Things (IoT) devices, sensors, and data analytics provides real-time insights into energy consumption patterns. Landlords can make informed decisions regarding energy efficiency measures, automate energy systems, and ensure optimal performance with minimal waste.
Collaboration enhances the effectiveness of decarbonisation efforts. Landlords can join industry alliances, networks, or initiatives focused on sustainability, exchanging best practices and learning from peers. Engaging with local and national policymakers is essential as the government has implemented initiatives like the Energy Savings Opportunity Scheme (ESOS) and Minimum Energy Efficiency Standards (MEES) to guide and incentivise carbon emissions reduction.
In addition to compliance with legislation, landlords should consider certifications that enhance the appeal of their buildings to tenants and investors. While certifications like BREEAM and LEED have traditionally been relied upon to demonstrate sustainability credentials, newer certifications that surpass these standards have gained prominence in the market. Noteworthy examples include the NABERS (National Australian Built Environment Rating System), which is increasingly being adopted in the UK.
Recently launched, is the Low Carbon Building Initiative (LCBI). LCBI seeks to bring together real estate stakeholders across Europe in a collective effort to reduce CO2 emissions by 50% and establish a comprehensive pan-European low-carbon label, rooted in robust Life-Cycle Analysis methodologies. Artelia has co-authored and provided technical support for this initiative, co-leading a panel of experts in Life Cycle Analysis and decarbonisation strategies to develop the methodology. Offices, residential buildings and hotels will be targeted as a first step in creating exemplary buildings to obtain label certification.
The cost of decarbonisation measures can vary based on property size, current energy efficiency, and chosen strategies. While upfront costs may pose a challenge, it is crucial to consider the long-term financial benefits. Energy-efficient measures lead to lower utility bills, reduced maintenance costs, and increased tenant satisfaction, which can translate into higher rental rates and improved property value. Additionally, various grants, incentives, and financing options are available to support landlords and public sector bodies on their decarbonisation journey.
Partnering with Artelia can unlock a wealth of assistance in navigating the complex landscape of decarbonising your property portfolio. Whether you are a landlord or a tenant, we offer traditional services or a full turnkey solution to help address property challenges and achieve ESG goals.
We provide energy usage studies and sustainability consultancy to identify necessary improvements for meeting the government’s Carbon Net Zero targets and your ESG goals, as well as securing grant funding for decarbonisation where available. As lead consultants, we manage designers to develop sustainable design for new and retrofitting, and can operate as a one-stop-shop solution to procure works packages on your behalf through a ‘principal’ model. Alternatively, we can represent you in appointing building contractors using a traditional approach to project delivery. Where you are looking to decarbonise a portfolio of buildings we will manage the programme, driving efficiency and value across multiple projects.
With Artelia’s support, you can confidently align with MEES regulations and enhance the sustainability credentials of your properties, attracting tenants and investors alike while contributing to a greener future.