Wragge Lawrence Graham & Co's real estate experts provide an update on changes to energy regulations affecting the real estate sector.
CRC Energy Efficiency Scheme - amendments made
- On 1 April 2014, amendments were made to the CRC Energy Efficiency Scheme (CRC) by the CRC Energy Efficiency Scheme (Amendment) Order 2014
The CRC is now in its second phase (renamed the initial phase). The government continues to tweak the scheme in order to simplify it and respond to some of the participants' concerns.
The latest changes, which came into effect on 1 April 2014, address the following areas:
Self-supplied renewable electricity
Consumption of energy from supplies that meet the definition of self-supplied renewable electricity will be reported against a zero emissions conversion factor, provided other government support (such as Renewables Obligation Certificates (ROC) or Feed In Tariff (FIT) scheme payments) has not been received for the same supply.
In effect, this means that the purchase of CRC allowances will not be required for this energy. CRC participants may therefore select one of the following options (but not both) for the treatment of onsite renewable self-supplied electricity:
- receive revenue from the ROC or FIT schemes; or
- consume the supply (foregoing any ROC and FIT payments) and receive a reduction in CRC liability.
Energy used in metallurgical and mineralogical processes
An exclusion has been introduced for energy used in metallurgical and mineralogical processes.
CCA facilities/EU emissions trading system (EU ETS) installations
Where a landlord and tenant relationship exists and the tenant has a CCA facility or EU ETS installation, if the landlord is a CRC participant it will be able to exclude the supplies covered under a CCA certificate or EU ETS permit. This will avoid double counting of supplies regulated by more than one scheme.
Disaggregation by organisations within a group
Disaggregation allows organisations to register different parts of their business to participate separately in the CRC, rather than the whole group participating as a single entity. Participants will now be able to disaggregate subsidiaries at any point within a phase of the scheme, by mutual consent. Previously disaggregation could only take place within a certain period after registration. This will allow greater flexibility for businesses.
It remains the government's intention to undertake a full review of the CRC in two years' time.
Energy performance of buildings - tidying up of the regulations
- Enforcement penalties can now be applied for a failure to display an EPC when one is required, and/or a failure to include the requisite energy performance information in property advertisements
- The information which has to be included in property advertisements has been clarified
- The duration of recommendation reports for DECs has been amended
The legislation governing energy performance certificates (EPCs), display energy certificates (DECs) and air-conditioning inspections was originally passed in England and Wales in 2007, but was replaced with effect from 9 January 2013 by the Energy Performance of Buildings (England and Wales) Regulations 2012 (the 2012 regulations).
In our January 2013 update, we noted that the 2012 regulations needed tidying up in a number of places. Some of this tidying up has now been effected via the Energy Performance of Buildings (England and Wales) (Amendment) Regulations 2014 (the 2014 regulations). The principal areas affected are outlined below.
New enforcement powers
The 2012 regulations introduced two new duties:
- a duty to display an EPC in certain types of building which are frequently visited by the public (NB this is different from the duty to display a DEC, which applies to public authorities only); and
- a duty to include particular information about energy performance in property advertisements (this is discussed further below)
However, the 2012 regulations did not include any sanctions for non-compliance with these new duties. This has now been remedied and these obligations are subject to the enforcement regime in the 2012 regulations.
The penalty for a failure to display an EPC when one is required is £500. The penalty for failure to include the requisite information in marketing material is £200.
Information to be included in marketing material
The 2012 Regulations required the "asset rating" of a property to be shown in any advertisement of the sale or rental in commercial media. The asset rating was defined as a numerical indicator. In practice however, most people would associate an EPC rating with a letter on the scale from A (indicating the most energy efficient properties) to G (the least efficient).
The 2014 regulations speak of an "energy performance indicator" rather than an asset rating, and make it clear that this refers to the letter rating as outlined above. It is this indicator which must be included in property advertisements. This is how the regulations appear to have been interpreted by the property industry and accords with the government's own guidance on the subject issued at the time of the 2012 regulations.
Duration of recommendation reports for Display Energy Certificates
An organisation which is under a duty to display a DEC also has to have a valid recommendation report. This report sets out changes which could be made to enable the building to be used in a more energy-efficient way.
In our January 2013 update we pointed out that there was an inconsistency between the government guidance and the 2012 regulations as to the length of time these reports were valid. The legislation has now been amended to make it clear that a recommendation report issued on or after 9 January 2013 will be valid for:
- seven years where the building is more than 1,000m2; or
- 10 years for any other building.
The 2014 regulations came into force on 6 April 2014.