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Tuesday, 14 February 2012

Founding EEDO – New Energy Saving Offensive Targets Real Estate

A new offensive on cutting energy waste was launched by Energy and Climate Change Secretary Edward Davey on 8 February 2012, with the creation of the Energy Efficiency Deployment Office (EEDO) to “spearhead energy efficiency policy” and make it more relevant to people’s everyday lives.

The DECC press release says EEDO staff will support the delivery of the Green Deal, the rollout of smart meters and the increase in renewable heat, as well as developing a new energy efficiency strategy to identify the potential for further energy efficiency across the economy.

EEDO got straight down to business and on the day it launched published a Call for Evidence on energy efficiency.

EEDO regards real estate as one of the areas with the highest potential for energy saving.

Not only that, but it has also identified, as one of the key barriers to change, the presence, in the real estate world, of “split incentives”.

Commercial property investment often sees the interests of the landlord pitted against those of the tenant – a stand-off that is encapsulated in the workings of the institutional commercial lease, which has led some people even to question whether the model is fit for purpose.

The Call for Evidence document says:

“Such financing issues are amplified if those funding the energy efficiency improvements do not see the benefits of their investment, as in the case of the landlord tenant split.”

Substantial retrofit works might be necessary to improve a building’s energy efficiency.

The standard commercial lease is put under strain when issues arise such as the timing, nature, expense and scope of those works; who should carry them out; and the responsibility for their reinstatement, if necessary.

Depending on the circumstances, either the landlord will feel it does not see the benefit from the improvements because the tenant reaps the reward through savings on its energy bill; or the tenant feels it won’t benefit from them because it has a short term lease and the benefits are only realised over a long time.

The trend towards shorter lease terms brought about by the recession has made this even more of a challenge, and one that is difficult to overcome even by the use of so-called “green” leases which seek to set out parameters for dealing with environmental matters.

The cost of achieving a more energy efficient building can often take a long time to recoup, which is likely to be longer than a lot of the lease terms now being granted.

The Green Deal might be one way to try to tackle this.

The Green Deal is set to be available in late 2012 and will provide the opportunity for consumers to install money saving energy efficiency measures without the upfront cost, which will instead be repaid through future energy bills.

That might work if the premises remain let with a tenant paying the energy bill; but for the landlord there is still the danger that if there’s a void period, the landlord will be left to pick up the tab, further increasing the cost of empty properties which have already been hit by the steep rise in empty business rates.

For more on the Green Deal, see these posts.

Besides the Green Deal, the other energy related policies identified by EEDO as being relevant to both the domestic and non-domestic building sectors include:-

·         The use of Smart Meters, due to be rolled out to homes and small businesses in Britain by 2019. Around 53 million gas and electricity meters are going to be replaced. Smart meters are designed to provide consumers with near real-time information about energy use, and more accurate bills. 

·         Building Regulations, such as those introduced in 2010 (Part L8) that improve energy efficiency standards for new homes and buildings by 25%. In January, the government launched a consultation on changes to Part L of the regulations due to be implemented in October 2012, which, amongst other things, will set challenging CO2 targets for non-domestic buildings and require improved energy efficiency. The new regulations include examples and analyses of the use of more energy efficient building fabrics and integrated solar panels. The consultation ends on 27 March 2012.

·         The Renewable Heat Incentive (RHI), which offers guaranteed payments for the heat generated using certain low carbon technologies. For more on RHI, see these posts.

·         Salix finance, which is an interest-free loan scheme for public sector organisations,

·         The CRC Energy Efficiency Scheme (CRC) , which requires large organisations that use more than 6,000MWh electricity per year to measure and report carbon emissions. For more on CRC, see these posts.

EEDO welcomes responses to the call for evidence by 4 April 2012.

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