Energy Efficiency Standard for Social Housing post-2020 (EESSH2): consultation analysis

Overview of the proposals for EESSH2 and the 2032 milestone

The consultation paper explains that the EESSH 2020 milestone is based on the principle that all stock can be brought up to standard, subject to a small proportion of exemptions.

The new 2032 milestone indicates a shift in the framing of the standard to a milestone which maximises attainment rather than 100% compliance. This will require a new approach which recognises that for certain landlords less than full attainment for all stock of the new milestone will not be failure, provided all reasonable efforts have been undertaken to improve the energy efficiency of their stock.

Views on the proposed target to maximise the proportion of social housing meeting EPC B by 2032

Question 1 - What are your views on the proposed target to maximise the proportion of social housing meeting EPC B by 2032?

Comments at this question were often extensive and there were a number of key themes emerging from the analysis:

• Concerns that meeting the proposed target will be very challenging, especially as much of the more affordable energy efficiency work will have been carried out already.
• The particular challenges associated with achieving an EPC B for some property types and for properties in remote rural locations.
• Concerns that the costs of improvement works would have to be met by rent increases.

Some respondents began their comments with a broad statement of support for various aspects of national policy on energy efficiency:

• The importance of social housing tenants living in a warm home they can afford to heat.
• The general policy direction set out in the consultation paper.
• The aspiration and ambition underpinning the current proposals.
• The overall aim within the current proposals of social rented properties achieving EPC B by 2032.
• The need to address climate change and carbon reduction and meet the 2050 climate change goals.

Nature of the challenge

Some respondents commented that meeting the proposed target would be challenging, and concerns were raised about landlords' ability to meet that challenge. In particular, some noted that for the target to be achieved, significant investment will be required. For example, a Housing Association respondent commented that:

While Housing Associations are keen to improve the energy efficiency of their homes many are concerned at the estimated cost of meeting the proposed standard. This concern is increased by the fact that the majority of the costs of meeting EESSH 2020 have come from landlord's own resources.
Housing Association respondent

These types of concerns led some to comment that the target will be very difficult to meet, is unrealistic, or is unachievable. There was an associated concern about the impact on Housing Associations of setting an aspirational target and that:

…once a standard is set - aspirational or otherwise - associations will face all kinds of pressures to achieve that standard or to have to justify every case in which it believes it does not make sense to try to meet the standard.
Housing Association respondent

It was also felt that the notion of an aspirational standard may not be easy for the Scottish Housing Regulator to manage or easy for tenants and others to understand.

However, others commented that the target was achievable, and that:

…this consultation is providing long-term policy certainty for social landlords regarding the standard their properties are expected to meet by 2032 (and) gives landlords in the social rented sector the opportunity to plan and find funding for the required improvements that should see the properties reach EPC band B.
Energy-related private sector respondent

There were concerns that the investment and improvements that have been made for EESSH 2020 compliance, and to meet the Scottish Housing Quality Standard (SHQS), will have been more straightforward and less resource intensive. This led to a further concern that achieving EPC B will require the use of more complex and costly measures. There was also a question as to whether an incremental approach is cost-effective.

It was noted that most properties will have had external fabric and/or insulation upgrades by 2020 and that many renewal cycles will fall after 2032. Whether investment to meet the target would offer value for money for either landlords or tenants was also questioned. One proposal was that there needs to be an agreed national measure for whether the cost involved is justified and which looks at benefits to the economy, the environment, and peoples' health.

It was also thought that although EESSH2 appears to be described to tenants as something which may save them money, this may not be the case. An example given was that energy companies may simply increase unit prices to compensate for any reduction in income resulting from fewer units being used.

Respondents noted the potential for changes in other areas to affect work to meet the target. These were:

• The development of the energy supply in the next five years - it was suggested that decisions yet to be made by the UK Government about decarbonising the gas grid and the introduction of hydrogen could affect which heating systems may be appropriate.
• Changes to Standard Assessment Procedure (SAP) methodology stemming from potential changes to the future supply of gas and electricity. This was seen as having the potential to affect energy ratings and lead to a revision of EESSH2 targets.

Respondents also made specific suggestions as to how some of the challenges set out above could be addressed:

• Reducing the target to EPC C.
• Splitting EPC into two bands with the target being to obtain a 'High C', which would equate to a rating of 75-80.
• Older and/or more complex properties should be tackled when more cost-effective solutions become available.
• Feasibility studies should be carried out to determine if the target is achievable for all property types. They should look at the measures that would be required for pre-1919 tenement stock.

It was also thought that landlords will have to face tough decisions around the disposal or demolition of poorer performing stock. However, it was noted that tenants may wish to stay in their homes, and even if they do agree to leave they will need to be offered alternative but potentially very scarce accommodation. It was also suggested that to demolish stock due to its EPC rating potential and replace it with buildings with a far shorter design life, is a flawed strategy from both a financial and carbon perspective.

Scale and type of challenge for landlords

A small number of Local Authority and Housing Association respondents noted the scale of the challenge across their stock. For example, a Housing Association respondent reported that:

We estimate that we currently have almost 500 houses that will not achieve level D or above. We have carried out all reasonable measures and to affect the SAP rating of these properties would mean spending between £20 - £32K per home and in some cases, we will still not meet the target. Over 50% of our stock, approximately 3,000 homes are categorised EPC level D & C.
Housing Association respondent

Others also noted that they are investing, or have recently invested, significant resources in meeting the EESSH target but that further investment would be required to achieve EPC B ratings.

There was support for the consultation paper's recognition that it will not be possible for all stock to reach EPC B standard, and that the focus should be on ensuring all reasonable efforts have been undertaken to improve the energy efficiency of stock.

One Local Authority respondent reported that only their new build properties, equating to around 10% of their stock, would currently be able to achieve EPC B. Another reported that less than 8% of their stock currently achieves an EPC B and that this stock is primarily high rise or new build.

Amongst the specific circumstances cited as creating particular challenges with achieving an EPC B rating were:

• Remote rural and island locations: it was reported that initial installation and ongoing maintenance costs will be high in comparison to other locations and that opportunities to benefit from renewables may be constrained by grid limitations. High rates of fuel poverty, and the number and spread of detached properties, were also noted.
• Properties that are off-gas grid: one Housing Association respondent noted that this applies to 47% of their properties. This issue is covered further at Question 2.
• For off-gas grid properties that are reliant on electric heating systems: these systems do not score well in SAP assessments. It was reported that the SAP assumes electricity has been generated from fossil fuels when it may have been taken from a hydroelectric store and/or be renewably generated.

In addition to the specific concerns raised above about SAP, there was a more general concern about the accuracy of the method used to produce EPC ratings. For example, it was commented that:

…this proposal is lacking in understanding of the limitations of EPCs for reflecting actual home energy consumption / costs, and therefore lack(s) credibility as a policy driver for energy efficiency… …..we do wish the Scottish Government would understand this evidence and design policies that are cognisant of the limitations of EPCs, particularly the high level of variation between energy consumption as modelled by EPCs and measured in the real world.
Academic respondent

Impact on rent levels and fuel poverty

As noted above, respondents raised concerns about the level of investment required to make the necessary improvements. Some also went on to comment on the impact that making this investment could have on tenants. This issue was particularly likely to have been raised by local authorities, Housing Associations and tenant groups, and tended to centre around a concern that:

...we would ….be replacing one form of poverty (fuel poverty) with another (rent poverty) as generating the income necessary to invest to the levels required would inevitably impact on rent levels.
Housing Association respondent

Respondents had concerns that:

• The level of investment would be such that landlords had no choice but to cover those costs through rent increases. These rent increases would have to apply across the whole stock, although not all tenants will be living in a property that has an EPC B rating.
• In any case, the reduction in fuel poverty is likely to be minimal, with rent increases likely to offset any financial benefit to the tenant. For example

…we recognise that the proposed target may result in lower energy bills for tenants, the cost of delivery may well result in the savings being cancelled out by rent increase.
Tenants group

There was particular concern about these likely increases at a time of slow wage growth and changes to the welfare benefit regime, with the suggestion that any rent increases must be matched by actual, rather than assumed, fuel cost savings to tenants. The importance of recognising that energy efficiency alone will not eradicate fuel poverty was noted, along with high fuel costs and low incomes being drivers of fuel poverty even in highly energy efficient homes.

It was also thought that there are other approaches which could have a more immediate and greater impact on tackling fuel poverty than improving the energy efficiency of properties. Examples given were intervention around fuel prices and addressing the costs for those using pre-payment meters.

A question was also raised as to whether the proposals are in line with what tenants want:

The Scottish Housing Regulator has just completed a consultation which has highlighted that tenants' priorities are value for money and rent affordability. EESSH2 appears to be being described to tenants as something which may save the tenant money. This is questionable.
Local Authority respondent

In terms of the impact of having any works done, it was reported that the scale of the works required to some properties could be very disruptive for tenants and could require them to leave their home for a time. It was also reported that it can be difficult to reach agreement with tenants for work that causes disruption to their homes, and that the process can be particularly disruptive and distressing for older tenants.

Specific property type challenges

Landlord respondents - from both the Local Authority and Housing Association sectors - were amongst those commenting on some of the challenges associated with bringing specific types of property up to EPC B standard. Examples given of the types of properties that can present challenges were:

• Older properties, such as those built in the pre- and post-war period and pre-1919 tenements specifically.
• Stone-built properties, such as where stonework is delaminating.
• Problematic build types, such as metal system build properties.
• Modern timber framed properties with no option for low cost insulation measures, such as bonded bead cavity wall insulation.
• Multi storey properties.
• Properties covered by planning or conservation restraints.
• Properties which are not listed but which form part of the historic heart of towns.

The possible level of investment required was also highlighted. Examples provided were:

• Older properties that would not achieve the target even with a spend of up to £32,000 per property.
• Atholl Steel properties^[1] which would require an additional investment of around £15,000 per property.

More generally, it was reported that for some Housing Association properties the cost of reaching EPC B will far exceed the £9,300 per unit projection provided in the consultation paper.^[2]

Impact on, and challenges for, landlords

In terms of other possible impacts on landlords, competing priorities for investment were noted, with fire safety-related improvements, adaptations to meet tenants' needs, and new build programmes given as examples.

One Local Authority respondent commented that:

Local Authorities have been encouraged to develop new build housing over the last 8 years and many…. have delivered significant build programmes. This has led to a position where the Housing Revenue Account has gone from being debt free to having significant borrowing which requires to be serviced. The Housing Revenue Account is purely funded by tenants' rents and therein lies a difficulty.
Local Authority respondent

Others had concerns that if faced with significant and multiple needs for investment, some Housing Associations could find themselves with negative equity and, as above, would need to increase rents in response. However, it was seen as unrealistic for smaller landlords to be able to cover substantial costs through rent increases as small Housing Revenue Accounts do not offer economies of scale.

The potential detrimental impact on landlords' business planning assumptions was also highlighted. Specifically, it was felt that higher or additional standards could be introduced in the 2025 review and this possibility makes forward planning difficult. It was also felt that having an understanding of any further aspirations the Scottish Government may have for the social rented stock beyond EESSH2 would help landlords shape their investment strategies.

Respondents also highlighted a range of issues which, if addressed, could maximise the proportion of social housing meeting EPC B by 2032:

• Building Regulations should be used to ensure that any new build social housing achieves EPC B.
• Being able to prove that the property is supplied with 100% renewable energy should also be an eligible factor when assessing compliance.
• How to plan for the longer-term transition away from gas boilers as the dominant form of central heating systems should be looked at.
• The possible consequences of the lack of a skilled workforce and poor retrofit on achieving EPC B needs to be looked at.
• Consideration should be given to ensuring manufacturers, suppliers and installers of renewable technologies would be able to satisfy demand for their products and services. It was noted that there may be particular shortages in remote rural and island locations.

The impact of not getting agreement for communal works from owners in mixed tenure blocks was also highlighted. It was noted that having a target of an EPC Band C by 2030 for private rented homes and 2040 for all other homes (as currently being consulted on through the Energy Efficient Scotland consultation), could cause problems when setting out the specification and design of work to mixed tenure blocks. It was felt that addressing barriers - particularly around permissions and ownership rights - will help social landlords improve the energy efficiency of their stock.

How landlords can be helped to meet the target

Following on from their concerns about the impact on rent levels and the financial viability of social landlords, a small number of respondents thought that the Scottish Government will need to ensure the necessary resources are made available.

One point of view was that low interest loans or drawing down funding could be considered for Registered Social Landlords (RSLs). An alternative perspective was that:

…consideration is given to grant assistance for RSLs (not loans as this can lead to further complications with lenders) to help them achieve this target.
Housing Association respondent

Respondents commented on the role that new technologies will need to play, often noting that innovation will be key to landlords achieving the target. There was particular reference to technological advances in retro-fitting being crucial.

It was also suggested that guidance is provided as early as possible to ensure landlords can plan and budget. A specific proposal was that the Scottish Government work with technical experts to produce tailored guidance on what information they should expect from technical assessments of their properties.

Role of energy suppliers

An energy-related private sector respondent commented on the role of energy suppliers, with further comments that:

• A supplier obligation based upon a charge on fuel bills tends to affect low income households disproportionately as they spend a relatively high proportion of their income on domestic fuel.
• Whether the obligation should be based on a supplier's share of the Scottish, or the UK, energy market would need to be considered.
• The relative contribution from gas and electricity customers would need to be considered, along with whether the obligation should be extended to other fuels such as oil, coal and Liquid Petroleum Gas (LPG).

They also suggested that funding to improve the social housing stock should come from receipts, loans and government funding, but not an obligation on suppliers.

Role for other organisations or funding streams

A range of other organisations that could benefit from the changes and that should therefore be given obligations related to delivering the target were also suggested:

• Energy distribution companies, for whom lower levels of grid re-enforcement would be required as heat is electrified.
• System operators, who would have to purchase less reserve capacity because of lower demand and a resulting reduction in the differential between peak and base loads.
• Manufacturers of low carbon equipment and energy efficient products, who would benefit from increased demand.
• The NHS, which would see lower hospital admissions if people were living in energy efficient homes.

Ideas as to other possible routes through which improvements could be funded were through a tax or levy on high carbon fuels.

Views on the proposal for a lower target of EPC C for detached houses and houses reliant on specific fuel types

Question 2 - What are your views on the proposal for a lower target of EPC C for detached houses and houses reliant on specific fuel types (e.g. oil, LPG and solid fuel)?

In more general comments, some respondents gave their support and saw the proposed approach as sensible or appropriate, as reflecting what can realistically be achieved and as addressing some of the concerns associated with rural and island communities. It was also noted that:

Work carried out to date towards EESSH compliance has shown both of these categories present difficulties in obtaining compliance at current EESSH levels. Where technical solutions have been identified and available this has typically been accompanied by excessive cost.
Local Authority respondent

In terms of general concerns, a small number of respondents highlighted failings with the current EPC assessment process. It was thought that it would be better to have an assessment and band rating which was able to consider variations in building type and location. It was also thought that specifying a different target may not be necessary.

Looking forward, it was felt that the review point in 2025 may be a helpful time to assess whether all detached houses and all fuel types identified should still be subject to the lower target given any advances in technology and changes to fuel availability.

Detached properties

Some respondents gave reasons for agreeing that detached houses should attract a lower EPC target. These were that increased area of external wall has an impact on SAP ratings, and that once all reasonable measures have been installed, a detached home will still have a lower SAP compared to a semi-detached property.

A number of landlord respondents commented on their own detached stock. A Housing Association respondent reported that 60% of their small number of detached properties are at EPC B and C or above. They welcomed the lower target for these properties but will nevertheless aim to bring them up to EPC B if possible. However, another Housing Association respondent reported that only 13% of their detached stock is currently EPC C or above.

Not all respondents agreed that detached houses should attract a lower target, and some saw the approach as simplistic or insufficiently nuanced. Reasons given were that:

• Although larger and with a corresponding higher improvement cost, improvements are not complicated by multiple ownership interests and they can be simpler to improve via insulation measures.
• Unlike flats, detached houses have a large roof for solar photovoltaics (PV), along with wall and roof space for energy storage solutions.
• Build type and location is more relevant than being detached. It was explained that because of the way heat loss is assessed for an EPC, having a lower EPC target for a detached house as opposed to a semi-detached is an unequal calculation. It was suggested that it would be fairer for both property types to have the same target, whether EPC B or C.

Finally, it was felt that irrespective of whether the EPC C target is adopted or not, full insulation measures should still be required for detached properties.

Specific fuel types

Some respondents gave their support for specific fuel types being included:

In terms of setting a lower target for 'other fuels', we would agree that this is logical as it tends to be that rural or off-gas network properties fair worse in EPC calculations due to the carbon intensity of the primary fuel.
Housing Association respondent

It was also reported that these rural properties can be more expensive and difficult to upgrade due to lack of infrastructure, greater prevalence of stone build or hard-to-treat properties, longer materials distribution lines, and higher contractor fees.

However, not all respondents agreed:

We don't think other fuels should get a lower standard. Keep all properties and fuel types at Band B, this could encourage switching to non-carbon fuels or at least give a truer picture of energy efficiency across the sector.
Housing Association respondent

There was a query as to whether it is acceptable for any social housing to have a solid fuel heating system as the main source of heat and it was reported that consumers without mains gas are more likely to experience fuel poverty and poor energy efficiency.

It was considered important not to dissuade the upgrading of oil, LPG and solid fuel heating systems to more carbon-friendly options, including because the volatility of solid fuel prices can have a significant impact on tenants. There was also a concern about:

…the potential unintended consequence with 'other fuels', say 'Oil' which could be seen as more attractive as it requires to achieve a lower SAP but defeats the purpose of EESSH2 carbon reduction.
Housing Association respondent

A proposal from a Local Authority respondent was that the target should only be lower where fuel choices are limited.

Alternative approaches or additions

Alternative approaches were proposed. These were that the aspiration should be applied across the whole stock but where there are issues, such as off-gas grid or harder-to-treat property types, there should be a degree of leeway. A similar idea was that there should be leeway when it is either not technically feasible or cost effective to achieve EPC B.

An alternative perspective was that it would be more appropriate to delay the EPC B compliance date for the entire sector, to ensure that householders in expensive-to-treat housing are not disadvantaged.

It was also suggested that other exemptions should be added and that:

… whilst oil and LPG are viewed as expensive heating systems to run, solid fuel can in fact be a cheaper option especially in our more remote locations where access to solid fuel can be free. Location needs to be a determining factor in assessing the EPC targets.
Housing Association respondent

Some respondents commented that properties with the following characteristics should attract a lower EPC target:

• Low carbon heat source.
• Semi-detached or end of terrace properties.
• Listed buildings, properties in conservation areas, and other historic buildings which are hard to bring up to EPC B.