In this section, we look at changes to some of the energy efficiency rules for buildings, together with the wider picture on the transition to cleaner energy for domestic properties in the UK.
Energy efficiency rules: what's changing and what's not?
There has been no change to the energy efficiency rules for new build properties, which will still be required to meet more demanding standards – nor have the rules for commercial properties changed. However, as regards existing properties which are rented out for residential purposes, the Government has announced that it is not proceeding with expected new requirements on private landlords to improve standards under the Minimum Energy Efficiency Standards regime ("MEES").
What are the MEES rules?
Since April 2020, the MEES rules have required landlords letting or continuing to let a dwelling that falls within the regime to have obtained an energy performance certificate ("EPC") for the property with a rating of E or above, unless they have registered an exemption. It had been anticipated that the next step would be that all the minimum requirements for landlords letting dwellings would shift to C by 2025. However, the Government announced on 20 September 2023 that this trajectory would no longer be pursued and the Energy Efficiency Taskforce would be disbanded. Instead, the Government indicated that it would focus on encouraging households to upgrade their property's energy efficiency where they can.
What's the impact?
The current MEES rules remain in place, but these decisions have left the real estate sector confused and frustrated about the direction of travel. Many larger businesses have already embarked on investment and upgrade programmes intended to achieve compliance and also to fit with their own ESG criteria. Those who do not continue to upgrade their property stock's energy efficiency may find it harder to secure top-grade tenants and/or interest rates on their borrowing, and could risk their stock becoming stranded. More widely, the announcement creates uncertainty over whether the move towards mandating improvements of this type will be delayed substantially or even abandoned, which is obviously unhelpful from a longer-term investment perspective.
There may also be a wider impact from the changes, as it had been expected to drive expansion and innovation in the market for retrofit products and services for older properties, to help businesses comply with the higher standards. Finally, given that home heating is a major source of emissions, the relaxation will make it more challenging for the UK to meet its climate change targets.
The MEES regime is complex and also applies to commercial properties (as opposed to the private rented sector). For more detail, including a helpful flowchart on commercial properties, see this briefing.
The bigger picture
Whilst the regulatory position has been somewhat weakened by changes such as the dilution of MEES rules (see also section 1), decarbonisation of heat in homes remains a key challenge on the path to net zero. In the face of scepticism from many, including the National Infrastructure Commission (which has advised against it), the Government is continuing to explore hydrogen as a possible replacement fuel for domestic boilers. Despite this, we are starting to see more innovative business models rolling out around heat pumps (to date largely in new build – but this could provide impetus for initiatives in retrofit sector, which will be the next big challenge). With the new regulatory regime coming in for district heating (see our discussion of the Energy Act 2023 in section 9), this could be another way to accelerate decarbonisation of homes.
New approaches to generation and distribution
Another important part of the wider picture in this space is the development of new approaches in electricity distribution and generation aimed primarily at households, such as National Grid's Demand Flexibility Service and initiatives to aggregate homes into "virtual power plants" (using electric vehicles (EVs), appliances, batteries, and solar arrays to support the grid).
However, whilst there is clearly much that the market can do to help drive the transition to cleaner energy in householders, regulation and Government policy has an important role to play – and as we highlighted in section 1, the changes announced in September (including the weaking of the commitment to higher standards under the MEES rules) have been much criticised for sending the wrong signals to both consumers and industry.
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