Costing energy efficiency improvements to existing commercial buildings

COMMENT The Investment Property Forum has published its latest research examining the cost of making energy efficiency upgrades to commercial buildings. The first edition of this work was published in 2009, following the implementation of energy performance certificates and in anticipation of the first Minimum Energy Efficiency Standard Regulations. Fast forward 15 years and much has changed; EPCs and MEES are now part of the market environment and, arguably, have driven environmental awareness and progress. They are also changing. The expectation is that MEES will shift to a B rating for commercial buildings from 2030 and the EPC calculation methodology has also been updated. Recent changes now account for a more carbon efficient electricity grid in the UK, which will change certification outcomes for some buildings. Ratings of all-electric buildings may improve without any interventions. However, ratings of buildings using significant quantities of gas may fall into a non-compliant band. Stranded assets Alongside these energy performance and compliance concerns, asset managers are now often having to address carbon reduction targets within their buildings, with net-zero carbon pathways having been set for portfolios and funds. Fortunately, energy efficiency and carbon reductions tend to complement each other. More challenging, is working out the optimum combination of interventions to implement, when to do them and, critically, the cost. Undoubtedly, as standards and market expectations rise, there will be buildings that become economically stranded in their current form – where the cost of upgrades just to compliant standards, cannot be justified by the value of the asset. Timely update Given these changes and challenges, the IPF’s publication of updated research on this topic is very timely. The latest version has been significantly expanded and updated. A thorough, data-driven study led by Currie & Brown, with additional modelling support from Introba, it is based on a set of seven building typologies, now including build to rent and student accommodation. It reflects the latest EPC methodologies and has been expanded to reflect the implications for net-zero carbon targets, in particular CRREM pathways. The key elements of this work include identifying practical interventions and the related energy and carbon savings and estimated costs. A range of discrete and combined packages of improvement measures have been assessed and a fully downloadable Excel tool is available that allows the user to apply the findings to specific cases they might be working on. The seven-year payback criteria, as defined in the MEES guidance, was applied, and makes it very clear that incorporating these interventions into the next refurbishment cycle for an asset is key to cost-effectiveness in meeting standards. What is also clear is that net-zero carbon pathways are more achievable than net-zero energy pathways. The decarbonisation of the grid will assist the achievement of carbon pathways. However, while there are significant energy efficiencies that can and must be made, both to equipment and operational management, net-zero energy is challenging with current technologies. Competing requirements As demand for energy is expected to climb, focusing on building energy efficiency and on-site renewables may well not just pay dividends now, but into the future. As the industry grapples with the transition to net-zero carbon, meeting regulatory compliance requirements, and delivering a return on investment, this research provides a key resource for commercial property asset managers trying to optimise these often complex and competing requirements. The research was funded by the IPF Research Programme, which is supported by CBREIM, DWS, GIC, JLL, LaSalle, LGIM, Life Science REIT, M&G Real Estate, MSCI, Nuveen Real Estate and Warehouse REIT. You can read it in full here: IPF Costing Energy Efficiency Improvements (April 2024) Full Report Louise Ellison is managing director, sustainability, at EQT Capital Partners