EPCs are the start of a narrative – how does the story continue?

When moving towards a low carbon society, impact through real estate is significant. The technology for net-zero buildings has repeatedly been proved. Behavioural change, relevant regulations, and appropriate reporting are key factors in reducing our environmental impact. Governments all over Europe use Energy Performance Certificates (EPCs) to report on the energy efficiency of the building stock and to drive change. At the same time, the certificate’s accuracy and recommendations are heavily debated. What are the benefits and flaws of EPCs, and how to move beyond them?

Setting the scene with only A to G

As many probably know, the energy efficiency of buildings is assessed through Energy Performance Certificates. Properties are given a rating between A (very efficient) and G (inefficient). The universal colour coding makes the ratings easy to understand and the reporting very straightforward.

An EPC provides prospective buyers and users objective information about the building’s energy performance. It indicates the current energy consumption and environmental impact, telling something about the potential running or living costs, which is an important factor in comparing the living costs for several properties. The certificate also provides practical advice on how to improve the asset’s performance. Those recommendations include suggestions like installing solar PV, replacing the boiler and insulating the shell.

Additionally, EPCs are an easy metric to compare real estate portfolios. Using publicly available data from the Energy Performance of Buildings Register helps analyse large portfolios and the strategy without visiting every single asset. Management reporting and executive decision making for sustainable real estate are simplified by using the 7-band scale. Together with the clear boundaries of legislations such as the Minimum Energy Efficiency Standard (MEES), even a C-suite without building expertise can draw conclusions on their real estate portfolio.

“It is acknowledged that EPCs continue to be the main limb of both the UK and European policy when it comes to MEES, but it also serves as a reference point for green and sustainability linked financing and frameworks”, explains David Willock, Head of ESG Finance & Structuring at Lloyds Bank, “From a lender and client perspective, EPCs remain an important tool; however, not the only and should be looked at in a broader set of considerations.”.

Writing a story with only 7 letters?

A study done by Leeds Beckett University has shown that up to 62% of Energy Performance Certificates have errors in them. This discrepancy can lead to an incorrect EPC band; hence, landlords may unwittingly break the law by not complying with the Minimum Energy Efficiency Standard. It has been estimated that over thirty-five thousand properties are being let illegally, as their EPC is likely to be downgraded to below the minimum of EPC E if the area was accurately measured. This raises the question: is there such thing as the absolute score?

For property management, inconsistency is the main challenge of EPCs: “We can have two different assessors model the same unit and depending on several factors they can get different results, suggesting a significant variety of both standards and accuracy across this reporting generally.”, says Vicky Cotton, ESG Director at Workman. This could be due to the skill and experience of the assessor and how deep the assessor dives. So, does the assessment and classification of the energy performance of buildings remain too open to interpretation?

If we consider EPCs an instrument towards reducing energy consumption and our carbon footprint, the actual results might be undermined due to the certificate’s scope. An EPC is a moment in time rating and measures the theoretical energy consumption; it does not look at actual energy consumption. The Green Finance Institute agrees: “While EPCs are well known, nationally adopted and widely utilised across the property, retrofit and finance sectors, there is a need for significant improvement if they are to assist the decarbonisation of UK homes properly.”.

Several studies have shown the impact of behaviour on energy consumption and distinguish two effects: significantly less energy consumption than predicted for buildings with poor performance EPC ratings and higher consumption for energy-efficient buildings due to increased comfort requirements. Hence, EPCs could be a mediocre predicter of energy usage. Several initiatives have been set up to move towards measuring and reporting actual consumption to bridge this gap, such as the Government’s consultation on a performance-based policy framework.

Moving from one-time assessing to continuous reporting

We believe EPCs are not the be-all and end-all. The Coalition for the Energy Efficiency of Buildings, which has identified solutions to improve the quality and availability of building information, including recommendations for Building Renovation Passports and a methodology for calculating metered energy savings, confirms that static EPC ratings are not sufficient. However, they are a helpful metric to assess, compare and set out strategies for the building stock.

Using EPCs as a starting point will ensure that all building stakeholders are aware of the current and potential status of an asset or a large portfolio. And, we should not underestimate its impact, as EPCs are the only metric currently regulated. Nonetheless, looking at today’s technology available, increased knowledge and public awareness, we need to look further than general 7-letter ratings.

Initiatives on measuring and reporting actual energy consumption rather than using a modelled rating are being explored, developed and implemented. It is a matter of scaling up assessing buildings and informing and educating stakeholders, in which online solutions are key. While trusting market forces, there is an important role in this story reserved for the Government. Regulating reporting on actual energy consumption might be the missing chapter in reducing our joint environmental impact. Hopefully, the story will be written in the BEIS’s (Department for Business, Energy and Industrial Strategy) performance-based ratings and policy framework. To be continued…

Do you want to discuss EPCs and greening your real estate (portfolios)? We are happy to help! Feel free to get in touch with us or reach out for a free demo to see how we can add value to your business and make a global impact.