Energy Efficiency Standard for Social Housing (EESSH): guidance for social landlords (revised February 2019)

11 Risk management

11.1 There are a range of important factors which affect the costs attributable to EESSH, as well as the approach that landlords should take when determining their strategy for compliance with EESSH. Social landlords will want to carefully consider these when updating their business plans, determining their own estimations of cost and planning their EESSH investment strategy.

Strategic asset management and financial planning

11.2 The rationale for setting EESSH in terms of an Energy Efficiency rating, rather than specifying specific measures which must be installed, is to provide landlords with the maximum flexibility to determine for themselves the most appropriate way to work towards compliance with the standard. In this way landlords will be able to take account of their individual circumstances when constructing business and financial plans for delivery of the standard.

11.3 A landlord's strategic asset management plan will also reflect the individual priorities of the landlord in terms of decisions on investment and wider stock management. This will mean that a social landlord's strategic approach to achieving EESSH will need to consider the long-term future of any stock which is not considered to be contributing toward its strategic direction. This may mean that, for some social landlords, timing of investment will be an important consideration and options appraisals and cost/benefit decisions are likely to be made before investment to achieve EESSH is agreed.

Business as Usual (BaU)

11.4 When undertaking a costing for the EESSH, it is important to identity those costs which are additional to those which would have arisen in the business as usual (BaU) case. The BaU case as applied to energy efficiency in social housing would involve: a) complying with the energy-efficiency elements of the SHQS; b) complying with any other relevant regulations applicable to energy efficiency; and c) routine cyclical replacement of elements.

11.5 With respect to b), the regulation of the energy efficiency of boilers is of particular importance in the context of EESSH. Even in the absence of EESSH, boilers would need to be replaced as they come to the end of their working life, and the replacement boiler would have to comply with relevant regulations. For example, since 2010, new gas boilers have had to meet the same level of energy efficiency that has been modelled when setting EESSH ratings. If a boiler life of 10-15 years is assumed, then over the decade to 2020 (the date of attaining EESSH), two-thirds to 100% of relevant boiler upgrades would have to be undertaken even in the absence of the EESSH, and some boilers compliant with the 2010 standards are likely to have been installed in the stock even before 2010. Thus by 2020 almost all boilers would either have been upgraded to the relevant standard or be within a few years of being upgraded.

11.6 As with all its regulatory functions the Scottish Housing Regulator will take a proportionate approach to monitoring EESSH, and expects that social landlords have a robust approach to asset management planning. Where these plans show a commitment to replacing the boilers shortly after the 2020 target date as part of a life-cycle approach to asset management, social landlords will not be forced to incur new costs by unnecessarily accelerating carefully planned investment cycles. Similarly, the cyclical replacement of windows would also have occurred without the introduction of EESSH. It should be borne in mind that replacement windows account for a significant share of the total estimated cost of EESSH compliance. Where landlords have robust replacement programmes, it is also anticipated that landlords would not be expected to incur new costs by unnecessarily accelerating these programmes if the replacement date is shortly after the 2020 target date. If social landlords decide to make use of these provisions they need to ensure they keep good records of the reasons behind the decision and be prepared to explain, if required by the Regulator, why a property or group of properties cannot be brought up to the EESSH by 31 December 2020.