Feeding frenzy

Since the credit crunch and global banking collapse in 2008 the business environment in the construction and the related housing and commercial property sectors has been tough. There are signs the commercial property sector is recovering, with commercial property values rising by around 6.9 percent in 2010 and the recent news about UK house prices increasing by 3.1 percent in February reflects how people are becoming more confident in the market. However the recovery in these sectors is patchy both geographically and demographically. The growing UK renewable sector can help the residential and commercial property sectors reduce their energy costs.

Emissions from commercial buildings
Buildings alone generate almost half of all CO2 emissions in the UK – 27 percent from the 26m residential dwellings and 17 percent from the two million non-domestic buildings. Offices, shops, and factories in the UK currently contribute nearly a fifth of the country’s CO2 emissions. While reducing carbon emissions from new stock is necessary, only one to two percent of commercial building stock is replaced each year, which means by 2050 around 70 percent of the current stock will still be in place (UK Green Building Council 2007). Sectoral breakdowns show factories and retail as the largest contributors to carbon emissions within the non-domestic sector (BRE 2006). Major studies have identified the commercial property sector as one in which carbon reduction is most cost effective.

Renewable initiatives
To encourage investment in renewable technologies to cut CO2, various initiatives have been introduced by the Government to encourage the application of renewable energy technology across all sectors of the economy. Currently there are three key initiatives: i) Feed-in Tariffs (FiTs); ii) Renewable Heat Incentives (RHIs) and iii) the CRC Energy Efficiency Scheme.

These are against a backdrop of the Governments consultation on its Microgeneration Strategy, the Green Deal and the roll out of Smart Meters (which show you where your money is being spent in terms of heating various rooms /operating various appliances) should help the sector grow and in turn commercial property owners reduce their energy bills and ultimately help to make buildings more energy self sufficient.

Feed-in tariffs
The FiTs scheme commenced in April 2010 and was introduced in the UK, following similar schemes in Germany and China. It is designed to encourage individuals, and companies to install clean renewable energy technology like heat, solar and wind power to gain extra income for the next 25 years. The coalition Government confirmed the scheme would go ahead in the Comprehensive Spending Review (CSR) in October 2010. In February this year the Government announced a “comprehensive review” of the FiT scheme, but landlords and commercial property businesses looking to invest in this technology shouldn’t panic. This review is specifically aimed at curtailing large scale installations (solar farms) that if left unchecked could hover up funds intended to help businesses and homes to generate their own electricity. The rational reaction to this review is to hold off investment. But the vast majority of commercial property firms looking to invest in renewable solutions under 50kW should press ahead now, as those looking to install at this level should take advantage of the best FiT rates, locked in for 20+ years, for adopting within the first two years.

Renewable heat incentives
The CSR also confirmed RHIs will commence in ‘mid 2011’. This scheme will support a range of technologies, including air and ground-source heat pumps (plus geothermal energy), solar thermal, biomass boilers, renewable combined heat and power, use of biogas and bio-liquids and the injection of bio-methane into the natural gas grid.

CRC Energy Efficiency Scheme
The CRC Energy Efficiency Scheme is the UK’s mandatory climate change and energy saving scheme. The scheme started in April 2010 and is administered by the Environment Agency. The CRC Energy Efficiency Scheme is a mandatory scheme to improve energy efficiency and therefore cut CO2 emissions in large public and private sector organisations. These organisations are responsible for around 10 percent of the UK’s CO2 emissions. The scheme features a range of reputational, behavioural and financial drivers which aim to encourage organisations to use energy more efficiently. It has been designed to raise awareness in large organisations, especially at senior level, and encourage changes in behaviour and infrastructure. There are fines for non compliance. If you qualify for the CRC scheme, non-compliance is not an option. Penalties start at £5,000 (plus £500 per day) for failure to register, with additional charges for failure to report, record or surrender sufficient allowances; fines could easily exceed £50,000.

The Green Deal
Once implemented the ‘Green Deal’ will bring into law new rules to protect consumers and landlords when they insulate their properties and will enable companies to make energy efficiency measures available to all with no initial upfront outlay. The work to upgrade the property will be paid back from the saving on energy bills. If the ‘Green Deal’ works as anticipated and take up is good it should be a ‘win-win’ for both landlords and the energy efficiency industry. Landlords will ultimately save money, despite the timeframe.

Wider picture
The UN discussions in Cancun in 2010, following the Copenhagen summit in 2009, ended with all parties agreeing to an overall two degree target to limit temperature rise and to a fund to help developing countries. Increased extreme weather events across the world, and rising oil prices, (we have seen record petrol prices on the garage forecourts this winter in the UK and the recent unrest in the Middle East may see further oil price rises), only serve to increase demands for action to mitigate carbon emissions and increase investment in renewables. We in the north east, as a Low Carbon Economic Area, are at the forefront of the challenge to move the UK to a low carbon economy. We have the skills and the determination to succeed. 2011 should see the journey to a low carbon future start to pick up speed.