With the first qualification date for the Energy Savings Opportunity Scheme (ESOS) on 31 December this year, it is clear the government is seeking to prompt the commercial property sector to address its energy consumption sooner rather than later.
The next ‘green deadline’ for business is the introduction of Minimum Energy Performance Standards (MEPS) in 2018. Combined, these two policies demonstrate the government is serious about commercial owners and occupiers reducing their energy consumption and improving properties.
For a long time, sustainability regulations seemed far off for the commercial world, mainly focusing on BREEAM ratings for new developments. Alone, MEPS would have forced landlords to adhere to certain standards by 2018 to be able to let their buildings, but ESOS could mean there will be added pressure to go further in addressing a building’s energy efficiency. Landlords and occupiers will be expected to toe the line and ESOS arguably provides enough carrot and stick to help them.
By targeting ‘non SMEs’, ESOS clearly has big business in its sights and many of these companies and organisations will have vast property portfolios of differing degrees of quality — particularly high street retailers and banks that have upwards of 500 properties to be assessed. Seeing the potentially stark differences in how their properties perform will undoubtedly prompt occupiers to take action and ESOS will provide guidance for measures they can take to improve energy efficiency. However, it will also prompt them to start asking questions of the landlord, especially at rent review time.
ESOS should not be viewed as negative. For many businesses, this will be the first time they have completed a thorough assessment of the amount of energy they use. The data will provide a holistic picture of their energy use and at the end of the assessment they will understand the measures they can take to reduce their energy consumption and therefore their energy bills. Most of the options to be presented to businesses will offer at least a 10% rate of return and some give much greater returns.
Businesses and landlords that embrace the changes can gain significant financial rewards. For any businesses that are not incentivised financially by ESOS, the stick of being publicly named and shamed by the Environment Agency should prompt them to undertake the assessment for fear of reputational damage.
Alexander Creed is head of resources and energy at Strutt & Parker.