Staggering inaccuracies in EPCs undermine net zero efforts

The Government puts its faith in EPC ratings to measure property energy usage in order to drive up energy efficiency in properties towards its energy targets, but can owners have the same faith?

Are EPCs as they stand robust enough? Do they give valid and reliable ratings when the Government uses these as its “North Star” to satisfy its legal commitment to net zero by 2050. Also as its legal standard for all sales and lettings, and increasingly they are used by lenders as a gateway to approve mortgages?

“Taxpayers, homeowners and landlords face paying billions of pounds to upgrade the energy efficiency of their homes – but the ‘staggering inaccuracy’ of energy certificates means the upgrades will make little difference to either climate change or energy bills.”

So says Martina Lees writing for The Sunday Times last week, based on the results of an in-depth study carried out by Climate Fintech company, Carbon Lance.

And they’re not on their own. Research carried out by property industry research and measurement group, SPEC, in their report “Impacts of inaccurate area measurement on EPC rating” concludes that of 2,500,000 EPCs lodged (15%) are incorrectly rated, having a score within 2 points of an upgrade or downgrade if measured accurately.

An estimated 35,028 E-rated properties are being let illegally, having borderline EPC scores that would likely be downgraded to F if their area was accurately measured, says SPEC.

Carbon Lance reckon, after comparing EPCs across 17,000 homes, that the average electricity and gas energy usage recorded was actually 91 percent lower that the figure predicted by the obtained EPC rating.

“The inaccuracy is ‘quire staggering’ says Madhuban Kumar founder of CarbonLaces. And apparently this inaccuracy, according to their figures, increases exponentially as the rating comes down the scale, grade G being the lowest rating with the highest inaccuracy.

Cursory inspections

What is often misunderstood about these these ratings is, they are set by assessors who do few if any actual energy efficiency measurements. It is very much an observation without doing any invasive checks, obtaining data often based on visual assumptions. No thorough testing whether there is or is not cavity wall or underfloor insulation for example, resulting in data fed into a computer program whose algorithm arbitrarily works out a score.

In the case of a domestic energy assessment, the assessor visits the property and carries out a non-invasive visual inspection looking into the characteristics of the property and how they might affect energy efficiency. Key features are noted such as the type of heating system, locations of radiators, sources of heat, areas of heat loss, insulation types, construction methods, types of glazing and doors etc.

The assessor measures the floor areas of rooms in the property, a key input to the EPC rating calculation. Their observations and size measurements are then typically entered into a software program, often on an application running on a tablet or mobile, which will then automatically calculate the EPC score and band rating for the property.

There are countless stories around of owners making so called improvements only to find their EPC rating has gone down when re-assessed. Fitting an electric boiler for example, going to LPG instead of natural gas or oil, can all negatively affect the EPC score.

The Sunday Times article also cites the issue of new build quality, where EPCs have been assessed purely on building plans, or by using just one sample property assessment on a new build estate to rate the whole estate.

The “gold standard”

Introduced in 2007 the EPC was to be the “gold standard”, helping people choose a property when renting or buying to gauge the cost of running a home. And the measure is beginning to gain traction among the buying and renting public who are beginning to rely on this information as their guide to energy efficiency.

It is also an increasingly important factor relied upon by mortgage lenders, most of whom will restrict loans to those with acceptable EPC ratings and some banks even adjust their lending rates depending on the EPC scores.

The UK Government has committed to reaching net zero emissions by 2050 and as such needs a measure to help it achieve this in property. This is a laudable aim, but its system of measurement needs to give valid and reliable results.

As part of the Government’s drive to net zero it is looking to reduce emissions across a wide range of sectors, including property. From April 2023 new rules on energy efficiency come into force in England and Wales.

Commercial property lettings

From this April it will be a legal requirement for all commercial rented properties to have an EPC (Energy Performance Certificate) rating of at least E. This is currently a legal requirement for commercial and residential properties for new tenancies or on renewal, but this requirement will be extended to both new and existing commercial leases too. All residential rented properties must already have a minimum rating of “E”.

Energy Performance Certificates (EPCs) are meant to determine how energy-efficient a property is from A (most efficient) to G (least efficient). They should also show the potential level of emissions plus recommendations and associated costs of improving the rating for that property.

Owners must now obtain an EPC whenever a property is built, sold or rented. Landlords contemplating an increase in the minimum EPC rating to “C” (possibly by 2025) potentially face large bills to ensure their properties are compliant.

Minimum energy efficiency standards

So, minimum energy efficiency standards (MEES) requirements will extend to all existing commercial leases from 1 April 2023 and the rating will rise in future, with the government currently consulting on its aims to bring the majority of properties up to EPC band C by the end of the decade.

Information collected by Handelsbanken, a local relationship bank operating in Sweden and in the UK, obtained by research into the UK market to find out how prepared landlords are to meet the new regulations, found that:

• In order to meet the new EPC legislation changes 95% of commercial landlords will need to make improvements to their properties, with installing insulation (30%), double glazing (27%) and a new, energy-efficient boiler (26%) the most likely upgrades
• The anticipated cost of this investment is set to be £95,400 per corporate commercial landlord – or 3% of the total portfolio value
• Nearly a quarter of commercial landlords (23%) were not aware that this legislation was coming into effect
• One in nine (11%) plans to sell any properties with a rating of less than E as they cannot afford to make them more sustainable, while only 5% have properties with an E or below rating
• The main issues preventing landlords from making their portfolios more environmentally sustainable are not having enough knowledge (50%), regulations making it too difficult (48%) and not being able to access finance (18%)
• However, 67% of landlords believe that their portfolio is already sustainable enough.

Residential property lettings

As for EPCs for residential rental properties, the government began a consultation in 2020 about updating the MEES rules and came up with some new proposals such as reaching EPC “C” by 2025 for new lettings and 2028 for existing lettings. These proposals are not yet in law.

The cost cap to help landlords finance the improvements needed to reach the required standard would under the proposals be raised from £3,500 to £10,000 per property. The government has estimated that this would be sufficient to bring more than 90% of D-rated properties up to a C rating, as well as nearly 60% of E-rated properties. It’s not clear yet whether existing spending would count towards the new cap.

In addition, guidance is being issued on the priority routes to improvements in residential properties known as a “fabric first” policy to control the order work is carried out. Improvements to the fabric of the building (ie insulation, windows and doors) would be prioritised before other additional measures, such as new heating systems, solar, heat pumps etc are installed.

More accurate EPCs

The Government has instigated a review and EPC action plan designed to deliver an EPC system that produces accurate, reliable, and trusted EPCs. Actions delivered to date, says the Government “ include the new Energy Performance of Buildings Register (‘the Register’) designed according to government standards and extensively tested with Register users; the implementation of EPC lodgement rules that help prevent lodgement errors; and the publication of a consultation on options for the introduction of a new performance-based operational ratings scheme for non-domestic buildings.”

OPINION: The EPC ratings system is “not fit for purpose”

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