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Explained: the new mandatory energy performance rating framework for large commercial and industrial buildings

30 April 2021

The government has launched a new consultation called ‘Introducing a Performance-Based Policy Framework in large Commercial and Industrial Buildings in England and Wales’. This is hardly the snappiest of titles but marks a significant development for the commercial property sector in particular. This consultation focuses on the implementation and development of a new occupational based benchmarking methodology for large non-domestic buildings.

What is being proposed?

In the proposal, the Government advises that the energy use and carbon emissions from a building will be benchmarked against similar building types. This will then be used to produce a simple rating, for example between 1-6 stars, where 6 stars could represent the most efficient buildings and 1 the least efficient. The ratings will be required to improve over time and the benchmarks will be assessed regularly to ensure that improvements are being made at a pace required to meet the UK’s net-zero targets.

The consultation proposes that owners and single tenants of buildings above 1000m2 will be required to:

  • onboard their building on to the new framework
  • submit their metered energy use data (and other relevant information) yearly, to the rating administrator
  • receive a rating based on the building’s annual energy and carbon performance

Buildings that fall under the new rating scheme will require site assessments by a chartered professional every four years to make sure that it is being produced accurately and consistently. Subsequent annual ratings can be achieved via desktop audits where the relevant data is submitted to produce a new rating.

The ratings will then be disclosed publicly both in the building and online.

The new proposed rating system is based largely on The National Australian Built Environment Rating System (NABERS) which is considered to be best practice internationally and has shown that the reputational benefits of improving building performance can drive the improvements required.

However, the consultation also looks at enforcement if continuous progress is not made. This is likely to start with the publication of the names of failing buildings but could be followed by financial penalties and changes in legislation that would likely prevent poor-performing buildings from being leased.

Why is this new rating system needed?

One of the most difficult challenges the UK faces on its pathway to Net Zero is the built environment, and Commercial and industrial buildings pose a significant challenge. There are 1.66 million commercial and industrial buildings in England and Wales, and they range from warehouses and shops to offices and hospitality, and they account for a third of UK emissions from buildings.

When looking at how these buildings affect the UK’s net-zero ambitions, its important to note that the very nature of these buildings means that they will all be using very different amounts of energy which is usually dependent on the size of the building – only 7% of commercial and industrial buildings are larger than 1,000m². Yet these buildings use over half of all the energy used by commercial and industrial buildings, and the associated carbon emitted from these buildings.

Don’t EPC ratings already cover this?

Traditionally, the government has used the Energy Performance Certificates (EPC) to assess the energy performance of a building, but these only cover the building’s fabric and services. If a building owner installs double glazing and insulation, then the EPC rating should improve, however, EPC ratings do not measure the metered energy consumption and associated carbon emissions. That will depend on how well the building is being maintained, the number of occupants, opening hours and how effectively energy is used – a good EPC score is no guarantee that a building will use less energy and emit less carbon.

Therefore, the government intends these new ratings to provide key information about actual energy and carbon performance in practice. The key to this will be that the ratings are performance-based – they will only reward a building with a better score if the building reduces its measured energy use and carbon emissions.

How about Display Energy Certificates (DEC)?

The proposal advises that the new rating framework will look to build on and modernise the Display Energy Certificate, which currently applies to public sector buildings over 250m2. The DEC is a useful measure but it’s suggested that it would require major structural changes to deliver the kind of success needed in England and Wales that NABERS has seen in Australia. Whist the fundamental principle of measuring performance will remain the same, the new rating system will modernise and go beyond what DECs currently offer.

What does this mean in practice?

The technicalities of how the ratings will be issued are covered in the proposal. There will be 3 types of rating that the government will use:

  • Base rating: this rating will apply to building owners in a multi-tenant site and will capture central services and central areas
  • Whole building rating: this rating will be relevant to building owner-occupiers or to large single tenants, and will capture all energy associated with the site for all services
  • Aspirational/voluntary tenant rating: if large tenants have a significant floor area (>1,000m²), the Government will look to make a tenant rating available on a voluntary basis in the future. This rating will account for all energy used within a tenant’s space including light and power and any supplementary hot water or air conditioning systems

The government considers landlords and businesses should only be required to improve the performance of the features of the building that are within their control and that the policy framework does not prescribe ‘how’ the building should improve its performance – it will simply reward or penalise any measured carbon and energy savings with an annual increase or decrease to the building rating.

What are the benefits of the new proposal?

Whilst the new rating system is mandatory, there are many reasons why organisations should see this as an opportunity to embrace improvement, some may even choose to opt-in on a voluntary basis.

It’s clear that the government hopes that reputational advantage will be the key motivator for organisations to take the new ratings seriously, but that’s not the only benefit. By improving the energy performance of a building its likely, that as this becomes more important over time, the asset value of the building will increase. It will also make the building much more desirable to potential tenants as they start adding these requirements to their own sustainability policies. It’s not inconceivable that over the next few decades organisations will only be able to occupy 4 or 5 star rated building as directed by their own sustainability strategy.

Increasing the energy performance, also means that organisations will be saving money on their energy bills and running costs.

Improving the energy efficiency of a building without affecting the comfort of the building users is a challenge but the benefits for all may be substantial, so we recommend that building owners, managers and tenants should all work together to develop strategies that will ultimately lead to a net-zero carbon building.  This is likely to require more awareness of energy use and more measurement of consumption by those using the building and so there will be immediate overlaps with other legislation including carbon reporting and the heat network metering and billing regulations.

What happens next?

The government plans to introduce the new rating system in three phases over the 2020s. However, the first phase, which is aimed at the office sector, is planned to start in April 2022 with onboarding happening over 2022/23 – more information on this can be found here.

It is estimated that the are 10,000 commercial offices above 1000m2 in England and Wales so these organisations will be the first ones to test the new rating system.

Even if you will not be affected by this, or new legislation is delayed, you may well see value in improving the efficiency of buildings that you use.  For more information on this, call us on 08451 46 36 26.

The Consultation is open until 9 June 2021.  Industry responses are welcomed and submissions can be made here.