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

Financial implications

The consultation paper presents a range of information on the financial implications of the proposals, including the approach used to assess possible costs (case studies or using the National Household Model) and attainment rates.

The estimate from the National Household Model is that it would cost an average of £5,100 per house not meeting EESSH2 in 2020 for improvements required to bring 47% of Local Authority housing stock up to the proposed standard, and an average of £5,600 per house not meeting EESSH2 in 2020 to bring 51% of RSL stock up to the standard, at a total cost of £3.7 billion. The estimate from the case studies is that it would cost an average of £5,500 per house not meeting EESSH2 in 2020 for improvements required to bring 55% of Local Authority housing stock up to the proposed standard, and an average of £9,300 per house not meeting EESSH2 in 2020 to bring 87% of RSL stock up to that standard, at a total cost of £3.4 billion. This would be the maximum level of improvement achievable estimated using the existing range of reasonable, additional and further measures listed in the consultation at current prices. This is in addition to projected investment required to bring current stock up to the standard in the first EESSH milestone by 2020.

Views on the assessment of costs, benefits and funding implications of EESSH2

Question 12 - Do you have any views on the assessment of
(a) costs
(b) benefits and
(c) funding implications of EESSH2?

(a) Costs

Comments were that the costs as set out in consultation paper are normalised, but it is difficult for any landlord to have an accurate figure for the cost of works until they have developed a costed strategy for their own stock.

It was also noted that producing costings can be difficult because of the big variations between landlords, meaning that average costs may not apply. It was felt that current attainment of EESSH as of 2020, stock profile, location, disposals, new builds and available technologies would all need to be considered to project actual costs. It was also reported that some types of energy-related works are far more expensive in rural areas meaning that actual costs for rural landlords are likely to be higher than the estimates.

Other factors identified as having an impact on possible costs were:

• Stock profile, and construction type specifically.
• The potential for technological developments to result in changes to those costs.
• The impact of owners in blocks of flats not co-operating with works can be hard to predict.

Respondents commented on the cost estimates set out in the consultation paper, reporting that they are too low. There was specific reference to the average cost of £6,900 per property for the Housing Association sector. A Local Authority respondent reported that:

While the overall national average costs may be in the region of £5,500 per-property, we will face significantly higher costs given our stock profile, technologies that will need to be implemented, our remote and rural context and the constraints of the EPC system. We would anticipate costs being in the region of £30k per average property with some properties being significantly above this level.
Local Authority respondent

However, a small number of others thought that the cost estimates presented are broadly reflective of likely costs or that:

The costs appear to be in line with current investment programme estimates.
Local Authority respondent

It was thought that the higher estimated spends may be required if the 'reasonable measures' set out in the consultation paper have already been carried out in order to meet EESSH2. Pursuing the 'additional 'or 'further' measures was seen as an expensive option. The renewable technologies included as 'additional measures' were reported as presenting individual physical challenges which will limit their application. It was thought that:

A range of further points were made about the cost estimates presented. These were that:

• Publishing the case studies referenced in the consultation paper would help other landlords understand the methods employed.
• It would be helpful to present a range of likely costs as well as an average. This would be particularly useful for landlords who have hard-to-treat properties and that need to look at likely maximum costs.

Irrespective of whether the modelled costs are accurate or not, there were concerns that actual costs will be very high, will impact on borrowing requirements, and could bring a landlord's viability into question. The many other calls on landlords' resources, such as fire safety work, or mitigation of welfare reforms, were noted.

As at other questions, the potential for rent increases and replacing fuel poverty with rent poverty was noted, and there was a question as to whether the required improvements would represent value for money.

Other issues raised were that using resources to meet EESSH2 may not be in line with tenants' priorities, and that those priorities may then go unaddressed. It was thought, for example, that tenants might prefer monies to be spent on replacement programmes for kitchens or bathrooms. There was also a view that the resources required will not have been built in to current Business Plans and landlords may need to restructure their investment plans in order to deliver EESSH2.

It was also felt that predicted savings on fuel bills, although relatively modest, may still be unrealistic, especially if further works are required during the payback period. It was suggested that, with the estimated cost of £9,300 to bring an RSL property up to standard and estimated fuel bill savings of £160 a year, it will take over 58 years to recoup costs. It was also noted that payback periods may be different for each landlord as tenants' savings cannot be included when calculating the life cycle costing.

With reference to currently available funds, it was thought that some of the funding streams highlighted in the consultation paper do not always work in a collaborative and coordinated way. An example given was HEEPS Area-Based Schemes projects being unable to go ahead in mixed tenure schemes due to private landlords being unable or unwilling to access Scottish Government funding.

It was thought that with current UK proposals for ECO3 funding to only be available to properties in Bands E-G, Scotland's social housing stock would attract little funding. It was also noted that funding from the Scottish Government has tended to focus on tackling fuel poverty in the private sector.

A number of respondents thought that Scottish Government or other funding will need to be provided, and that clarity in relation to future funding sources would be helpful.

In terms of how that funding should be structured or delivered, ideas were:

• Rationalisation of energy funding would be helpful, for example by having a single point of access through an organisation such as the Energy Saving Trust.
• Higher levels of funding could be targeted at traditional properties and those in rural and island areas.

(b) benefits

The main benefits set out in the consultation paper were in relation to:

• Total annual fuel bill savings.
• Average fuel bill savings for upgraded stock.
• Total annual energy (kwh) savings.
• Average annual energy (kwh) savings for upgraded stock.
• Carbon abatement - including electricity.
• Carbon abatement - excluding electricity.

Some respondents noted that they agreed with or welcomed the benefits set out in the consultation paper. One proposal was that the estimates could be further enhanced by including calculations for estimated reductions in fuel poverty based on the new statutory definition, as proposed by Scottish Government.

Other benefits identified were the decarbonisation potential of electricity and gas grids, and wider socio-economic and health benefits. If families are living more comfortably throughout their home instead of living in one heated room for the majority of the time, the social dynamics might improve.

With regards to fuel bill savings, it was felt that having evidence as to the real impact of energy efficiency measures would give landlords and their tenants comfort prior to committing to a significant investment. One concern was that the estimated annual fuel bill savings may be overly optimistic if they do not take account of expected increases in fuel costs, self-disconnections or usage factors. In terms of monitoring benefits, it was noted that tenants' energy agreements are with their utility supplier and that it will be difficult for social landlords to obtain tangible data to gauge the success or failure of the energy efficiency measures.

Other comments were that the improvement costs would take many years to recoup in energy bill savings despite not yet including any provision for internal air quality works. There was a concern that any fuel bill benefits are likely to be offset by rent increases. An associated query was whether impact assessments have been carried out that look at balancing fuel poverty with potential increases in other associated costs to landlords and tenants.

Other general comments were that tackling fuel poverty effectively will require the benefits of EESSH2 to be taken together with work that will be driven by the Fuel Poverty Strategy for Scotland, including maximising household income and providing appropriate advice and support to households. It was also thought that the benefits set out will only be obtained if tenants are supported in using the new technologies and in adopting a more energy-efficient lifestyle. However, it was reported that it is rare that funding and resourcing is put in place to deliver this support, but that without it the real-world outcomes will not match modelled outcomes and the expenditure will be wasted.

Other comments were that:

• The benefits will only be realised when it is technically feasible and cost effective to do so.
• The approach should be focused more on achieving carbon savings than fuel cost savings. However, it was also noted that reducing carbon emissions is not the same as taking households out of fuel poverty.

Some respondents identified alternative benefits which might be preferred or be more beneficial for tenants. Two Housing Associations reported that:

Customer Satisfaction Surveys play a large part in the Investment plans of RSLs and this should be considered within EESSH2. Desirable items such as kitchens, bathrooms and windows continue to be the focus of tenants….the same cannot be said for rewiring lighting, smoke detectors and internal wall insulation. A monthly saving of just £13.33 is an incredibly difficult sales point to customers.
Two Housing Association respondents

It was also reported that the estimated national investment of £3.4 billion could deliver 47,000 energy efficient new homes to replace the worst performing 8% of current stock.

(c) funding implications

The consultation paper presents a list of funding sources available to help landlords meet EESSH. It also sets out the recommendations made by the EESSH Review Funding and Costs Sub-group.

In their further comments, some respondents reiterated points covered at earlier questions about the estimated high costs of the works required and the likelihood of those costs being passed on to tenants through rent increases. It was noted that any loan-based funding will result in increased rents.

The challenges associated with bringing certain property types up to standard were again noted as were competing calls on landlords' resources.

On funding streams, it was thought that signposting has not worked and that in reality, landlords are funding recent EESSH compliance work. With reference to the private sector, there was a view that:

…the Scottish Government funding to tackle fuel poverty has focused on private sector housing as these homes require greater improvement in energy efficiency. Yet…low average income levels mean that Housing Association tenants are more likely than the average Scottish household to be in fuel poverty.
Housing Association respondent

However, a Local Authority respondent reported that:

Further external funding from ECO and Scottish Government social cashback funding has been greatly welcomed and contributed to our compliance levels. We have also been able to support local social registered landlords with their EESSH compliance via Scottish Government capital acceleration funding.
Local Authority respondent

Other comments addressed the list of funding sources set out in the consultation paper and were:

• Some of the funding streams listed will be changed or will shortly come to an end. For example, the new ECO3 funding stream is likely to be of limited availability as it will only fund properties with very low EPC bandings: E, F or G. It was also noted that Feed-in-Tariffs will end in March 2019 and, as yet, no replacement has been proposed by the UK Government.
• Many of the available funding sources are inaccessible to social landlords. Those that are available are often not targeted at supporting the retrofitting of homes to meet EESSH2.
• Funding tends to be small scale and short-term.

In terms of how landlords could be helped to access the funding they need, suggestions were:

• Funding will be required. Providing multi-year funding was seen as a way of allowing landlords to plan ahead, rather than constantly chasing short-term funding pots. It was also thought that higher levels of funding will be required if the UK Government's decisions on hydrogen and the re-provisioning of the gas network do not support the ambitions of EESSH.
• Funding streams need to be rationalised and simplified, for example by pooling all funding together to create a central pot. It was thought that this would not only be clearer but that it would cut down the time and resources needed to apply for different funding streams.
• The timing of opening applications to funding streams should be considered in the context of landlord investment cycles.
• Recognising that costs may be higher in rural authorities.
• Considering opening up ECO funding to the social rented sector.
• Considering funding and financial viability as part of the 2025 review.

It was also suggested that continuing with funding to support private owner participation in energy efficiency works in mixed tenure blocks will help ensure the social housing tenants are not adversely affected by private owners refusing to take part in common energy efficiency improvement works.

Finally, it was noted that some types of work, such as the development of district heating schemes, will depend on multiple funding streams, and will also draw on commercial and industrial contributions. It was thought that creating viable projects requires partnership with other sectors, but that local authorities do not necessarily have the skills or resource to take the lead.