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Only sweeping UK reform holds the key to net zero buildings

Only sweeping UK reform holds the key to net zero buildings

Buildings must become far more energy efficient to deliver the UK's net zero target, but progress remains frustratingly slow, argues Rob Martin of LGIM Real Assets

The Committee on Climate Change (CCC) recently published its annual review of government's progress towards creating a net zero economy by 2050. The verdict was that the UK is falling behind on its commitments and that unless serious reforms were put in place soon the window of opportunity may close forever. Among the report's key recommendations were calls to phase out petrol and diesel vehicles, improve the nation's green infrastructure and reskill the economy for a green jobs boom in the wake of Covid-19.

An area where the report was surprisingly light on detail was reform within the commercial property sector as a means to reduce carbon emissions. The government not long ago consulted on this issue (which may have been the reason for the omission), with proposals to revise the Minimum Energy Efficiency Standards (MEES). This proposed that rented properties in England and Wales should have to meet Energy Performance Certificate (EPC) band 'C' or 'B' by 2030. The EPC rating scheme gives a property an energy score on a scale of A to G, based on physical characteristics such as window type, walls and insulation. Achieving a 'B' rating  is ambitious and will be challenging for many buildings; however these challenges need to be overcome if the UK is to meet its net zero target.

Although EPCs provide a simple indicator of energy and carbon performance, this rating is theoretical, based upon a model of the building's design. There is no relationship between the EPC rating and the actual measured energy performance of the building. Many have been calling for legislation to require commercial buildings to 'display' their actual operational performance. This would highlight good and poor performance and serve as a driver for improvement. Display Energy Certificates (DECs) have been a legal requirement for public buildings since 2009. The government needs to take this opportunity to now extend this requirement to all commercial buildings.

Another critical role for government resides in the new build sector. The UK needs to transition from a 'design for compliance' approach to a focus upon 'designing for performance'. Designing for compliance does not fully engage with real world performance and has led to the often reported 'performance gap'. Addressing this requires fundamental change across the industry and the regulations and government needs to drive this forward as a matter of urgency.

The UK could benefit from something similar to Australia's 'NABERS' scheme, which measures the in-use values of a building's energy efficiency based on factors such as water, energy usage and waste. First introduced in 1998, NABERS has driven an extremely competitive and successful market throughout Australia, with around 78 per cent of the country's offices now using the scheme and an estimated carbon saving of seven million tonnes. Its measurements are known for being highly accurate and can be used on both new and existing schemes. With its strong government backing, it has managed to completely overhaul Australia's commercial property sector, giving responsibilities to both landlords and tenants to regulate emissions usage.

The Better Building Partnership (BBP), a consortium of major UK property owners, is piloting the use of NABERS on several schemes throughout the country (including L&G's Ralli Quays development in Manchester), lobbying the government for introduction of new 'in-use' standards on commercial buildings. Though there does appear to be interest from the government, it's not known whether the scheme will be adopted in law, and it is currently focused primarily on new properties in the UK.

Further reforms that are needed to bring about radical change in the sector include incentivising the use of renewable energy, introducing carbon taxes and more rapidly reducing the carbon embedded in construction by driving up fabric efficiency standards through the building regulations. The commercial sector also needs clear direction from government. Small, often only modestly profitable businesses have been stung badly before by several ultimately-scrapped policy initiatives such as the Green Deal.

Building owners, of course, must also play a key role in managing this change. LGIM Real Assets, which is one of the UK's biggest commercial property landlords, last year committed to making its assets net zero carbon by 2050, having so far met GRESB star ratings across 16 of its portfolios and lowered carbon emissions by 20 per cent based on 2010 levels.

As has been put forward in the CCC report, Covid will provide us with an once-in-a-lifetime opportunity to re-gear our economy towards greener outcomes, overhauling everything from the way we travel, work and procure products and services to the fabric of our buildings. The commercial property sector will inevitably see significant change as a result of the virus and I believe this must include an overhaul of its ability to function in a way that is conducive with positive environmental outcomes. Responsibility for this lies in large part with building owners and tenants, driven by corporate reputation, social norms and greater social awareness of environmental issues. This challenge can only be realistically overcome, however, by sweeping government reform - of which until now there has been very little progress.


Rob Martin is director of strategy and ESG at LGIM Real Assets

National investment bank needed to guide 'just transition' in wake of Covid crisis, report argues

National investment bank needed to guide 'just transition' in wake of Covid crisis, report argues

The government must work with the banking sector to coordinate action to support a 'just transition' to a low-carbon economy in the wake of the coronavirus pandemic, according to a new report published today, which urges Ministers to establish a UK-wide national investment bank to support the shift.

Researchers from Leeds University and the Grantham Institute at the London School of Economics (LSE) analysed a range of social risks associated with the transition to a net zero emission economy. Titled Financing climate action with positive social impact, the report focuses on the jobs and skills mix in several key cities and regions, including Bristol, Cardiff, Cornwall, Birmingham, Edinburgh and Leeds. Its conclusions highlight an urgent to need to recognise the social dimension of climate action, particularly in terms of new green job opportunities and the potential risks of 'stranded workers' where jobs are lost in high carbon industries and employees struggle to develop new skills and find new employment.

"The COVID-19 crisis has amplified the need for a just transition," the researchers write, pointing to the ways pre-existing inequalities have exacerbated the impact of the pandemic across the UK. It outlines a series of recommendations for both banks and the government to help minimise negative social impacts from the net zero transition, arguing that adequate financing and cohesive forward-planning will be key if the country is to harness the opportunities decarbonisation offers for rebalancing the UK economy, rather than entrench existing inequalities.

"We estimate that around 14 per cent of jobs in constituencies in the top 10 per cent for multiple deprivation will be in greater demand in the shift to a net-zero economy, a positive boost from the transition," noted Andrew Sudmant, a Research Fellow at the University of Leeds, who worked on the report. However, he added that "another 13.5 per cent of jobs in these places will require reskilling, particularly in the manufacturing sector".

The report makes a series of recommendations to the banking sector, emphasising the industry's central role in financing a just transition, particularly in terms of supporting small and medium-sized enterprises.

It urges senior executives to incorporate the social dimensions of reconfiguring the UK economy into their institutional strategy, outlining an action plan for bringing the concept of a 'just transition' into all areas of business, including governance, risk, opportunity, and compliance. As such it urges banks to develop a portfolio of financial products for different customer groups that enable them to achieve net zero emissions in a socially inclusive manner.

"This important report sets out clear steps for how the banking and finance industry can play a central role in delivering the UK's net-zero goal through a just transition" said Bob Wigley, chair of UK Finance, which was a partner in the development of the report. "UK Finance commits to acting on its recommendations."

The report also outlines a range of policy recommendations for the government. It suggests extending the mandate of the British Business Bank to support SMEs through a just transition. It recommends issuing sovereign green bonds to provide access to low cost finance to support the transition. And it calls on the government to establish a UK National Investment Bank, focused explicitly on supporting a just transition, which would complement the new Scottish and Welsh Development Banks.

"Building on national and international experience, the Bank could deploy a range of well-tested mechanisms to reduce risk and the cost of capital for projects that do not yet meet market risk:return expectations," the report says. "This crucial market creation function would be focused on infrastructure (digital, energy, industry, transport, water and waste), buildings and potentially agriculture and land-use."

The new report builds on growing momentum in the financial sector to connect action on climate with social inclusion. A growing number of institutional investors have committed to supporting the just transition, through their shareholder engagement and capital allocation activities.

Offshore wind boom powers renewables investments through Covid-19 storm

Offshore wind boom powers renewables investments through Covid-19 storm

The forward march of the renewable energy industry continued through the first half of 2020, defying even the enormous turbulence from the coronavirus crisis, according to the latest BNEF figures showing that global investment in renewables capacity rose by five per cent during the first six months of the year.

The remarkable performance was powered by the offshore wind sector, with investment totalling $35bn - up 319 per cent on the same period last year to outstrip 2019's record full-year figure.

Offshore wind's growth stemmed from a string of massive deals through the first half of the year, encompassing 28 separate offshore wind projects around the world. Among them was the biggest offshore wind project to date, the 5GW Vattenfall Hollandse Zuid array off the coast of the Netherlands, which is set to result in an estimated $3.9bn investment.

Other major offshore deals included the 1.1GW Seagreen project in UK waters, estimated at $3.9bn, and the 600MW CIP Changfang Xidao array off Taiwan, estimated at $3.6bn. The single biggest contributor of new projects was China, with financing determined for 17 Chinese installations, most notably the 600MW Guangdong Yudean Yangjiang Yangxi Shapaat array, worth £1.8bn.

"Offshore wind is benefitting from the 67 per cent reduction in levelized costs achieved since 2012, and the performance of the latest, giant turbines," said Tom Harries, head of wind analysis at BNEF.

"But the first half of this year also owed a lot to a rush in China to finance and build, in order to take advantage of a feed-in tariff before it expires at the end of 2021. I expect a slowdown in offshore wind investment globally in the second half, with potentially a new spike early next year."

Overall clean energy investment, including renewables capacity financing and corporate-level equity deals, reached $137bn in the first half of 2020, BNEF's figures show - an increase of four per cent on the same period last year when total investment reached $131.9bn.

However, the dramatic growth in offshore wind serves to hide the more sobering impact of the coronavirus crisis in other areas of the renewables market. Onshore wind investment slipped 21 per cent to $37.5bn, while solar investment fell 12 per cent to $54.7bn.

Similar declines were seen in the biomass sector, where investment fell 34 per cent to $3.7bn, and the smaller hydro project market, which dropped 14 per cent to $576m. On the other hand, geothermal also bucked the covid downturn, with investment jumping 594 per cent to $676m.

"We expected to see Covid-19 affecting renewable energy investment in the first half, via delays in the financing process and to some auction programs," acknowledged Albert Cheung, head of analysis at BNEF. "There are signs of that in both solar and onshore wind, but the overall global figure has proved amazingly resilient - thanks to offshore wind."

China was by far the largest market for the second year running, investing $41.6bn in clean energy projects, up 42 per cent compared to the same period in 2019, thanks principally to its boom in offshore wind. Europe saw even bigger growth, up 50 per cent at $36.5bn, while US investment fell 30 per cent to $17.8bn.

BNEF's data for corporate-level investment in renewables and energy-smart technologies such as battery storage show that equity raising by specialist companies on public markets stood at $2.4bn in the first half of 2020, down 43 pr cent, while investment from venture capital and private equity funds was up 10 per cent at $2.5bn.

Is the future of zero-carbon social housing taking shape in Greenwich?

Is the future of zero-carbon social housing taking shape in Greenwich?

EXCLUSIVE: ilke Homes and ENGIE unveil new social housing project that exceeds net zero standards

Visitors to Greenwich can now catch a glimpse into the future of social housing, with the unveiling this week of four zero-carbon council homes in the South London borough.

The homes are fitted with individual air source heat pumps and solar panels and have been designed to exceed net-zero carbon standards, meaning they are capable of delivering energy back to the grid.

Moreover, the homes boast have an EPC rating well above the highest category of A. Currently, just one per cent of UK new builds are A rated, while the average rating is D.

The homes were manufactured by modular housing firm ilke Homes at their factory in Yorkshire. ilke Homes draws on the latest digital technologies - such as Building Information Modelling, which creates a digital copy of homes so that their energy performance can be modelled - to improve the airtightness and quality of home design.

The four council eco-homes were then craned into place and installed in Robert Street, Woolwich, following enabling works carried out by engineering giant ENGIE, which included the demolition of the existing site, substructure work, and utility connections.

"Rather than using carbon offsetting schemes, which is a common occurrence when the industry talks about net-zero, all the carbon savings are achieved by the technologies of the homes themselves," said Matthew Bench, executive director of partnerships at ilke Homes.

The new homes are part of Greenwich Council's drive to meet its twin pledges to deliver 750 new council homes and reach net-zero carbon emissions by 2030. The council declared a climate emergency earlier this year, while acknowledging the scale of the challenge it faces it if to match the Mayor's aspiration to make London carbon neutral by 2030 - two decades ahead of the UK's national target. The council estimates that its homes are responsible for 20 per cent of emissions in the borough - with the cost of retrofitting them all around the £1bn mark.

"These high-quality and sustainable council homes are the first of 750 we'll be delivering across the borough as part of our Greenwich Builds programme," said Royal Borough of Greenwich Cabinet Member for Housing Cllr Anthony Okereke.

"Addressing the shortage of social housing is a top priority for the Council and we're delighted that Robert Street, our pilot Greenwich Builds development, is now ready for local families to move in."

His comments were echoed by Simon Lacey, regional managing director for ENGIE's places and communities south division, who said the new homes were "a step change for Greenwich and will provide more affordable housing in their borough".

"As the world leader in carbon reduction and renewable energy, ENGIE is poised to continue working with our partners to deliver similar schemes over the coming years and play an integral part in making zero carbon happen," he added.

Cathedral City launches solution to cheese's plastic recycling challenge

Cathedral City launches solution to cheese's plastic recycling challenge

Leading brand launches new effort to recycle flexible film packaging

A new frontier in plastic packaging recycling was opened this week, as Cathedral City announced a scheme to recycle flexible film cheese packaging.

Cheese packaging is notoriously tricky to recycle, due to the fact it is made up of a number of different layers to maintain freshness. Cathedral City is now looking to tackle this challenge by partnering with TerraCycle to launch the industry's first cheese packaging recycling scheme, which it will roll out across the entire category.

The scheme requires people to collect their cheese packaging and deliver it to one of dozens of drop-off points across the UK. Plastic from these sites is sent to recycling innovator TerraCycle, where it will be converted into a new resuable raw material that can be transformed into durable products, such as outdoor furniture or waste bins.

If there is no public drop-off point nearby, people can sign up to open one themselves, Cathedral City said.

"Without a standard recycling solution in the industry, consumers are unsure what they can recycle and where. The new partnership with TerraCycle aims to address this confusion, making it quick and easy for people to recycle their packaging at a local collection point," said Lee Willett, marketing director at Saputo Dairy UK, owner of Cathedral City.

The scheme is the latest step in Cathedral City's sustainability drive, which aims to launch 100 per cent recyclable packaging by 2022.

It also builds on TerraCycle's expanding range of services, which has seen it operate provide collection and recycling capacity for a host of hard to recycle materials.

'Leading the charge': Are zero emission fleets about to move into the fast lane?

'Leading the charge': Are zero emission fleets about to move into the fast lane?

Major new analysis suggests electric vehicles could deliver fuel savings for fleet operators of over 60 per cent, while charging network continues to expand

It is the one bright spot in an otherwise unremittingly bleak auto market. As sales have slumped throughout the lockdown, demand for plug-in models has held remarkably firm.

The official sales data for last month from the Society of Motor Manufacturers and Traders (SMMT) revealed that while UK new car registrations fell 34.9 per cent year-on-year in June, the number of new registrations for battery electric, plug-in hybrid, and hybrid vehicles actually rose year-on-year, climbing over 73 per cent to 24,470 units. Consequently, zero and low emission models accounted for a record 23.7 per cent of the market. Far and away the strongest growth was recorded by battery electric vehicles, which saw sales rise 262 per cent year-on-year.  

Analysts were quick to note that this leap in market share is driven by some pretty extraordinary circumstances. Not only has the lockdown shuttered showrooms and battered consumer confidence, the long wait times for many electric models means many of the units delivered in June would have been ordered before the pandemic struck.

And yet, if the record performance for plug-in models is slightly anomalous the long term trend for the sector is still hugely positive. Sales growth has consistently hit triple digits in recent years, those long waiting lists are evidence of demand outstripping supply, and many of the world's leading auto companies are now pursuing multi-billion dollar electrification strategy.

Most important of all, the fleet managers who purchase 56 per cent of new road-going vehicles in the UK are increasingly interested in the opportunities offered by zero emission models. There is growing confidence that the growing group of major corporates to sign up to the EV100 initiative and commit to switching their entire fleet to electric vehicles (EVs) is just the tip of the iceberg.

That is certainly the view of a new report from consultancy giant PwC and energy analyst Cornwall Insight released last week, which argues fleets are set to "lead the charge" for the UK's national EV roll out.

Based on in-depth interviews with 25 of the UK's top fleet operators, charging network providers, and investors, the report concludes the fleet market is poised to embrace EVs at scale, slashing operating costs and having a major catalysing effect on the market for second hand zero emission models. With EVs offering fuel cost savings of around63 per cent for fleet operators and companies keen to secure the environmental and reputational benefits on offer, demand is expected to increase rapidly, with supply constraints and concerns over charging infrastructure the only major drags on the market's rapid development.

"The electrification of fleets is set to gain momentum, driven both by sustainability commitments and by compelling economic drivers," said Daniel Atzori, Research Partner at Cornwall Insight. "Fleets are likely to play a crucial role in the upcoming electrification of mobility and therefore in the decarbonisation of transport."

The market is also opening up new investment opportunities, he added. "Since fleets can ensure a high rate of utilisation of charging assets, fleet charging offers a range of interesting investment propositions," he said. "Having a clear and well-defined strategy will be crucial for fleet managers, charge point operators and investors looking to achieve leadership in this emerging market."

The report underscores this point, noting that "there is 'money to be made' in fleet charging now, whereas stable profitability in consumer-led charging is still in the future".

"The fleet market offers a more stable proposition than the current public charging network," the report explains. "It can guarantee utilisation of charging assets due to a combination of potentially millions of vehicles, with high mileage requirements providing a predictable demand for charging. Fleet charging assets are also more likely to be purchased by large corporates that can enter into long-term contracts providing certainty of revenue and profitability. These are highly desirable characteristics of any emerging market."

Moreover, fleet charging does not have to rely on uncertain future sales streams and revenue stacking models, such as advertising or data analytics, which dominate consumer charging platforms.

The ability to deploying charging arrays at depots or offices also helps explain how field services, depot-based logistics, and corporate car fleets are emerging as the first large scale adopters of EVs, with the electrification of buses also poised to play a major role in the market over the coming decade.

"Logistics and field service players are typically depot-based, making charging a typically overnight and frequently fairly straightforward option," the report explains. "Alternatively, those drivers taking their vehicles home can similarly charge overnight. Corporate fleets by their nature are more flexible and can use a portfolio of charging solutions from home, rapid, workplace and destination. Driving patterns for all these segments are typically predictable and mostly over short and moderate distances."

However, despite these encouraging trends the report notes that some significant barriers to adoption remain and as such effective policy interventions are still required to ensure the transition towards EVs continues at the requisite pace.

"It's clear that field services, depot-based logistics and leased corporate car fleets have the right characteristics (such as predictable driving and charging patterns) to spearhead EV adoption," said PwC UK's Energy and Utilities leader, Steve Jennings. "However pent up demand and rising levels of awareness amongst fleets is not enough to accelerate adoption. Government policy has a critical role to play. As we emerge from the current Covid-19 pandemic, alongside a strong focus on stimulating economic growth, we may see a growing emphasis on sustainability, including regulatory and strategic support for EV charging, to help address emission levels and improve air quality. Without policy certainty for all stakeholders across fleets, EV charging providers and investors, there is a risk that the full potential of this burgeoning EV revolution will not be realised."

Specifically, those interviewed for the report noted that while the recent clarification of the government's changes to benefit-in-kind tax rates would help drive EV adoption for corporate fleets, a more consistent approach to clean air zones and clearer long term decarbonisation strategy for road transport decarbonisation could further strengthen the business case for EV fleets.

The report also highlights how charge point operators and fleet managers will all have to demonstrate their flexibility and ability to innovate as EV and charging technologies mature and their role at the heart of the clean energy ecosystem becomes more obvious.

"If fleets are to maximise the opportunity of electrification, they need to take some critical and preparatory steps in designing their own road map," the report advises. "Fleet electrification will have different capital requirements, compared to internal combustion engine vehicles, requiring new funding pathways. Fleet managers will have to educate their fleet drivers on the practicalities of going electric. [And] fleet managers will be obliged to enhance their understanding of all aspects of energy management (from the power rating of charging units to learning how to manage the increased load on the local electricity network)."

Thankfully, amongst fleet managers and charging networks alike there is growing evidence this preparatory work is being undertaken. In the past few weeks both Royal Mail and DPD have announced new pilot projects to test the capabilities of LEVCs new plug-in hybrid vans. And earlier this month British Gas, which operates the UK's third largest fleet, announced it has placed an order for 1,000 of Vauxhall's all-electric Vivaro-e van. "Our engineers and their vans are part of the local community they serve and it's important we reduce the emissions of our vans so that we are contributing towards better air quality in their area and the environment," said Matthew Bateman, Managing Director, British Gas. "We are committed to the transition to electric vehicles which involves changing our fleet as well as helping consumers and businesses with charge points and infrastructure."

Meanwhile, the ambitious project to build an Energy Superhub in Oxford chalked off a major milestone last week with the installation of its first rapid charger for fleet vehicles at a depot in the city operated by waste management operator ODS. The move forms part of plans led by Oxford City Council and Pivot Power to build a £41m Energy Superhub Oxford, which will deliver new public and fleet charge points that will allow ODS to switch a quarter of its 330-strong vehicle fleet to electric models by 2023.

And separately, Western Power Distribution (WPD) announced a new service, dubbed 'Take Charge', which aims to make it quicker and easier to deploy and use chargers at motorway service stations. The company said its new approach involves the use of a standardised, pre-constructed and pre-packaged 'one size fits all' solution that could result in a saving of almost £500,000 per site installation compared to the technology currently used. WPD said it has teamed up with motorway services operator Moto to pilot the approach and is aiming to have the first rapid charging system up and running at Moto's Exeter service station by March 2021.

The auto industry and the wider economy may be facing intense economic headwinds currently, but despite the many challenges they face all the key components of the EV ecosystem are continuing to make progress. A lot has changed in the past four months, but the predictions made at the start of the year that the EV market is fast-approaching a tipping point and the fleet sector is set to play a crucial catalysing role look as valid as ever.

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