Real Estate

OPINION: The EPC ratings system is “not fit for purpose”

Every since I started to market one of my commercial buildings around 10 years ago now, I began to doubt the efficacy of the EPC rating system.

The guy that came along to do the inspection told me himself he had just completed a 6 week course, or whatever it was, to train to be a building inspector. He explained to me how the computer system would calculate the dreaded EPC rating once he went away and entered all his data.

I say dreaded because I knew the building would probably produce a low rating, solid walls, 3 combination boilers that I had installed 15 years ago and no double glazing, though there was roof / ceiling insulation.

Low rating

Sure enough the rating was low, I can’t remember now what it was but probably a D or even an E. But it was the EPC system’s recommendations that shook me. It was suggest I fit solar panels on the roof! Not a mention of uprating the boilers to condensing ones, or insulating the walls, let along fitting double glazing? When I questioned him, he said, that’s what the computer says. It was truly bizarre!

I’m not condemning every EPC inspection. When they are carried out by a competent assessor, and I’ve had some done since by chartered surveyors that gave me much more confidence, but the fact remains that the algorithm built in to the EPC calculation produces misleading results.

A flawed system

The Government is looking to have as many homes and commercial buildings as possible to be EPC rated at band C or above by 2035. But what experts are telling us is that as property owners go green they are being punished by a ‘Flawed’ energy performance certificate system. It means that upgrades can actually lower a property’s rating.

In the worst case scenario, property owners and householders risk spending tens of thousands on energy efficiency upgrades that can actually make their properties less valuable, thanks to the Government’s “flawed” Energy Performance Certificate (EPC) system.

When owners come to sell in 10 or 15 years’ time they could find themselves trapped as banks would mark down values. Cheaper mortgages would be difficult to access, despite having spent money making their properties more energy efficient.

Inconsistencies in the EPC rating system

Inconsistencies in the existing EPC calculation mean that property owners currently can pay out thousands of pounds for work that, when they come to sell, they find actually lowered their EPC rating.

The energy sector has been scathing about the system. The EPC rates buildings from A to G but experts are saying the current system is “not fit for purpose” because the rating is based on the cost of energy used, not on the actual carbon emitted into the atmosphere. It results in a system that punishes people for installing heat pumps because they use more electricity and LPG gas because it’s more expensive than natural gas – it incentivises the use of mains gas over electricity or LPG.

Tom Spurrier, of the UK Green Building Council, a leading industry body, has said:

“We have currently got a metric that incentivises gas because it is cheaper.” If you install a heat pump, which is powered by electricity, your EPC rating may actually fall. Properties with Liquid Petroleum Gas (LPG) are also marked down because the gas is more expensive than mains gas.

Landlords affected first

If the Government wants all private homes to be EPC band C by 2035, private landlords are going to be affected first because of plans to introduce a band C requirement for new lets by 2025, and for existing lets by 2028.

Owner occupiers will also be hit and landlords will be required to have an average band C ranking for their portfolios by 2030, leading to homeowners in the worse-performing properties paying higher mortgage costs. There is a risk that private homes that cannot meet the target could become un-mortgageable.

Commercial landlords

In the case of commercial buildings, a Government consultation envisages a phased implementation with an interim milestone of an EPC rating of C by 2027, leading on to an EPC rating of B by 2030. The thinking behind having an interim milestone is to encourage landlords to take action before 2029-30, while providing some flexibility to allow landlords to plan and implement improvements into their tenancy cycles.

Each milestone would follow two year ‘compliance windows’: 1 April 2025 – 31 March 2027 for an EPC rating of C and 1 April 2028 – 31 March 2030 for an EPC rating of B. At the beginning of each window, landlords will have to present a valid EPC.

By the end of each window, landlords would have to show that they have achieved the relevant threshold or have registered an exemption. Any exemptions would need to be refreshed at the start of each compliance window. The intention is that, even where an exemption is registered, landlords should demonstrate that the building has achieved the highest EPC rating that is possible to deliver cost-effectively.

It is made it clear that landlords can bypass the two stages and go straight to B if it is more cost-effective and minimises disruption for tenants when doing refurbishments and improvements.

Room for improvement

There are some rather bizarre outcomes to the present EPC system that need to be tackled if the above targets are to hold any credence with property owners and energy specialists.

David Simms, a small-scale developer and landlord in London told The Daily Telegraph that when he redeveloped a block of flats in Clapham, he paid out £10,000 to install energy-efficiency improvements, including insulating the building.

“The EPC rating went from a B to a borderline D because we put in electrical heating. It was like being kicked in the face,” he said.

The solution, according to the EPC assessor, was to revert the heating system back to overnight storage heaters. This was despite the fact that this would increase the total energy usage.

On another redevelopment cited by Mr Simms, he installed double glazing, energy-efficient lighting and an electric boiler. Again, the EPC rating fell from D to E and he says, “The assessor told me if it had been a gas heating system it would have gone to a B.”

These sorts of anomalies in the EPC rating system go directly against the Government’s aim of reducing, then eventually banning, the use of natural gas boilers and encouraging heat pumps, for which they are offering £5,000 grants.

Jess Ralston, of the Energy and Climate Intelligence Unit, a non-profit organisation, told The daily Telegraph:

“EPCs are so focused on cost, they forget the environmental impact. If you install a heat pump, you will be punished.”

When the EPC system was designed back in 2007, said Mr Ralston, electric generation was very different to now. Ten years ago, electricity use produced more than twice as much carbon as natural gas, but now it is half that of gas.

Mr Spurrier says that:

“In terms of overall net zero, we need to switch as much as we can to electricity, But because the EPC system has not changed, it incentivises property owners to do the opposite. Pressing ahead with EPC targets without reform will be extremely problematic. We don’t want to embark on a policy using a tool that is not fit for purpose.”

David Adams, of the Energy Efficiency Infrastructure Group, an industry body, says:

“The EPC system is completely inadequate to tell you how good a dwelling is and how much improvement it needs. People now may have completed on a house and be completely unaware of the liabilities they are taking on.”

Source
OPINION: The EPC ratings system is “not fit for purpose” is written by Tom Entwistle for www.landlordzone.co.uk

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