Why MEES is Changing Behaviour Two Years Ahead of the Compliance Date

The Minimum Energy Efficiency Standards (MEES) regulations will make it unlawful from April 2018 to let buildings in England and Wales which do not achieve a minimum Energy Performance Certificate (EPC) rating of E. This will initially apply to new lettings and renewals only, but from 2023 will apply to all existing leases as well.

John Alker, Director of Policy and Communications at the UKGBC stated that MEES is “The single most significant piece of legislation to affect our existing building stock in a generation”. I would certainly agree with this on a number of levels.

 

But doesn’t MEES have its flaws?

YES!

Firstly, the minimum standard is based on an EPC rating but as we know, EPCs are renowned for their lack of correlation to actual energy performance and that, as a commoditised service, quality diminished significantly putting into question the accuracy and usefulness of many EPCs.  Note that the Government is aware of this issue and has entered into a consultation process designed to improve quality assurance of EPC assessments.

Secondly, EPC calculations are linked to building regulations, so as regulations get tougher, so does the ability to achieve a decent rating making MEES a moving target. Many have suggested that EPCs produced pre 2011, if re-modelled now, could be up to two ratings lower. If correct, this could potentially see in excess of 30% of building stock, at risk to 2018 regulations.

However, this is not what we are experiencing, primarily due to the poor quality of many existing EPCs. As an example, EVORA recently re-evaluated shopping centre units with an EPC ratings E – G, where the rental value of these units exceeded 75% of the total ERV of the scheme. The original EPCs were of poor quality, as shown through the use of defaults. By completing accurate EPCs, EVORA was able to secure at least a D rating and therefore mitigating MEES risks for the next 10 years.

It is also not yet clear what the future trajectory will be for the minimum standard, although it is possible that this will be raised come 2023. This makes refurbishment planning challenging for landlords, who generally work on ten year cycles.

Finally, there are a number of exemptions, not least the requirement to have the consent all of tenants, which is surely a get out of jail free card for any landlord.

MEES and Behavioural Change

Despite these flaws and challenges we are seeing a significant change in behaviour well in advance of the 2018 compliance date. This shouldn’t be a surprise. MEES has the real potential to adversely impact many key value drivers including occupancy, rental growth, liquidity, cost of finance and yield on sale.

 

Greater Rigour Required

As such, it is focusing minds to ensure EPCs are carried out professionally and with rigour, whilst taking steps to understand portfolio risk supported by an appropriate strategy to mitigate.

As an example, more sophisticated energy modelling is being undertaken using Dynamic Simulation software packages to ensure the accuracy of EPCs and to better understand the opportunities to improve both energy performance and the EPC rating. We are currently supporting Hines on a major refurbishment in Canary Wharf, providing energy simulation modelling to ensure the design intent improves both the energy efficiency of the building as well as the EPC rating.

 

Understanding your MEES Risk

In addition, we are regularly using sophisticated sustainability management software such as SIERA on behalf of our clients, to analyse EPC ratings, lease events and ERVs together to understand and profile MEES risk.

 

SIERA Infographic 1 JPG

 

Collaboration is going to be Essential

Ironically, rather than being a get out of jail free card, lack of consent by the occupiers, possibly due to business interruption issues, could impact on asset management plans to improve the overall EPC rating to ensure future marketability and to prevent possible price chipping on sale. This is also an issue for FRI assets where there is no legal right to gain access, but improvements may be necessary to achieve a minimum rating, prior to lease expiry to enable the property to be marketed to minimise the risk of void periods. These issues will drive the need for greater collaboration between landlord and tenant.

 

Improvement vs repairing obligations and what about dilapidations…?

Collaboration will also be key if the landlord intends to replace M&E equipment with more energy efficient kit, ahead of the end of its useful life, and is seeking the tenants to share in the costs or to recover fully through the service charge. The cost benefits to the tenants will need to be clearly articulated to get their engagement.

Staying on the theme of replacing kit, this is likely to have an impact on dilapidations where the landlord may require more energy efficient equipment to meet MEES regulations but the issue of improvement vs repairing obligations will arise. Again, collaboration and forward discussions will be key.

 

New lease terms?

New lease terms (notice my omission of ‘green’ which generally makes tenants and letting agents run a mile) could become the norm, specifically to bar alterations that adversely affect an EPC rating. But policing such terms will be a challenge.  Does this, for example, mean that every planned tenant fit-out or even minor alteration, has to be fully modelled to assess the impact on the EPC rating – possibly.

There are many other issues and challenges associated with the impending MEES legislation and whilst it is far from perfect it offers an opportunity to improve the energy efficiency and resilience of your assets and engage in long term communication and collaboration with your tenants. Surely that can’t be a bad thing!

 

How can EVORA support you?

EVORA can support you in understanding the upcoming MEES regulations, help you profile your MEES risk using our sustainability management software, SIERA and provide professional support in delivering and improving the EPC ratings for your assets.

EVORA is participating in a select group to provide industry guidance to DECC on the future of MEES regulations.

 

For further information or guidance on MEES please contact Ed Gabbitas: egabbitas@evoraglobal.com or 07557 529 106

 


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Publication of Energy Performance Certificate (EPC) Data

In an effort to make more data publicly available, the Department for Communities and Local Government will be releasing cumulative EPC data for domestic and non-domestic buildings.

Until 30th June 2016, owners and occupiers of commercial property who hold EPCs are able to opt-out of the data release should they not want their EPC information to be released to the public.

However, EVORA advises against blanket opt-outs, without careful consideration and defined reasons, on the following grounds:

  • Each EPC must be opted out individually – the opt-out process becomes very time consuming.
  • The reuse of addresses for other purposes (including marketing) is prohibited.
  • The information is valuable to researchers, whose goal will be to advise on the effectiveness of the regime and will help inform future government policy and the real estate industry is crying out for better informed Government Policy.

Information is still available via the national non-domestic EPC register (where it is possible to search for EPCs on an asset-by-asset basis – so interested parties can still check for individual asset EPCs).

Data was previously released in January 2015. You can download the data to see how it is displayed here.

Holders of EPCs can opt-out of the data release and can do so by visiting this site.

More information on this subject is provided here.

For further information or guidance please contact Paul Sutcliffe: psutcliffe@evoraglobal.com or 07557 529 104.


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Leading Sustainability Software, SIERA, Automates GRESB Reporting For Second Year Running

SIERA, our market-leading web-based sustainability management software, is delivering massive efficiencies again this year in the reporting of the GRESB performance indicator data.

Visit our GRESB support service page.

Sophisticated modelling capability in SIERA simplifies the GRESB reporting process enormously, pushing out both the Performance Indicator reports in standard GRESB format as well as producing the GRESB Asset Report, which can be interfaced directly into the GRESB portal, eliminating the need for laborious and time consuming manual intervention and data input.

In 2015, SIERA was one of the few technology platforms directly transferring data into the GRESB portal. This year will see SIERA delivering the automation of data transfer into GRESB for 41 submissions and more than €20bn of assets, with clients including Deutsche Asset Management, Schroder Real Estate, Rockspring, and AEW.

Charlotte Jacques, Head of Sustainability, Schroder Real Estate comments:

“We chose SIERA because it has been specifically designed for the commercial real estate investment market.

It is practical and intuitive to use and helps simplify the many complexities of sustainability analysis and reporting, especially GRESB.”

SIERA is EVORA’s proprietary sustainability software, uniquely developed specifically for the real estate investment market. The software supports in the delivery of a number of regulatory and voluntary reporting requirements including CRC, GRESB, INREV and EPRA, as well as providing broader environmental and energy monitoring and performance analysis at both portfolio and asset level.

Our role as strategic sustainability advisors to real estate firms means that our insight has focused the development of SIERA to be finely tuned to our clients’ needs and changing market trends, making it a unique and practical product for the real estate sector.

As GRESB Premier Partners, for both our pan-European sustainability consultancy and technology platform, we are able to provide our clients with the best possible support in the completion of their GRESB survey.

To learn more about SIERA and how it would completely transform your sustainability data capture and reporting, please do not hesitate to get in touch today.


GRESB Premier PartnerAs a GRESB Real Estate Premier Partner, we are perfectly positioned to provide GRESB support. View our official Premier Partner profile.

We can work with you to complete the submission and understand your scoring, as well as develop a sustainability plan that will improve your future GRESB performance and align with your organisation’s key environmental objectives.

Budget 2016: Changes to the UK Government Energy Efficiency Strategy

Significant changes to the Government’s energy efficiency strategy were announced in today’s budget (16 March 2016).  Key points are summarised below:

  • The Carbon Reduction Commitment (CRC) energy efficiency scheme will be scrapped at the end of the 2018-19 compliance year (the end of Phase 2). Obligated businesses will be required to surrender allowances for the final time in October 2019.
  • Lost revenue will be recovered through an increase in the Climate Change Levy (CCL).  This will come into effect from 1 April 2019.  This is designed to cover the cost of CRC abolition (although 2019 appears to be a bumper year for the Government – with increased CCL rates and a final CRC payment).
  • CCL rates and CRC allowance prices will increase in line with RPI annually until 2018-19.
  • The CCL discount for sectors with Climate Change Agreements will be increased to cover increases in CCL main rates.
  • The Government will retain existing eligibility criteria for Climate Change Agreement schemes until at least 2023.
  • The main rates of CCL for different fuel types will be rebalanced to reflect recent data on the fuel mix used in electricity generation. In the longer term, the Government intends to rebalance rates to deliver greater energy efficiency savings and reach a 1:1 ratio of gas and electricity rates by 2025.
  • Finally, the Government will consult later in 2016 on creation of a simplified energy and carbon reporting framework planned for introduction by April 2019.

Please contact Paul Sutcliffe at EVORA for more information (psutcliffe@evoraglobal.com)

Reflecting on ESOS: The Next Steps

Going forward, what are the prospects for ESOS? EVORA highlights the next steps for the scheme.

A Coordinated compliance and improvement approach?

EVORA recommend that clients should consider the establishment of a collective approach to address all regulatory risks and opportunities. It makes sense for example, for real estate businesses to develop a strategy addressing both ESOS and the Minimum Energy Efficiency Standards (MEES).

ESOS: a burden or an opportunity for businesses?

On the whole, we believe that businesses have found the compliance process more challenging than regulators anticipated. ESOS is new and businesses will certainly feel that they had a short period of time in which to prepare. Nevertheless, EVORA is already seeing evidence that assessment results are being incorporated into energy action plans. Overtime, ESOS has the ability to deliver the energy savings the UK industry needs. However, ESOS needs to form part of a structured and stable energy policy framework.

ESOS and ISO 50001

In the latest round of ESOS, only 0.9% of businesses chose ISO 50001 as a route to compliance. EVORA believes that, over time, an energy management system approach will help deliver the best results. However, the ISO 50001 approach is also the most time and resource intensive. Nevertheless we believe that, ISO 50001 will grow in popularity over time. The low level of initial uptake will have been restricted by the long time it takes to gain certification and the lack of available certification assessors.

For more information, Paul Sutcliffe will be speaking at the UK Green Building Council (UK-GBC) ESOS Showcase Event in London on the 15th of March. The link to the event can be found on the website: http://www.ukgbc.org/event/esos-showcase

Stay in tune for further updates on the energy efficiency taxation review budget to be announced soon!

Reflecting on ESOS: The EVORA Experience

Over the last six months, EVORA has supported a broad range of clients to meet ESOS requirements. Through our support programmes we have engaged with 27 companies from Real Estate to a Big Six energy provider.

Energy spend assessed equated to £55m and saving opportunities of £2.8m (5.2%)  where identified (this equated to 27,000 MWh per annum).

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ESOS routes to compliance

It was also interesting to explore the ESOS routes to compliance. From an analysis of all ESOS participants and responses to the notification questions (excluding personal data) across the UK and a selection of industry sectors, 65% of the notifications were made during or after December 2015.

The breakdown by compliance routes was as follows:

  • ISO 50001 – 0.9%
  • DECs – 5.3%
  • Green Deal – 0.2%
  • Audits -90%
  • De Minimus – 3.6%

Audits formed the main route to compliance; although ISO 50001 could become a popular option in the future.

EVORA predicts an increase in the take-up of ISO 50001, although significant time investment is required. This reflects the opportunities that energy management system frameworks present for target-setting and monitoring for continual improvement in the long-term.

How about transport?

This is often neglected since traditionally businesses have focused on health & safety when considering travel. Many opportunities exist including training, installation of tracking-systems, promotion of alternatives to travel including video conferencing and introduction of site-specific green travel plans. Focusing on transport could present new ways to achieve significant energy and cost reductions.

Please check out our Reflecting on ESOS: The Next Steps article for more on our reflections on ESOS and the next steps going forward.

For more information, Paul Sutcliffe will be speaking at the UK Green Building Council (UK-GBC) ESOS Showcase Event in London on the 15th of March. The link to the event can be found on the website: http://www.ukgbc.org/event/esos-showcase

Stay tuned for further updates on the energy efficiency taxation review budget on the 16th of March.

 

 

Environmental Legislation Update

Please find below, an update on changes to Hazardous Waste Regulations, which may impact on the operation of your buildings.

 

Changes to premises registration and the consignment note number format

 

Changes have been made to the Hazardous Waste Regulations which will affect business waste management operations, if you have a premises registered with the Environment Agency as a hazardous waste producer.

As of 1st April 2016, two changes to the Regulations will be implemented:

  • Producers of hazardous waste in England will no longer need to notify their premises to the Environment Agency.
  • The format of the unique consignment note code, which appears on every consignment note will change.

 

Why have the changes been implemented?

This change has been driven by the Government’s ‘Red Tape Challenge’ – to remove unnecessary administrative burden within environmental legislation.

 

Registration 

  • If you produce or store 500kg or more of hazardous waste per year you will no longer need to register your premises with the Environment Agency from 1 April 2016.
  • You must continue to have a valid registration up until 1 April 2016
  • These changes only apply to England. It does not affect premises in Wales who should continue to register with Natural Resources Wales

 

Consignment Note Code Format

Completed consignment notes must accompany hazardous waste when moved from any premises. From 1 April 2016 the way you complete a consignment note will change.

  • To accommodate the removal of premises registration, the format of the consignment note code will change 1 April 2016 regardless of the amount of hazardous waste you produce, store or handle.
  • From 1 April 2016, if waste is produced in England, you will need to amend the first six characters of your consignment note code (currently the premises registration number), replacing them with the first six letters or numbers (not symbols) of the business name.  The producer should ensure consistent use of the organisation name in this regard.
  • ‘EXEMPT’ will no longer be used.
  • The second set of characters will continue to be five numbers or letters of your choosing. This may, in a few specified occasions, be followed by an additional letter.
  • There will be guidance on gov.uk from 1 April 2016.
  • Please check you are using the correct format of the consignment note number. Legally you are still required to use the current format on consignment notes up until 1 April 2016.
  • Make sure you do not pre-print more consignment notes using the old format, than you will use by the end of 31 March 2016.
  • If you are receiving waste from Wales into England, you should not change the consignment note code. Welsh producers will still be required to register their premises with Natural Resources Wales and use this is their consignment note number.  If the waste is moved from England into Wales, Scotland or Northern Ireland from 1 April 2016 the consignment note code will need to use the new format.

 

SIC Code

Requirement for the SIC code on the consignment note will change.

Currently the following codes are accepted: SIC 2003, SIC 2007, or NACE on the consignment note.

From 1 April 2016, the SIC codes published in 2007 should be used only. This aligns with the non-hazardous waste transfer note requirements for SIC codes. NACE can still be used (as per an Environment Agency issued Regulatory Position).

 

 

Please don’t hesitate to call EVORA if you have any questions.

Paul Sutcliffe    | t: 07557 529104 | e: psutcliffe@evoraglobal.com
Chris Bennett   | t: 07810 631599 | e: cbennett@evoraglobal.com

 

70% of organisations on the road to ESOS compliance

Latest figures from the Environment Agency show 6000 organisations have complied with the Energy Savings Opportunity Scheme.

In the two days before 29 January deadline, the agency received a further 1,015 notifications of compliance. This last-minute action reflected earlier fears of a slow start to compliance by organisations covered by the scheme.

More information via The Environmentalist

DECC launches Energy Innovation Consultation

A new consultation published by the Department of Energy and Climate Change invites the energy sector to contribute thoughts and ideas to encourage innovation across the sector.

The consultation is open until 11th February and asks the following three questions:

  • How can legislation and enforcement frameworks help support new technologies and business models to encourage growth?
  • How is new technology likely to shape the energy sector?
  • How can regulators better utilise new technologies to generate energy savings and reduce burdens on business?

The final Innovation Plan will be published in spring 2016.

More information via Business Green.