Energy Efficiency of Existing Homes

The scale of the challenge to retrofit existing homes to tackle the climate crisis is enormous. Energy efficiency is a precursor to the transition to low carbon heat, so action must be taken in the 2020s to set homes on a decarbonisation trajectory to meet our net zero targets. The Government’s current targets for domestic energy efficiency are set for an 80 per cent reduction in emissions by 2050 and not the net zero target established in law. Yet the Government is not on track to meet even this.

There is a wide variation in the costs for bringing all homes in the UK up to an EPC grade C. We have heard of costs averaging £18,000 to retrofit a property, before addition of a heat pump. Given that there are around 19 million properties in the UK in need of some energy efficiency upgrade, we consider that the overall cost to meet net zero from domestic buildings could be far more costly than the Government’s estimate of between £35 billion and £65 billion.

We recommend that the Government review the feasibility of its aspiration to achieve a minimum of EPC band C by 2035, given current progress on improving energy efficiency. As well as setting out how it plans to meet existing targets, it should set out a strategy to increase ambition in line with its commitment to net zero through its Heat and Buildings Strategy.

We recommend that BEIS review its cost projections on energy efficiency and includes the cost of low carbon heating. The Department should consult the building and retrofit sector to ensure that its top-down modelling reflects real-world costs. It should also set out the proportion of efficiency improvements it expects to be paid for from the public purse, and how many homes it considers out of scope for energy efficiency improvements under its definition of “cost effective, practical and affordable”. There is a danger that these homes will be left behind, and this could impact on wellbeing and create permanent blight. The Government should explain in response to this report what its strategy is for those homes that will not achieve its energy efficiency aspirations. (Paragraph 32) Current Government policy on domestic energy efficiency

While the energy efficiency of two million homes has been successfully upgraded under the ECO, the number of measures installed has reduced significantly in recent years and the Government’s fuel poverty targets are not expected to be met. The inability to use ECO with other sources of funding is hampering the deeper retrofits that are needed in social housing. Since ECO is funded by all energy bill payers, the poorest pay proportionally the most for the benefits from the scheme: this makes it a regressive policy.

We support the extension of ECO to 2026 and the extra funding announced in the Fuel Poverty Strategy. The Government must review whether ECO is still delivering Energy Efficiency of Existing Homes 57 value for money and whether the energy bill is the most appropriate, fair and effective means of funding the scheme, since the poorest households pay disproportionately towards its costs.

We recommend the Government reviews the way ECO is funded, in common with the other policy costs that are added to consumer electricity bills rather than gas. Disproportionate use of this regressive funding mechanism is hampering the adoption of low carbon heating options such as heat pumps. We recommend that the Government consults on the balance of levies on electricity versus gas/other fossil fuel heating sources, in order to encourage the uptake of electrifying home heating through the adoption of heat pumps.

We welcome the clarification provided in the Energy White Paper that Home Upgrade Grants will focus on the worst-quality off-gas grid homes with low income households in England. We consider that this focus is the right one. Using the indicative costs for improving energy efficiency and heat pump installation and the Government’s pledged £2.5bn, we estimate around 100,000 homes may benefit from the scheme. This is welcome, but represents a fraction of the 1.5 million households off the gas grid who will need further support to upgrade their homes, irrespective of tenure in view of the high costs involved.

We recommend that Home Upgrade Grants are launched in full before the end of 2021, backed by the entirety of the funding pledged for the scheme, to mobilise supply chains for low carbon heating. The Government should also set out how it intends to administer the scheme and what role there will be for local authorities who are well placed to identify vulnerable households.

We welcome the Government’s introduction of a scheme for owner occupiers to fund energy efficiency improvements. Such a scheme is essential in order to achieve the ambition to reach energy efficient homes by 2030, given this is by far the largest pool of housing stock across the UK. But the Green Homes Grant has been rushed in conception and poorly implemented. In its haste to create a scheme to deliver economic stimulus, the Government failed to consult industry adequately on its delivery, set a timescale which was overly short term and has presided over scheme administration which appears nothing short of disastrous. If the ambition for the scheme to retrofit 600,000 homes envisaged completion of the work by the end of the current financial year, then the Government has been wildly optimistic in its scheme planning and industry engagement. The impact of its botched implementation has had devastating consequences on many of the builders and installers that can do the work, who have been left in limbo as a result of the orders cancelled and time taken to approve applications.

It is commendable that the Government has been keen to avoid fraud in administration of the scheme by only allowing Trustmark and PAS registered companies to participate. But the anti-fraud precautions have been so complex that vouchers are simply not being issued. Consumers are frustrated by delays in delivery, and the industry which the scheme was set up to support has been completely failed. Companies are losing orders, laying off staff and have warned they may close 58 Energy Efficiency of Existing Homes altogether. Extraordinarily, rather than providing an economic stimulus for sector recovery, the scheme’s operation may have reduced its capacity in the short term.

We recommend that the Green Homes Grant scheme be urgently overhauled and extended to provide a genuine long-term stimulus to the domestic energy efficiency sector. The scheme should not be scrapped or quietly wound down. The Government must address the design and administration issues with the scheme, and all allocated funding that has not been spent by the end of March 2021 should be rolled over into the next financial year. A multi-annual scheme must be delivered to provide the financial support to owner occupiers and build trust within the industry to encourage installers to get accredited and enable companies to hire staff. In its response to this report the Government should set out how it intends to revise the types of measures included in the scheme, streamline the application process, including the number of quotes required for application, and remove unnecessary bureaucracy at every step.

Sustained delivery of measures to support the transition to a 68 per cent reduction in emissions by 2030, and net zero by 2050, will require strategic planning and thorough engagement with all stakeholders. The Government’s strategic ambitions here require multi-annual spending commitments which may need to supersede Spending Review perspectives. Short-term tactical fixes in this sector, designed to deliver quick wins, have been proven to be counterproductive when not designed as part of an overall strategy.

We recommend that BEIS and the Treasury undertake a joint review of the preparation, launch, funding and delivery of the Green Homes Grant programme, and that the recommendations of that review be applied to all cross-Government working on programmes to deliver net zero objectives.

We welcome the Green Homes Grant Local Authority Delivery scheme, and, in particular, the fact that it can be used to deliver improvements across all tenures. We consider that it has real potential to help build local authority capacity and energy efficiency supply chains by supporting area based approaches.

We recommend that, following an evaluation of Phase Two, the scheme is expanded with a larger budget, over a multi-year period, and a greater role for BEIS’s local energy hubs to supplement local authority capacity.

We welcome the Social Housing Decarbonisation fund and support its aims to retrofit social housing at scale. However, to date only a fraction of the funding has been made available for demonstrator projects that may well not deliver the efficiencies that larger schemes could achieve.

The Government should bring forward the allocation of the £3.8bn of funding pledged before the 2019 general election. This would deliver cost savings at scale. This funding should be frontloaded to reap the benefits of cumulative emissions savings towards net zero. The Government should also allow housing associations to lead bids, so as to ensure that the available funding is used quickly and effectively. (Paragraph 86) Energy Efficiency of Existing Homes 59

The proposed extension to the Warm Home Discount provides no apparent incentive to poor or vulnerable customers to invest in improving the energy efficiency of their homes. Energy efficiency is the most sustainable long-term solution to fuel poverty. The money earmarked for additional years of the scheme could be better applied to support energy efficiency objectives more directly, through Home Upgrade Grants or the Energy Company Obligation, to improve energy efficiency and to lower energy bills in perpetuity for those struggling to pay. (Paragraph 89) Stimulating further progress in energy efficiency

Stop-start Government policies and intermittent funding streams have resulted in a dearth of installers of energy efficiency measures. A lack of accredited tradespeople has hampered the initial delivery of the Green Homes Grant, and there is a significant risk that the Government will not meet its heat pump installation targets due to a lack of qualified tradespeople.

Whilst we welcome the launch of the Green Jobs Taskforce and the Green Homes Grant Skills Training Competition, the Government must create a visible, long- term market that makes energy efficiency and heat pump installation a stable and desirable profession. The Department for Business, Energy and Industrial Strategy, working with the Department for Education, should commit to the funding of a dedicated training programme to support a long-term strategy for education and training in green jobs. Training is also required to develop the networks of advisers and coordinators which will underpin the successful growth of employment opportunities in the sector.

We recommend that as part of the forthcoming Heat and Buildings strategy a national retrofit strategy is developed with colleges and other education providers to provide the training and re-training needed to prepare our homes for a low-carbon future. The strategy must address the much-needed increase in certified heat pump installers to meet expected demand including through recruitment incentives, with support for apprenticeships and reskilling.

We support the introduction of minimum energy performance standards across all tenures. Without these minimum standards, it is unlikely the Government’s overall ambitions on retrofitting energy efficiency will be achieved.

We recommend that the social rented sector should be subject to the same standards as the private rented sector.

In its forthcoming Heat and Buildings Strategy, the Government, acting on the advice of the Climate Change Committee, should set an ambitious and realistic trajectory for owner occupiers to achieve minimum EPC C standards. The CCC recommends that by 2028 all properties achieve EPC level C at the point of sale. This is a hugely ambitious target and the Government must set out how it plans to raise public engagement and revise its delivery mechanisms to achieve this target and specify where exemptions may be necessary. These measures may include cost caps to be applied to such work and exemptions from the requirement to meet these standards: for instance, on the grounds of affordability or for properties recognised as hard to treat. It should also 60 Energy Efficiency of Existing Homes ascertain the risks of creating a two-tier mortgage market and long-term blight for owner occupiers and the private rented sector of hard-to adapt properties and identify and implement measures to avoid this impact.

Green finance options are essential to encourage owner occupiers to take action on energy efficiency. We welcome the ambition of some leading lenders to make green mortgages available, and the Government consultation on how mortgage lenders can help householders to improve the energy performance of their homes.

Alongside an extension of the Green Homes Grant, other financial incentives, such as low interest loans, will need to be made available to owner occupiers and landlords to achieve the thorough retrofit of domestic housing stock the Government envisages. The Green Finance Institute has identified 21 possible products. It is therefore disappointing that the Green Home Finance Innovation Fund only looked at green mortgages and did not pilot stamp duty rebates and low interest loans which have shown considerable success in other parts of the world. We look forward to hearing more details from the Government on how the proposed National Infrastructure Bank will be used to finance domestic energy efficiency.

Despite the need to make progress in improving energy efficiency of 19 million homes to achieve net zero Britain objectives, no mention was made in the Budget statement on 3rd March by the Chancellor of energy efficiency, nor any steps taken to improve delivery of the Green Homes Grant, his flagship measure announced by him in July 2020, which has so far signally failed to deliver its targets.

We recommend that the Chancellor of the Exchequer look again at proposals to reduce to five per cent the rate of VAT on the labour element of refurbishment and renovations. The Government should also bring forward proposals to reinstate the reduced rate of VAT payable on Energy Saving Materials at its former level of five per cent and to expand its scope to cover energy storage, heat pumps and electric vehicle charging.

We support and reiterate the Green Finance Taskforce recommendation that the Government should pilot a stamp duty rebate for homeowners that improve the efficiency of their homes within the first year of purchase. We recommend that the Government work with the financial sector and major landlords, including local authorities and other social landlords, to stimulate renovation through the introduction of green mortgages, green finance and low cost loans. These instruments would help to address the barriers to energy efficient renovation and retrofit in the form of high upfront costs of energy efficiency measures. The Government should consider how the national infrastructure bank could be used as a vehicle to finance energy efficiency given the scale of success achieved in Germany through its state funded low interest loan scheme.

The Government should work with the financial services sector to devise and implement a communications strategy to raise awareness about, and to encourage the uptake of, appropriate types of financing measures already on the market being offered, such as green mortgages. (Paragraph 134) Energy Efficiency of Existing Homes 61

Energy Performance Certificates have a range of flaws, with their inability to reflect real-world energy performance being the biggest challenge. Desk-based assessments with out-of-date software are doing nothing to improve the market value of decarbonised homes and do not accurately reflect the progress the country is making in improving the energy efficiency of housing stock. Given their role underpinning Government policy and targets, EPCs should nevertheless be retained but thoroughly overhauled to ensure that they represent an accurate assessment of the improved energy performance of buildings.

We recommend the EPC methodology is fundamentally overhauled to support low carbon heating measures by indicating, in its headline rating not only the fuel cost of heating a property but also its energy and carbon metrics. The measures in the Government’s EPC action plan are not enough to achieve what is needed to support the decarbonisation of homes: we recommend that Ministers look at this again with far greater urgency. Well in advance of 2025, while the energy market is rapidly decarbonising, we would like to see the introduction of EPCs more reflective of real-world performance, and the publication of regular updates on the developing methodology behind EPC assessments. Those carrying out EPC assessments should be suitably qualified and trained in energy modelling and assessment.

Building renovation passports have the potential to provide much more accurate data on energy usage and could be used to unlock green finance. They provide homeowners with long-term renovation strategies which can minimise disruption to their properties and thereby encourage more extensive retrofitting of energy efficiency measures.

We recommend the Government develop an approved, standardised methodology and data framework for Building Renovation Passports and supports their roll-out, with a view to the eventual replacement of Energy Performance Certificates.

We have heard of the benefits of a bespoke advice service on energy efficient retrofitting. We consider that such a service will be essential in order to achieve the pace of change needed to meet the net zero target.

We recommend the Government’s present basic energy advice service available in England is upgraded to a specialist bespoke advice service similar to the Home Energy Scotland network. This should include measures to identify the most appropriate financing programme for each consumer.

Sustainable building materials are not being utilised to anywhere like their full potential in the UK. The use of natural fibre insulation could have significant benefits for the UK’s older housing stock.

We recommend that within its Heat and Buildings Strategy, the Government consider stipulating the use of sustainable materials in public sector energy efficiency contracts as a first incentive to drive the UK’s domestic supply chain of these materials. (Paragraph 159) 62 Energy Efficiency of Existing Homes