UK: Energy Certificates And The EPB Directive – Impact On The Property And Construction Industries

Last Updated: 4 November 2007
Article by Elspeth Carson

With climate change well up the political agenda, and likely to stay there, there’s a bewildering array of "low carbon" initiatives out there. With carbon offsetting, micro-generation, and carbon neutral buildings all looming large on the horizon, it’s sometimes difficult to remember which are just good ideas and which are binding law.

As UK industry specialists, we understand the legal challenges facing the construction and property sectors, and our aim is to update you on relevant issues to help you make your commercial decisions. Our specialist environment team has prepared this Briefing which summarises Energy Certificates and the Energy Performance of Buildings Directive which will have an impact on everyone involved with property.

One example of a binding law is the "Energy Performance of Buildings" Directive (or EPB Directive), paving the way for commercial buildings to be given energy certificates, based on their energy efficiency. Surprisingly, a recent study showed that investor awareness of property energy certificates had actually declined during the past year.

Given the variety of people likely to be affected by it, we have produced this short Guide to look at:

  • "When" the new rules come into force,
  • "Why" they have been introduced,
  • "What" it is they require,
  • "How" this will be done in practice,
  • "Which" buildings will be affected, and
  • "Who" needs to know about them.

When?

The Directive became effective in January 2006. That was the date by which all EU countries ought to have absorbed the bulk of it into their national law. In typically laggard fashion, the UK authorities were late, to varying degrees. England transposed parts of the Directive through amendments to the Building Regulations that took effect in April 2006, thus, they said, giving industry an extra three months to prepare. However, while the main requirement of the Directive (the introduction of a methodology for calculating EPB) now exists as an idea within the English Buildings Regulations, the actual methodology itself has not yet been published. We also have very recent Regulations (the Energy Performance of Buildings (Certificates and Inspections) (England and Wales) Regulations 2007) that, with effect from 2008, put on a statutory footing the requirements and enforcement procedures in relation to energy performance certificates, air conditioning systems and energy assessors.

The Scottish Executive were even more ‘generous’ and delayed amending Scottish Building Regulations until November 2006. The European Commission had taken a rather dim view of this generosity, however, and had begun proceedings in the European Court in October 2006 to force compliance, hence the Scottish regulations appearing the following month. However, they did not enter into force until 1st May 2007.

Certain provisions within the Directive (as discussed later in this Briefing) did not become binding immediately, and will be introduced between now and January 2009. Clearly, though, there is going to be an ever-increasing focus on energy efficiency between now and then.

Why?

Buildings feast upon energy. They account for around 40% of all energy consumption across the EU. This sector consumes more energy than either industry or transport. Two thirds of this energy is used by households, with the rate of consumption growing annually, as boilers grow older and less efficient. Offices and commercial buildings, as well as leisure facilities, could make significant energy savings if they made use of the most efficient systems and technologies to meet their heating and lighting requirements.

With the sector expanding, its energy demands, and hence its carbon emissions are on an upward trend. How, then, to achieve energy savings (and therefore carbon reductions) against that background?

What?

The EPB Directive requires all EU countries to establish minimum energy performance standards for buildings. This will look not only at the efficiency of the heating or cooling systems, but will also consider hot water heating, general ventilation, and lighting.

When buildings are constructed, sold or leased, an Energy Performance Certificate (a more elaborate version of those you find on fridges and washing machines) will need to be produced. Public buildings will require to have these on public display.

Also, measures are to be introduced to ensure that heating and air conditioning installations (including comfort cooling) are regularly inspected to enable performance improvements.

All new buildings (which, technically, ought to mean anything built since the Directive became enforceable law in January 2006) require to comply with EPB requirements and, in addition, any new building that will have a usable floor area exceeding 1000m2 will require to be reviewed at drawing-board stage so that such factors as renewable energy, Combined Heat and Power (CHP), district heating, and heat pumps can be considered as alternative power sources.

But the new rules on EPB do not just affect new buildings. They also apply to existing buildings (of 1000m2 or more) that are about to undergo "major renovation". In this context "major" means either that the total cost of the renovations will be more than 25% of the value of building (excluding the value of the land), or where 25% or more of the building’s shell undergoes renovation.

How?

So, exactly how should we go about calculating the energy performance of buildings? Although the Directive leaves the final detail up to the Member States, it does set a compulsory framework that looks at the overall energy performance of the building, including its services. The final formula or calculation must, as a minimum, deal with at least the following 9 aspects:

  • the thermal characteristics of the building – including not just its shell, but looking also at how it is divided internally;
  • the particular heating installation and hot water supply (including their insulation characteristics);
  • any air-conditioning system (which can include basic comfort cooling – it needn’t be a high-tech system of climate control);
  • artificial ventilation;
  • built-in lighting installations;
  • the position and orientation of buildings, looking also at the outdoor climate;
  • passive solar systems and solar protection;
  • natural ventilation;
  • indoor climatic conditions, including the designed indoor climate.

It therefore looks as though the final calculation or formula will be extremely complex if it is to take account of so many variables. Nor does the complexity end there, because the methodology must also take account of facets of "green" design such as solar power, energy from CHP, and any use of natural lighting.

To an extent the Directive recognises this complexity. It says that if, as at January 2006, there were insufficient numbers of accredited experts able to produce energy performance certificates, then the Member State may have until January 2009 to implement the provisions relating to certificates (although they have to justify themselves to the European Commission and set out a clear timetable for full implementation).

Inevitably, the UK authorities will wish to defer implementation of the certification requirements until January 2009, but that date is not all that far away, and it is to be hoped that they will use the next 18 months or so to really "nail" the preparation. The fact that the methodology for calculating energy performance hasn’t even been published in draft yet for consultation does not inspire confidence.

Any failure by a developer to meet the requirements of the Directive would, technically, amount to a breach of the Directive, and therefore of environmental law. That in itself might in the future be sufficient to enable objectors, opponents or even commercial rivals to hinder the progress with new developments by raising challenges either with building/planning authorities, or directly in court.

Which?

"Building" has a wide definition. Anything with walls and which uses energy to condition the indoor climate qualifies.

The only contemplated exceptions are Listed Buildings, places of worship, buildings with a useful floor area of less than 50m2, and temporary buildings (intended to be used for no more than two years).

In the case of proposed demolition, the recent English Regulations allow for an exception from the need to supply a certificate when a building is sold or rented out. They say that where a commercial property (a) is suitable for demolition, (b) is on a site that’s suitable for redevelopment and (c) the seller reasonably believes that the purchaser will demolish the building, there is no need for an energy performance certificate to be produced. (For dwellings, the standard is stricter, and the requirement for a certificate will only fall where planning permission for redevelopment has been obtained). These relaxations are not provided for in the Directive, but they chime with common sense, which makes it questionable if there is anything to be gained by having to produce a certificate on a building that’s going to be knocked down.

Who?

EPB is therefore an issue affecting most of those involved with buildings, including property developers, housebuilders, contractors, architects, M&E engineers, building control officers, surveyors, owners, landlords, tenants, and lawyers.

Cost?

The requirement to give your new building an Energy Certificate is hoped to incentivise builders and landlords to incorporate energy efficient technologies and designs into buildings, thereby allowing the occupiers to incur lower running costs.

But getting to that stage will involve costs for the sector. Getting the procedural aspects right will involve costs. So will the development of software and tools to support the process. Then there’s the delivery of training (either state-sponsored, or through professional institution accreditation) for those who are to carry out the certification process. Plus ongoing quality assurance.

So there’s a cost before you even get to the stage of pricing the alternative technologies to deliver the efficiency savings. No doubt these will gradually come down with time. In the meantime, it may be that schemes will have to be set up within Member States to help finance the process. Government financial incentive schemes may be linked to reaching a certain energy efficiency quality in the building, and could be directed in the form of subsidies to the end-user or to the experts themselves. A further possible route to financing the process may be through reduced loan rates for energy efficient buildings or for building renovations according to the recommendations given on the Energy Performance Certificate, which can again be linked to realising a minimum level of energy performance.

EPB in the UK

As noted above, both Scotland and England have transposed the "skeleton" of the EPB Directive into their national laws. For Scotland the flesh on the bones is awaited.

In England and Wales the new changes, inserting several new EPB requirements into the 2000 Building Regulations, entered into force on 6th April 2006. These provide that all new buildings and major renovations to large existing buildings must comply with minimum energy performance standards from that date on. However there are transitional provisions to the effect that if your building work had already commenced by 6th April 2006, you may complete it in accordance with the former regulations. This is reflected in the timetable for the entry into force of various provisions of the 2007 Regulations, which delay until October 2007 the application of provisions in respect of buildings constructed under the 2000 Buildings Regulations.

In Scotland, a similar approach has been taken, although the opportunity has been taken to implement a slightly more radical overhaul, with the six schedules to the 2004 Regulations being replaced in their entirety. The amended version of the Scottish Regulations came into force on 1st May 2007.

SAP vs SBEM, Domestic vs Commercial

No-one yet knows for sure how EPB will be calculated. In England, the new legislation says that it’s up to the Secretary of State to approve the methodology, which hasn’t yet happened. This step, of specifying the calculation methodology, is central to the EPB Directive, because only once it is specified can the two other central planks of the Directive – (1) the setting of minimum energy performance requirements and (2) the issuing of energy performance certificates – be given full effect.

No Europe-wide standard was intended to be set in the Directive, however, and it is up to individual countries to devise their particular methodology (so long as it covers the general requirements set out in the Directive.)

Domestic property

In the UK, a methodology of sorts has been in operation in the residential sector (incorporating a lot – but not all – of what the EPB Directive requires) in the form of the "Standard Assessment Procedure for Energy Rating of Dwellings". This "SAP" has recently been updated to comply with the Directive’s requirements, and it produces (by the use of appropriate software) a rating showing energy consumption, energy costs, and a CO2 emission rate – the higher the number (on a scale of 1 to 100), the better the energy rating, and the lower the running costs and the CO2 emissions.

SAP appears to be the medium by which the EPB Directive will be applied to the residential sector, and it is very likely that it will also feature within the proposed regime of compulsory Seller’s Surveys, to be introduced in both Scotland and England. For England, the requirements for "Home Information Packs" go live on 1st June 2007, and are indeed expected to include Energy Performance Certificates. Those qualified to issue them are to be known as Domestic Energy Assessors, and various accreditation schemes are in the pipeline. In Scotland, a consultation was launched on the "Single Survey" in February 2007, with responses invited by 15th May 2007, and with the results of the consultation being announced in August 2007. The Government’s clear preference, however, is that the seller’s "pack" will have to include an energy report and energy rating.

Commercial Property

SAP only applies to domestic properties of up to 450m2. A different procedure will therefore have to be used for larger domestic properties and also for commercial properties. This is already in the course of development (for England and Wales), and is known as the "Simplified Building Energy Model", or SBEM. It is expected that the model – which is based on draft European standards – will continue to develop and be capable of modelling scenarios of ever-increasing complexity as low- and zero-carbon technology develops.

The future

While the Directive appears generous in giving "an extra three years" for certain of its provisions to be implemented, the fact that the UK was so slow out of the starting blocks means that the deadline for full transposition falls on 4th January 2009, which in effect means the end of next year – not all that far away at all.

Between now and then we can expect several developments in relation to EPB. As noted, the methodology for calculating EPB is crucial, and we can expect the software to be honed and developed over coming months. In the meantime, developers and architects are likely to experience an increased focus from building control in relation not just to energy efficient heating and cooling services, but also overall energy efficient design, with buildings being planned, located and constructed so as to maximise their energy performance and to incorporate low- and zero-carbon technologies. One casualty, for example, might be that we see a retreat from the vogue for fully-glazed office blocks.

By the end of next year the methodology will have to be finalised, and minimum energy performance requirements will have to be set. The Regulations are in place in England and Wales providing for Energy Performance Certificates being issued as a legal requirement when commercial properties are constructed, sold or leased from April 2008, and later this year we will see the certification requirements kicking in for the residential sector through the English Home Information Packs and the Scottish Single Survey. We can also expect to see announcements of various professionals attaining the necessary accreditation as EPB experts, as well as the detail of the requirements for the compulsory regime for the inspection of boilers, air-conditioning and comfort cooling systems.

Moreover, in Scotland, moves are already subtly afoot to goldplate the Directive. According to new planning guidance issued in March 2007, any proposed development with floorspace of over 500m2 should not just incorporate low- and zero-carbon technology to meet the new building regulations, but should aim to attain carbon reductions of at least 15% more than those to be achieved through compliance with the energy efficiency requirements of building control.

Alongside design changes, and amid the increase in environmental reporting among top companies and the equally increasing trend towards ethical and eco-friendly investment, it seems likely that Energy Performance Certificates that demonstrate high efficiency will command a premium. If you’re involved with property, in whatever capacity, make sure you’re up to speed with EPB.

This briefing is for information purposes only. It is not intended to give detailed advice on particular situations and should not be acted upon.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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