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Higher MEES on the horizon?

On 15 October, the government published a consultation on tightening minimum energy efficiency standards (MEES) for commercial properties.

Click here for a copy of the consultation.  Responses must be submitted by 7 January 2020 and we strongly encourage all interested parties to respond.

The consultation focuses on two key questions:

  • What should the minimum standard of energy efficiency for all commercial properties be in 2030; and
  • How should we get there?

The government’s clear preference is that the minimum standard should be an EPC band B by 2030, but it is also consulting on an EPC band C as an alternative (it is currently EPC band E).

Implementation would be based on current MEES legislation so existing exemptions would still apply, such as the consent exemption.  Landlords would not be forced to undertake energy efficiency improvements that did not meet the existing seven year payback test for cost-efficiency.  However, the government asks whether there is a better tool than the EPC rating to achieve its policy objectives.  It intends to consult in 2020 on introducing mandatory in-use energy performance ratings for commercial buildings.  Details of what this entails will follow.

The government’s preference for an EPC band B rating is driven by two things.  First, this should bring approximately 85% of commercial properties within the scope of MEES (compared with 42% if the minimum standard is an EPC band C).  This would make a substantial contribution to reducing the UK’s carbon emissions and would help to achieve net zero carbon emissions by 2050.  Second, this would be a major boost to the energy efficiency market by stimulating demand.  Improving the commercial building stock to an EPC band B rating is estimated to require capital investment of about £5bn between 2019 and 2030, compared with an estimated investment of only £1.5bn to improve it to an EPC band C.

The consultation recognises the split incentive between landlords (who spend the capital) and tenants (who achieve the savings) and suggests that an EPC band B rating will address this issue by instigating “a closer correlation between the rental value of a non-domestic building and its energy efficiency”.

The government asks whether the route to the new minimum energy efficiency standard (whether EPC band B or EPC band C) should be incremental, with one or more phased increases in the 2020s, or achieved in a single increase in 2030 from EPC band E to EPC band B/C.  The consultation identifies benefits and disadvantages in each approach.

There are a number of challenges with the current MEES legislation, particularly when it comes to new lettings of shell and core space.  The issue turns on the absence of items (such as lighting) that would normally be part of the tenant’s fit-out.  Without them, the EPC rating is often too low and the landlord cannot legally grant the lease without installing items that the tenant will just remove.   The government asks how challenges like this can be overcome, and also for details of other problems that might arise from increasing the minimum EPC standard.

Finally, for this strengthened policy to be effective, it must be enforced.  The government seeks views on how enforcement of MEES could be improved.  A pilot project is currently being run with seven local authorities, all of whom are looking at the enforcement of MEES in the domestic sector but four of whom are also looking at its enforcement in the commercial sector.  Results from that pilot will be used to improve the enforcement of MEES by local authorities generally.

The stated policy objectives are good, namely that businesses should reduce their energy use by at least 20% by 2030.  Whether the end-goal is achievable or too ambitious remains to be seen, but innovation in clean energy technology is booming and we must be careful not to look at what might be possible in 2030 through the lens of what we think are the limits of possibility today.