Reducing Risks of Minimum Energy Efficiency Standards
08 May 2015
Reducing Risks of Minimum Energy Efficiency Standards
08 May 2015In advance of the Government’s Minimum Energy Efficiency Standards coming into force in 2018, Aberdeen Asset Management minimised risks relating to these regulations by reviewing and reassessing Energy Performance Certificate (EPC) ratings across its entire portfolio. The EPC assessors, building managers, asset managers and fund managers for each property worked together to deliver robust ratings and identify improvement opportunities, which were then implemented.
Key Facts
- Reducing properties directly at risk from new efficiency legislation to 9% from 17%
- 100% of the portfolio EPC rated – over 3,500 certificates
- Better rated buildings for occupiers
- Protecting rental income and asset value for investors
Situation
From 1 April 2018, the Government’s Minimum Energy Efficiency Standards will prohibit owners from letting out properties that have EPC ratings of F and G, until they have improved the ratings to E or better. This requirement applies to all new leases and lease renewals in England and Wales, with some exceptions.
When the new standards were proposed in the 2011 Energy Act, as a responsible global property asset manager, Aberdeen commissioned WSP Group Plc to carry out EPC assessments of 800 properties, to get an accurate picture of the risk across the portfolio and to identify opportunities to improve EPC ratings.
Actions
The EPC review covered properties where no rating previously existed, those rated E to G, those rated prior to 2010 and those that had not been accredited by leading accreditation organisations.
For low ratings, WSP Group Plc undertook additional modelling to provide the investment team with clear improvement actions and signpost the aspects that would have the biggest impact on the rating. Viable energy efficiency recommendations from the EPCs have been incorporated into long-term asset management plans for each building to improve future ratings.
Aberdeen also requires a minimum of a B rating for new developments and targets rating improvements for refurbishment works. The firm reviews the robustness of all EPCs as part of the acquisition process and, where appropriate, commissions new EPC ratings to accurately reflect the energy performance of the investment.
Benefits and financials
- Understanding of risks: fewer than 500 of Aberdeen’s 1,200 UK properties had EPC ratings in 2012, versus 3,500 EPC ratings in 2015
- Reduced risks: 17% of Aberdeen’s portfolio was directly at risk from the new legislation in 2012 (rated F or G), versus 9% in 2015
- Accurate, high quality EPC ratings: increasing appeal for occupiers, future proofing against 2018 regulation, and safeguarding rental income and asset value for investors
- Clear improvement plans: Aberdeen has already undertaken improvement works on many assets to improve the ratings, which in some cases has improved the ratings up to three bands.
- Investment in EPC assessments: In the region of £700,000 over three years.
Challenges and Achievements
Quality
How to get accurate, quality EPC ratings?
Aberdeen brought all parties together – the EPC assessor, building management, asset manager and fund manager, all working in partnership to ensure high quality data for the EPC modelling software and minimise the use of default values, which are generally conservative and tend to give inappropriately low ratings. EPC assessors were accompanied on building surveys by relevant members of the site team. Draft certificates were reviewed through an iterative process by all parties before ratings were finalised, to ensure that all key information was covered and accurate, such as efficiency data for equipment and recent refurbishment works. The firm also ensured that ratings were accredited through well-regarded organisations. Aberdeen owns and manages the process of EPC assessments. The firm is looking to put in place restrictions to ensure third parties cannot carry out assessments which could be of poorer quality.
Occupiers
How to manage the impact of occupier fit out on EPC ratings?
In many of the low rated buildings, particularly for retail, the occupier fit out had materially affected the EPC performance. As an example, on one estate, 44 buildings all built at the same time and to the same specification achieved ratings ranging from C to G, depending on how the occupier had fitted them out. Like other owners, Aberdeen is engaging with their occupiers and exploring opportunities to reduce this risk using lease terms and tightening the requirements of licenses for alterations.
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