25 September 2023

EPCs: An Extremely Problematic Conundrum

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EPC James Balston Photography for website

Sustainability has a language issue. Many people struggle to understand precisely what is meant by terms like ‘net zero’ or ‘upcycling’, let alone ‘carbon credits’ or ‘carbon offsetting’.

As we’ll come on to see, there are plenty of things that the Energy Performance Certificate rating system gets wrong… but shooting for clarity isn’t one of them. First introduced in 2007, EPCs use a simple 100-point scale. Properties are then banded A to G (high to low) depending on the score given.

This simplicity provides a convenient shorthand for decision-makers of all types, whether it’s the government barring landlords from renting out properties rated F or G; Labour floating the idea of “upgrading every home that needs it to EPC standard C within a decade by installing energy-saving measures such as loft insulation”; or mortgage providers offering preferential terms on higher rated buildings.

A useful yardstick for buyers.

The fact that EPCs provide a common currency also helps buyers, allowing them to compare properties at a glance. Their main focus, however, should usually be on the Recommendations section. Every EPC contains proposed measures to reduce energy consumption. These are shown in order of importance, together with indicative costs and likely savings.

Over the last decade, we’ve seen a steady increase in the percentage of clients for whom sustainability plays an important role in the buying decision. Very often, their primary interest is in identifying properties where there’s real potential to improve future performance. This is smart thinking; they’ve recognised that the market is shifting decisively towards more environmentally friendly homes.

We’re not the only ones to have noticed this change. In their June 2023 UK Residential Survey, RICS found that: “34% of surveyors report seeing greater interest from buyers in homes that are more energy efficient.” They also noted that the houses most likely to be holding their value were those with superior energy efficiency credentials, even though they tend to be significantly more expensive. Analysing otherwise comparable properties, research last September showed that homes with an A rating command an average premium of 14% over those rated G.

EPCs are much too blunt an instrument.

While EPCs are definitely a useful starting point, buyers need to realise they’re no more than that. To understand why, we need to get into the details of how the process actually works.

EPCs are set using a Standard Assessment Procedure (SAP). Using a pre-defined model, the SAP calculations predict how well the property will perform in terms of energy consumption. This boilerplate methodology explains why inspections are often carried out in 20 minutes or less, with no tests being conducted or measurements taken.

Speedy inspections aren’t necessarily a bad thing, especially for sellers who have a hundred other issues to worry about. Unfortunately, there’s a heavy price to pay in terms of accuracy. As Dr Martina Pacifici, Senior Associate at ADAM Architecture, points out: “There’s a known performance gap between the SAP calculations and the day-to-day reality, with EPCs often predicting significantly higher energy use than what’s actually metered. There are two key reasons for this. First, the superficiality of the inspection process may lead to wrong SAP inputs. Second, the steady state methodology simply isn’t robust enough to calculate the building’s overall performance. Recent research has revealed significant gaps in all bands from C to G. What’s particularly worrying is that the gaps get bigger as the EPC rating worsens. In bands F and G, the difference can be nearly 50%.”

This inaccuracy is clearly troublesome given that EPCs are increasingly important in deciding what gets bought, the rate at which mortgage providers will lend and owners’ ability to rent out a property. But it’s far from the only problem.

EPCs effectively ignore half the issue.

The SAP calculations overwhelmingly prioritise energy costs over carbon emissions. Some modest steps were taken to address this in last June’s update, but the algorithm still heavily favours gas because of its relative affordability – despite the fact that electricity is a much more sustainable resource as the grid switches towards renewables like wind and solar.

This results in some bizarre recommendations. Replacing an old gas boiler with a new gas boiler can add 13 points to the EPC score, whereas investing in a heat pump will only add 9. Choosing an electric boiler might actually cost a point.

Additionally, the current system disincentivises improving a building’s fabric. Thermal modelling proves the effectiveness of increasing a wall’s insulation thickness or upgrading to double or triple glazing – but owners are unlikely to receive any noticeable reward in terms of an enhanced EPC rating.

Out in the cold.

The situation with listed buildings is even more confused. The current regulations on EPCs state that “buildings officially protected as part of a designated environment or because of their special architectural or historical merit are exempt, in so far as compliance with certain minimum energy performance requirements would unacceptably alter their character or appearance.”

Whenever a phrase like “in so far as” appears in the regulatory framework, we all need to proceed with caution. There’s ample room for interpretation, which means owners are at the mercy of their local planning authority’s whims.

Problems can often come to a head when owners look to rent out a listed building. The Times recently reported how one unfortunate owner of a Grade I manor house was fined £3,000 for letting out two F-rated flats within it… even though the property was registered as exempt. This sort of “Kafkaesque mess” happens much more frequently than it should.

What should be done?

In its annual report on the UK’s progress towards net zero, the independent Climate Change Committee commented that EPCs “create market uncertainty and are in urgent need of reform.” We agree.

In our view, three areas should be prioritised. Let’s start with the most basic. No rating system can work effectively without good quality inputs, and the data currently collected by inspectors often isn’t fit for purpose. “Rubbish in, rubbish out”, as the saying goes.

Second, the SAP model needs to be made much more dynamic. At the moment, it’s based on averages over the past three years. Given the rate at which the electricity grid is decarbonising, this inevitably provides an outdated (and therefore misleading) picture. Why are we still looking in the rear-view mirror rather than harnessing real-time data?

Finally, the UK needs to raise its ambitions. If we’re serious about tackling the problem, we need to move towards a certification process that evaluates a property’s fabric and energy systems holistically. BREEAM (the Building Research Establishment Environmental Assessment Method) points the way forward. Whilst most commonly used for commercial and multi-residential buildings, BREEAM’s great strength is that it takes a genuinely 360° view. Multiple criteria are evaluated, including carbon emissions, design impact, adaptability to climate change, ecological value and biodiversity protection.

Without improvements like these, we’ll remain stuck where we are today: an uncomfortable spot where just 13% of people know exactly what the EPC rating for their home is; and less than one in five are aware that EPCs contain recommendations for improving the property’s energy efficiency.

Of course, we shouldn’t expect too much from government or regulation – certainly not with an election looming and the Treasury having to count every penny. But buyers need better answers, and Property Vision can help. We have the expertise to conduct a detailed evaluation of a property’s current and potential sustainability; and the network of advisors and contractors to create and implement a fully costed strategy.

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