Decarbonising home energy use – particularly heating – is one of the biggest challenges the UK faces in getting to Net Zero. Currently, Energy Performance Certificates (EPCs) do not provide the information we need to decarbonise homes.  

EPC methodologies currently underpin many government policies on home decarbonisation, and they are the primary piece of information members of the public use to understand energy efficiency. However, they are inaccurate, and they offer little correlation with a building’s actual energy use or efficiency. 

Why EPC reform matters for the finance industry 

From a financial perspective, a critical challenge persists—without precise measurements, financial institutions encounter difficulties when funding energy efficiency solutions, which hampers the seamless flow of finance into retrofitting the built environment.  

Banks often establish loan conditions or eligibility criteria related to energy efficiency. In some cases, banks may offer preferential interest rates or incentives for energy-efficient properties. Currently, EPCs serve as a tool for banks to verify the energy performance of a property and ensure it meets the predetermined criteria. However, the inaccuracy of EPC ratings in reflecting a property’s true energy efficiency makes financial institutions cautious about funding properties or programs. 

Therefore, EPCs fail to provide financial institutions with necessary and accurate data to make informed lending decisions and support energy-efficient investments. Accurate data on energy efficiency is crucial to assess the long-term viability and potential risks associated with financing projects or properties. Unlocking finance for widespread retrofitting demands granular information reflecting progress in energy efficiency measures.  

Mortgage providers have expressed concerns about the EPC methodology, questioning its underlying assumptions and accuracy in measuring energy efficiency. Homeowners, unable to improve their EPC ratings, may face risks such as becoming mortgage prisoners, with limited market value growth or restricted access to specific financial products.  

Key areas for potential reform 

B4NZ is working with the National Retrofit Hub (NRH) – a convener of all those working on the energy efficiency retrofit of the UK’s homes, along other industry partners and organisations, on EPC reform. Based on informal discussions the NRH has had with group participants, we understand the opportunities for reform of EPCs can be broken down into four themes:   

  1. Challenges in Accuracy and Coverage of Modelled Ratings: The reliability of EPC results is frequently compromised due to various factors. These include flaws within the SAP methodology, accidental errors resulting from manual processes, insufficient oversight in construction assessment, potential manipulation of calculations, assessors’ limited knowledge, and the affordability of EPCs. Additionally, validity periods add to the complexity of ensuring accurate ratings. 
  2. Insufficiency in In-Use Data: Incorporating in-use energy and carbon data, potentially adjusted for occupancy, is essential for obtaining a more precise understanding of a building’s actual performance. Such data would significantly contribute to informed decision-making processes, such as managing grid capacity. 
  3. Limited Support for Product Innovation: Feedback from startups supported by Innovate UK highlights significant challenges in integrating new products into the SAP methodology, primarily through Appendix Q and eventually the PCDB. The process is often costly, time-consuming, and acts as a barrier to the adoption and expansion of energy-saving innovations. 
  4. Flawed Assumptions in Methodology: The EPC methodology relies on assumptions about build-ups and systems that are not readily observable. Implementing mechanisms within the process to account for actual build-ups and systems, recorded through drawings and as-built site photographs, is crucial. Moreover, there is a prevalent lack of awareness among assessors regarding the reality of the performance gap. 

This list serves as an initial overview to frame the discussion and requires further investigation, expert input, and consensus-building. 

B4NZ EPC Reform Campaign 

B4NZ launched a programme of work to reform EPCs with the aim of ensuring that their reform becomes a priority in the political agenda. We are partnering the NRH on this programme and count with the support of our members and other organisations interested in EPC reform.   

As part of the campaign, B4NZ will conduct political engagement and advocacy activities to accelerate the timeline of EPC reform. This will include the facilitation of a range of working groups, panels, roundtables and other events to drive progress.  

Overall, unlocking finance for large-scale retrofitting requires accurate data showcasing progress in energy efficiency measures at a granular level. Reforms to the EPC system are necessary to address these shortcomings and align with the goals of achieving a more sustainable and energy-efficient built environment.   

Contact 

Elena Pérez Celis,  

Head of Policy & Public Affairs  

E: elena.perezcelis@bankersfornetzero.co.uk