Energy Efficiency Standard for Social Housing: peer review

8 Feasibility and Risks

This section comments on the technical, financial and organisational reasonableness and risks to landlords of meeting the proposed standard as set out in the consultation document. Other related issues are also considered.

8.1 Overview of use and applicability of measures

This brief section draws on David Adamson's recent experience working with social landlords and local authorities in Scotland on costing and delivering housing stock upgrades both for energy efficiency and SHQS purposes.

A broad range of measures is applied across the retrofit examples, not all of which would be typically applied by social landlords in Scotland.

Typically, applied measures in David Adamson's experience are as follows:

a. Insulation

• Loft insulation: virgin (first time installation) and 'top-up'
• Cavity wall insulation
• External wall applied insulation
• Tank and pipe insulation (loft)
• Hot water cylinder insulation
• Double glazing
• Draught-proofing

Additional insulation measures applied in some of the retrofit examples include floor insulation and internal insulation. David Adamson found limited evidence of the application of these measures across Scotland, largely due to tenant disruption on application (this is referred to in section 3). Double glazing now also tends to be a less than typical measure, due to high levels of existing double glazing in social housing in Scotland.

b. Heating

• Heating system replacement (typically electric)
• Boiler replacement
• Electrical wet system
• Controls upgrade (typically TRVs and room thermostats)

David Adamson confirmed recent social landlord experience is dominated by boiler replacement and whole-system replacement, particularly in the movement away from electrical heating systems. Electrical wet systems are also becoming more common. Heating solutions within the social rented sector are, in our experience, dominated by SHQS requirements (particularly SAP ratings) which are heavily influenced by boiler and fuel efficiency. Limited programmes targeted at heating control improvements were identified; these would typically be addressed during broader programmes of boiler or whole-system replacements.

c. Additional measures

Additional measures recorded across the retrofit examples include PV and CLFs. David Adamson has found limited application of PV technology in social housing across Scotland, with limited inclusion in improvement strategies, although this is changing with the development of the FIT and other financial incentives. Consideration is more often made by social landlords where housing stock is off the gas network or harder-to-treat. The installation of CLFs in social housing tends to be tenant driven, and not integral to improvement policies.

8.2 Technical feasibility and risks

Technical risks relate to individual property types and may be influenced both by construction type and previous maintenance. In most cases the measures proposed in the consultation document and examples present few technical risks with correct assessment and installation. The key exceptions tend to be solid wall insulation ^[36] , either internally where issues of condensation and associated problems could arise, or where there are previous structural issues with the design and construction of the building ( e.g. Orlits). There are also cases of external wall insulation trapping moisture, although these are rarer. Solid wall insulation is a particularly important area at present given its focus in the Green Deal and ECO. Landlords are likely to come under increasing pressure to address solid walls; however there are opposing views of how such walls should be treated (materials, methods, systems) ^[37] . The ensuing confusion could lead to a risk of a 'do-nothing' approach in some cases.

Internal wall insulation may be avoided due to the need to decant tenants from properties. This leads to disruption for tenants and challenges in finding suitable alternative accommodation. However, external wall insulation is not always suitable, usually for reasons of appearance or the multi-tenure nature of a building, and this leaves internal insulation as the only option to address heat loss through the walls. Further exploration of the solutions to these issues is necessary if the standard is to be met for all properties.

As highlighted both in this report and the consultation responses, there is a risk that some relatively high-performing properties or measures may find it more difficult to meet the standard. The reasons centre on the assumptions within RdSAP and how well or poorly they represent certain measures. Some measures show no or minimal savings because they are given a default efficiency that cannot be over-ridden even if the manufacturer states an efficiency superior to the default. In other cases the fuel costs in RdSAP will be higher than for local fuels such as wood chips. For this reason some properties will find it more difficult to meet one or other of the two ratings ( EE and EI). This is particularly significant for off-gas properties that may struggle to reach the required EI rating on account of emissions, or where biomass boilers register a low EE rating on account of cost. It is noted however than the EESSH sets a lower threshold for off-gas properties.

Certain microgeneration systems carry technical risks, related not only to the property and installation but also to the user interaction. Unlike passive improvement measures ( e.g. insulation) many renewable energy systems require active participation and understanding to realise their potential ( e.g. heat pumps, PV, solar thermal). In some cases this can be particularly problematic ^[38] and additional resources are required to support both tenants and landlords - which will have associated costs. Systems such as heat pumps are also reliant to a certain degree on the efficiency of the property and the distribution system (CO ₂ and cost savings from a heat pump could vary considerably between a poorly-insulated property with radiators and a well-insulated property with under-floor heating). This means that either considerable additional works may be required, or the technology may not be selected for installation.

Listing of historic properties does not mean they cannot be improved, but it may require particular technical solutions. While these are technically feasible, the main problem is one of cost; this is covered in the section 7. This can also present issues in terms of landlords' knowledge of energy efficiency as this varies. For listed buildings and properties in conservation areas, the solutions are often deemed relatively niche and some landlords may not be aware of the retrofit options available.

8.3 Cost and funding issues

8.3.1 Harder-to-treat properties

Particularly for harder-to-treat properties, some social landlords may struggle to afford the more expensive improvement measures needed to bring their stock up to the standard. Upfront funding remains relatively sparse for energy upgrades, and smaller organisations with fewer resources may not have the capacity to cover the costs associated with meeting the standard.

For mixed tenure properties, the cost of measures is a critical factor, as owner occupiers or landlords may not be able to meet their share of the costs. Whilst social landlords may be able to use legal mechanisms (enforcing title deeds or the Tenement Scotland Act 2006) to drive such works forward, in practice the time and costs of such a strategy could be prohibitive. This is a major consideration for improvements such as external wall insulation. Similarly there could be considerable 'hidden' costs in terms of staff time for more major measures that entail lengthy tenant negotiations, plus costs for decanting tenants (and associated rent losses) where the works are deemed too disruptive to carry out with occupants in situ. For more invasive measures such as internal wall and floor insulation, there are also likely to be associated redecoration costs. For listed buildings, specialist measures are often required, and these tend to come at a premium. All these factors are commonly not factored into cost projections, but landlords will have to find funding to cover these costs if the works are to be completed.

8.3.2 The Green Deal and ECO

The Green Deal and ECO are the main funding streams available for energy efficiency measures, and it is hoped that social housing providers will be instrumental in the uptake of measures such as solid wall insulation, partly due to their ability to deliver improvements at scale. However, DECC's current proposals are complex with several important questions still not resolved, and the level of uptake in Scottish social housing difficult to predict. Early research ^[39] suggests uptake of the Green Deal may be limited, partly due to a range of concerns, for example that tenants would not realise the 'golden rule' because they under-heat their homes. Furthermore, as the Green Deal is a long-term debt on the property, future tenants who move into the property will adopt the Green Deal. If they have a different number of occupants or different lifestyles, they may be unable to achieve the energy savings previous tenants were using to meet their Green deal payments.

With regard to the Carbon Emissions Reduction Obligation ( CERO) of ECO, this could also pose problems where solid or harder-to-treat cavity wall insulation is a required measure to access the subsidy: not all properties are suited to external insulation and consultation responses highlighted the likelihood of some tenant refusals of internal insulation due to the disruption involved. This means that where solid wall insulation is not felt feasible, funding will not be available for other measures under this obligation.

Other measures are available through the Affordable Warmth Obligation of ECO but social landlords are not eligible for this. However, where the social landlords' property is in a rural settlement of less than 10,000 houses or located in or near a datazone in the worst 15% of the Scottish Index of Multiple Deprivation ( SIMD), as measures may then qualify for the Carbon Saving Communities Obligations ( CSCO) of ECO. However, even in these areas social landlords will be unable to attract any support from ECO for fuel switching and new boilers (previously, such subsidies were available under industry programmes such as CERT and CESP especially where electric heating has been replaced). In future, without such subsidies, fewer similar projects may progress. A modified DECC table 12 ^[40] is included below to illustrate the eligibility criteria of different measures.

Table 12: ECO eligible measures

External solid wall insulation is recommended as a 'Further Measure 2020' for the following 18 property types:

1. HTT-3E: System built Multi-storey flat 1950-64 - ground floor gable end (2 bed)
2. HTT-3G: System built Multi-storey flat 1950-64 - ground floor gable end (electric - gas community heating) (2 bed)
3. HTT-4E: System built Multi-storey flat 1950-64 - mid floor gable end (2 bed)
4. HTT-4G: System built Multi-storey flat 1950-64 - mid floor gable end (electric - gas community heating) (2 bed)
5. HTT-5E: 1950-64 System built external deck access flat, ground floor gable end (2 bed)
6. HTT-5G: 1950-64 System built external deck access flat, ground floor gable end (2 bed)
7. HTT-6E: 1950-64 System built external deck access flat, mid floor gable end (2 bed)
8. HTT-6G: 1950-64 System built external deck access flat, mid floor gable end (2 bed)
9. HTT-7E: No Fines concrete flat (2 bed) - ground floor, gable end (both user defined U-values and default examples)
10. HTT-7G: No Fines concrete flat (2 bed) - ground floor, gable end (both user defined U-values and default examples)
11. HTT-8E: No Fines concrete flat (2 bed) - top floor, gable end (both user defined U-values and default examples)
12. HTT-8G: No Fines concrete flat (2 bed) - top floor, gable end (both user defined U-values and default examples)
13. HTT-9E: Swedish timer frame semi-detached (3 bed - 1946) (both user defined U-values and default examples)
14. HTT-9G: Swedish timer frame semi-detached (3 bed - 1946) (both user defined U-values and default examples)
15. HTT-11E: System built house concrete house (Orlit - 3 bed - 1930-49)
16. HTT-11G: System built house concrete house (Orlit - 3 bed - 1930-49)
17. HTT-12E: System built house steel house ( BISF - 3 bed - 1930-49)
18. HTT-12G: System built house steel house ( BISF - 3 bed - 1930-49)

For these property types the Scottish Government should assist social landlords in developing programmes aimed at securing ECO funding.

8.3.3 FITs & RHI

The introduction of the FIT triggered an increase in the uptake of electricity-generating technologies, predominantly small-scale PV (any wind or hydro installations for social housing are likely to be larger scale). The generous FIT rates for PV led to a rush to install the technology (in some cases more for the financial than the environmental or fuel bill benefits). Unfortunately the recent FIT cuts (not only cutting the overall rates, but implementing a further-reduced rate for multiple installations) has in many cases led to a suspicion of the scheme amongst social housing providers, and in some cases an assumption that the scheme is no longer beneficial ^[41] . This may cause a temporary stall in the installation of PV in social housing (although current research ^[42] aims to rectify this situation and highlight the benefits both to tenants and landlords, and provide guidance to support its installation and use).

The domestic stream of the RHI is due to be implemented in spring 2014. If they are eligible and the tariff is sufficiently generous, this is likely to trigger considerable interest among social landlords, particularly those with stock in off-gas areas. This may lead to an increased uptake of heat-generating technologies (heat pumps, biomass systems and solar thermal). It should be noted, however, that social landlords' eligibility and/or tariff levels are not yet confirmed ^[43] .

The FIT has led to considerable cost reductions for technologies such as PV, making it a more viable consideration for social landlords despite the FIT reductions. The same may occur to a degree with the RHI. However, incentive rates are being strategically depressed by DECC over time and while the openness of these reductions provides more certainty for investors, this could still make funding some renewable energy systems financially challenging.

8.4 Organisational practicality and risks

Legal issues surrounding right-to-buy properties, communal roofs and rent-a-roof PV schemes are other factors which can hinder the roll-out of certain measures, in particular advanced measures such as solar systems ( PV and solar thermal). Right-to-buy owners may not have the capital to contribute to whole-block improvements, and enforcing mixed-tenure retrofits is likely to be time-consuming and carry a financial cost. Installing solar panels on shared roofs carries numerous legal complexities, as ownership, maintenance responsibilities, legal liabilities and so on would all require clear establishment; this presents a major barrier to mixed-tenure solar installations. Other issues such as equity (in terms of who benefits from the renewable energy and any associated income) also come into play. On a related note, while rent-a-roof schemes for PV are becoming less common, they can cause legal complexities related to mortgages and sales of properties in the future.

Social landlords' scope to borrow for improvements varies considerably. Many will have existing covenants with lenders that will be hard to extend or renew at the rates available in the early 2000s. This will constrain the scope to accelerate their capital programmes or roll-out significant improvements. Social landlords also face uncertainty over future revenue streams due to reforms to tenants' benefits payments, and fears about increased arrears. Depressed rental income streams will further hinder the scope to borrow for enhanced capital programmes

Social landlords will require appropriate guarantees regarding systems such as solid wall insulation. An equivalent guarantee scheme to CIGA (for cavity wall insulation) has now been set up, called SWIGA ^[44] . Measures delivered through the Green Deal or ECO will require appropriate guarantees, but these have not all yet been established.

8.5 Other observations

Estimated savings are just that - a hypothetical benefit based on a number of assumptions about the property, its occupants, the improvement measures and how they are used. An increasing body of research is highlighting the inherent risks of relying on savings predicted by RdSAP and other software tools. The Green Deal will now incorporate 'in-use factors', for example, reducing the savings predicted by RdSAP in an attempt to make the projections more realistic.

Another area that could present challenges for the RdSAP methodology is ventilation heat loss (particularly in higher wind speed areas, e.g. the islands). Many social landlords report significant issues around excessive heat loss in these areas, caused by lack of airtightness around window and door openings, ground floor and soffit vents, and holes cored in the fabric for services or to provide ventilation for combustion appliances. However, the benefits of addressing these issues are not currently felt to be adequately recognised by RdSAP, and so there may be little incentive to address these issues effectively.

Particularly for some forms of renewable energy, landlord and tenant guidance will be fundamental if the technologies are to realise their potential savings. Again, research ^[45] demonstrates the under-performance of such technologies if they are used incorrectly by tenants, and landlords do not have the resources or knowledge to resolve these issues.

There is also a risk of landlords focusing primarily on meeting the standard, rather than taking a more holistic approach and doing what is best for their buildings and tenants. In some cases this could lead to landlords installing inappropriate measures just to meet the standard - and conversely not installing beneficial measures because despite being beneficial, they are not recognised by RdSAP and so do not contribute to meeting the standard.