Comment by Francesca Davey, Graduate Energy Analyst, Energy Systems Catapult.

The government has announced plans to close the energy performance gap in the privately rented sector, requiring all privately rented homes to attain an Energy Performance Certificate (EPC) rating of C by 2030. England’s 4.6 million privately rented homes can no longer rely on the goodwill of landlords for the upgrades that are urgently needed.

We agree that mandating energy improvements in leaky, cold homes is a welcome step, but if EPCs are to be used as a regulatory tool to bring about the outcomes the government wants (e.g. warm homes, affordable bills, decarbonisation), then the issues with EPCs need to be fixed. Alongside improved regulation, there is significant potential for innovative business models and products to unlock retrofit at scale in the privately rented sector.

EPCs are flawed

Anyone interested in home energy efficiency is likely aware of the limitations of EPCs. They do not accurately reflect energy use in a home, and inconsistencies among assessors’ evaluations leads to varying results for the same property, affecting the types of recommendations given. Importantly, the recommendations to households do not align with Net Zero, as the headline rating is a cost metric, with carbon impact counted as an afterthought.

Recognising their shortcomings, the government is consulting on reforming EPCs. They propose multiple new metrics: energy cost; fabric performance; heating system; and smart readiness. The metrics chosen for the new minimum energy efficiency standard will greatly influence the types of measures that landlords will choose to reach an EPC C. Getting it right, so that landlords can invest with confidence while providing tenants with the quality of housing they deserve, is a priority. In the consultation, the government is proposing a standard set against metrics of:

• the fabric performance (energy performance based on the building’s fabric efficiency)

with a secondary standard based on a metric of either:

• smart readiness (ability to integrate with a flexible energy system, such as smart meters or batteries)
• or heating system (efficiency and emissions of building’s hot water and heating systems).

While these metrics are better targeted at heat loss reduction and low-carbon heating than the previous cost-based metric, it is not clear how well they will work together to promote innovative, whole-house approaches to home energy upgrades.

We have been advocating for EPC reform and have proposed a set of metrics which we believe would better align decision-making with home decarbonisation. We would propose an Energy Use Metric, which would indicate the predicted total energy use for heating and lighting and therefore incentivise improvements in both fabric and heating system efficiency, and a Climate Impact Metric, which would encourage low-carbon solutions without limiting the types of technologies decisionmakers choose from. These would sit alongside the Energy Cost and Smart Readiness metrics proposed by government. Our recommendations can be read in more detail here.

Other barriers

Beyond reforming EPCs, there are other barriers that could limit their impact on delivering warm homes with affordable bills. For example:

• Local authorities, which enforce minimum energy efficiency standards, are under-resourced – officer capacity, data on landlords and their properties, and understanding of the legislation all make it difficult for local authorities to consistently enforce current standards.
• Retrofit workforce skills gap – achieving the scale of retrofit required to meet the 2030 deadline demands a rapid increase in the number of qualified tradespeople. Recent news of poor-quality insulation installed under the government’s Energy Company Obligation 4 scheme underlines how improving quality, standards, and consumer protections for retrofit is vital. There is a risk that these failures could be amplified if we reach a bottleneck when landlords rush to source installers before the new requirements come into force.
• Lack of understanding of energy efficiency – many tenants and landlords do not know what their EPC is and its connection to thermal comfort and energy bill costs. If we want energy improvements to be desirable, we need to address the disconnect between what people care about and how these measures can help.

Opportunities

Despite these challenges, this regulation can accelerate retrofitting by signalling government commitment to low-carbon measures. This creates opportunities for innovative solutions for retrofit business models that are tailored to the rental market. Solutions that simplify the process, are less invasive by reducing disruption, and limit the hassle and time-burden on landlords will be desirable.

Upfront costs of retrofit are a barrier for both landlords and owner-occupiers alike – a financial offering that spreads those costs would be appealing. Green mortgages that offer a discounted rate for buy-to-lets that comply with EPC C could be an attractive offer to landlords entering the market. Discounted rates for bulk purchases could be targeted to landlords with several properties. Landlords whose tenants are not eligible to receive government funding such as the Warm Homes Grant, would benefit from low-interest loans, such as those the Scottish government offer.

Looking ahead

Progress in getting rented homes up to standard has been slow. Regulation appears to be the only solution to tackle this problem at the scale and speed it demands. Even so, we appreciate that landlords will face varying circumstances and challenges in retrofitting their properties. Other forms of tailored support will be vital to get both tenants and landlords on board with the change.

Recognising this challenge, we have been speaking with a range of stakeholders to find out what they think is needed to support this transition. We will be publishing a report of these findings soon, including our recommendations for how to overcome the barriers discussed. In the meantime, if you would like to discuss the consultation please get in touch.