Social housing net zero standard: consultation

3. The Proposed Standard

3.1 Overview

3.1.1 Our proposal for the new SHNZS is set out in the following box. This proposal has been co-developed as part of the review of EESSH2 and is consistent with plans for the wider housing stock as set out in the planned consultation on proposals for a Heat in Buildings Bill.

The proposed SHNZS (to replace EESSH2) includes the following:

• A fabric efficiency rating (which focuses on the amount of energy for heat consumed by a property) measured in kWh/m²/year [level and date TBC – see Section 3.2]
• A requirement to replace polluting heating systems with a clean heating alternative by a backstop date of 2045 [interim targets TBC – see Section 3.4]

We would be grateful for views on possible additional requirements to:

• Ensure good air quality - see Section 3.3
• Prevent a property which can’t meet a minimum fabric efficiency standard by a certain date being relet after that date - see Section 3.2

The standard should be designed to enable^[22]:

• Discretion for landlords to determine in practice what is best for their housing stock, taking account of what is cost-effective, the views of tenants and the need to report on performance to the Scottish Housing Regulator;
• Variations to the ways in which the SHNZS and targets are to be met, in line with guidance issued by the Scottish Government. This might be achieved by either setting a lower performance target or a longer timescale for compliance in buildings that present additional challenges, including housing in remote and island areas, and historic buildings.

3.1.2 In addition, there are proposed interim targets set out in this consultation that have been developed in an attempt to set a minimum level which is broadly equivalent to what will be required in other Scottish homes, but with a more challenging aspiration target where it is possible and reasonable to go beyond that (see Sections 3.2 and 3.4). This supports the fabric first approach for which the sector has been calling, and helps align the new SHNZS to our fuel poverty targets, and should in turn help to reduce energy demand and bills.

3.1.3 Meeting our net zero target will be helped by an approach that supports and enables the ability of the various supply chains to respond. This is why we have presented options here which we believe can encourage action to install clean heating in a phased way, with activity and investment taking place gradually as we move towards the 2045 backstop.

3.1.4 We know too that an outcome which requires people to make changes of this kind will depend on there being a sufficiently sized pool of reliable and skilled tradespeople and businesses who could advise upon and install the required systems and improvements. Our Heat in Buildings Supply Chain Delivery Plan^[23], published in November 2022, recognises the key role that Government can play in this by sending the market signals about its intentions to which businesses across the supply chain could then respond.

3.2 A Fabric Efficiency Rating - Options for Consultation

3.2.1 Making our homes and buildings more energy efficient will help reduce energy demand and result in homes that are warmer and easier to heat. Energy efficiency improvements are also often important to ensure that some clean heating systems work as effectively and efficiently as possible. We would welcome views on the two options proposed below.

3.2.2 These options are not EPC based targets. The metrics currently shown on EPCs do not solely reflect the energy efficiency of the building fabric, and so do not drive the fabric energy efficiency improvements that are key to improving our housing stock. To address this, we propose to introduce a metric to reflect the fabric of the home, namely the fabric efficiency rating. This is primarily intended to support any future fabric energy efficiency standards. This would provide a clear rating of the dwelling’s fabric efficiency.

3.2.3 Our review of EESSH2 explored an alternative to an EPC based target. This was the Fabric Metric^[24] proposed by the Climate Change Committee (CCC) as part of its recommendations on domestic EPC reform^[25], and which would be measured in kWh/m²/year. The ‘fabric metric’ will be referred to as ‘fabric efficiency rating’ throughout this consultation document.

Option 1

3.2.4 The EESSH2 review group expressed an interest in seeing a target set as a range. We have therefore explored setting the target range of fabric energy efficiency as either:

• 112 – 162 kWh/m²/year (space heating and domestic hot water [DHW] demand); or
• 71 – 120 kWh/m²/year (space heating demand)

These ranges are in line with options developed for metrics for a) fabric only and b) fabric and domestic hot water (DHW), and upon which the Scottish Government has recently consulted^[26]. The figures shown are based on the current EPC equivalent between B and C.

3.2.5 In line with the EPC reform consultation (and noted in the section below) we propose that the target is based on space heating demand only – i.e. it won’t include the energy that tenants use for cooking, or for powering electrical devices unrelated to heat etc^[27]. This would ensure that the fabric efficiency rating has a clear meaning and role, and is not unexpectedly influenced by non-fabric changes.

3.2.6 The proposal to use a target range was suggested to allow harder to treat properties to meet the lower end of the range (i.e. 120 kWh/m²/year), with those better able to do so aiming for the higher end (i.e. 71 kWh/m²/year).

3.2.7 An obvious issue in setting the target in this way is that the lower end of the range (i.e. 120kWh/m²/year) arguably becomes the de facto target since attaining that level would signify compliance and leave no real incentive to reduce energy demand further towards the higher end of the range (i.e. 71kWh/m²/year). It might also be difficult to incentivise those already at EPC C equivalent to progress to a better performance level.

3.2.8 The target in this option would need to be met by 2033, so that it is compatible with both our Fuel Poverty targets, where technically feasible and cost effective.

Option 2

3.2.9 An alternative approach would be to introduce a two-stage target for improving energy efficiency. This would encourage progress towards a good level of energy efficiency by an initial backstop date, but with an additional requirement to meet a higher standard at a later date.

For example:

• All homes to reach an EPC C equivalent level of fabric efficiency rating (71-120kWh/m²/year) by 2033 (which would be consistent with the date for owner-occupied houses) and
• A second, more demanding level (an EPC B equivalent level of fabric efficiency rating (71kWh/m²/year or better), by a second backstop date (2040)

This approach reflects the ambition in the fuel poverty strategy of achieving EPC C equivalent by 2033 and then EPC B by 2040, where technically feasible and cost effective.

3.2.10 An arguable drawback of this approach may be that it creates a potential incentive to stagger the required upgrades when it might be better and more cost-effective to do all works at once. However, where that is the case, then it would still be within the gift (and the interest) of the landlord to reach the higher standard by the earlier date.

Consultation Questions: Questions on a Fabric Efficiency Rating

1. To what extent do you support the use of a fabric efficiency rating, based on heat demand, in the SHNZS?

Strongly support – Somewhat support – Neither support nor oppose – Somewhat oppose – Strongly oppose – Don’t know.

Please include any additional comments below.

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2. Of the options presented for the fabric efficiency rating, which one do you support for the new SHNZS?

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3. Are there additional options for the fabric efficiency rating that you think should be included? If yes, please describe these here:

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Measuring performance

3.2.11 We recognise the potential benefits of using actual performance – that is, an accurate measure of the actual energy used to meet heat demand in a home – rather than an estimate which is generated by modelling. This would help to address some concerns about the performance gap between assessment and the real life behaviour of buildings. However, it would also add a layer of complexity to investment decisions because actual performance will not be known until a project is completed.

3.2.12 Factors such as the number of people living in the home and tenant behaviour will affect actual energy performance. Stakeholders have also raised concerns that it would be unrealistic to expect landlords to measure actual performance data in each and every property.

3.2.13 Therefore, and to ensure a level playing field, we continue to propose that the fabric rating is measured using modelled performance and using SAP^{[28], [29]}.

3.2.14 It remains possible that an option allowing measurement of actual performance via a method to be agreed could be explored and established – potentially enabling a way of providing evidence in the case of exemptions, for example. The SHNZS can be kept under review in a way that keeps it open to such an option being used in the future.

Consultation Questions: Questions on Measuring Performance

4. What, if any, are your views on how performance against the fabric efficiency rating should be measured?

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Minimum Fabric Efficiency Standard

3.2.15 The fabric efficiency part of the SHNZS may not be achievable for all parts of the social rented stock. For instance, it may be more challenging for landlords with harder to treat traditional properties, or tenement stock where remaining energy efficiency improvements may be more limited.

3.2.16 This is why we would like seek views on the retention of a minimum standard^[30], which could be met by installing a ‘List of Measures’. This is consistent with the proposals in the HiB Bill consultation for the Private Rented Sector.

3.2.17 This would require social landlords to install as many of the listed measures as is technically feasible and cost effective for a property. The measures would be listed in the guidance for compliance with the SHNZS, and potentially include measures such as:

• 270 mm loft insulation
• cavity wall insulation
• draught proofing
• heating controls
• 80 mm hot water cylinder insulation
• suspended floor insulation.

3.2.18 We propose that social housing cannot be relet if the minimum fabric efficiency standard is not met by 2028 – although there may be situations where temporary exemptions would continue to apply (see section 3.5).

3.2.19 We would be grateful for views on the proposal that social housing which can’t be brought up to the minimum fabric efficiency standard by 2028, and that is not subject to temporary exemptions, should not be relet to social tenants. The purpose of this is to ensure, as far as possible, warmer homes and lower bills for all social tenants. However, we recognise the associated risk that stock which can’t meet this fabric efficiency standard may be lost from the social rented sector at a time when more stock is needed.

Consultation Questions: Minimum Fabric Efficiency Standard

5. What are your views, if any, on the proposal for a minimum fabric efficiency standard?

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6. What, if any, are your views on whether homes should not be relet if they cannot meet a minimum fabric efficiency standard?

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3.3 Additional Requirements

Air Quality

3.3.1 Air quality is a key health issue affecting people, homes and energy efficiency. While improvements in energy efficiency can lead to improvements in health outcomes, particularly for older people, young children, and those with respiratory and other chronic health conditions, there is the potential for unintended consequences adversely affecting the air quality in a home.

3.3.2 Where energy efficiency improvements increase the air tightness of a building, monitoring air quality can have an important role in preventing unintended consequences. Where such a risk exists, landlords should also consider the need for Mechanical Ventilation with Heat Recovery (MVHR).

3.3.3 We therefore propose that landlords should be required to devise a ventilation and monitoring strategy to accompany energy efficiency interventions in cases where mechanical ventilation isn’t installed.

Consultation Questions: Additional Requirements

7. What, if any, are your views on whether ventilation and monitoring strategies should be required where MVHR is not installed?

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3.4 Clean Heating – Options for Consultation

3.4.1 We know that better insulation and other energy efficiency measures – where those improvements are possible – are a priority, but they will not be enough on their own to achieve net zero. We can only eliminate all emissions from heat by replacing polluting heating systems, which run on gas, oil (and other fossil fuel heating systems)^[31]. These systems are used to heat approximately 80% of the social housing stock, which relies heavily on gas as its primary heating fuel.

3.4.2 We need to change these to clean heating systems, like electric heat pumps and district or communal heat networks in our buildings to reach net zero. Certain types of clean heating systems are more efficient than others, which is useful for social housing landlords to bear in mind as they consider and reach decisions about alternatives to their existing system.

3.4.3 This is important because a more efficient system uses less energy to deliver the same amount of heating or cooling as a less efficient system. This affects how much it costs to run and has implications for the wider energy system (for example, the amount of extra electricity needed to heat homes).

Proposal

3.4.4 We propose to require the installation of a clean heating system in social homes by a backstop date of 2045, in line with published Scottish Government policy and our consultation on proposals for a HiB Bill.

3.4.5 Encouraging Local Authorities and (RSLs) to act quickly rather than waiting until close to 2045 to undertake works will spread the investment and supply chain activity across a longer and more manageable period.

3.4.6 We are therefore seeking views on options for interim targets or milestones for the sector in order to phase in the required progress and investment in clean heating. We have identified the following options:

3.4.7 Option 1 – milestones which would require proportions of each landlords’ stock to have had clean heating installed by target dates,

For example: 10% by 2030; 70% by 2040; 100% by 2045 (illustrative figures).

3.4.8 Option 2 – an interim target for properties off-gas, or using other fossil fuels.

There are approximately 124,000 SRS homes – or ~20% of the Scottish social rented sector – using electricity, oil, communal heating^[32], or solid mineral fuel as their primary heating fuel.

3.4.9 To provide an example, the target under option 2 might require landlords' stock in off-gas areas to convert to clean heating systems by 2030. However, we know that rural and remote homes are more likely to be off-gas, and that these will have specific issues, costs or other circumstances that may require some additional time to make the transition. We intend to make sure that such flexibility exists and is applied in such circumstances.

Heat Networks

3.4.10 The mains gas network supplies the vast majority of Scotland’s social rented sector. In future, there will be a greater variety of heating systems in our homes, with the potential for local outcomes that are determined by the circumstances and assets in a particular area. Heat networks are a good example of localised heating solutions; they generate heat and use a network of pipes to supply it to nearby homes, businesses, and public buildings.

3.4.11 Heat networks can play a significant role in decarbonising the social rented sector and in certain circumstances social housing can play a vital role in providing the heat demand needed to secure investment in new heat network development. Given this, and the Scottish Government’s wider heat networks targets, we propose that the SHNZS set a requirement for heat network connections to be mandatory under certain circumstances.

3.4.12 For instance, where housing stock not already using a clean heating system is offered a connection at a reasonable cost, and where there is sufficient capacity in the network to accommodate the housing. What is considered a ‘reasonable cost’ would be subject to further analysis and engagement, but would include comparison with alternative clean heating systems.

Consultation Questions: Clean Heating

8. To what extent do you support the requirement to install a clean heating system by 2045)?

Strongly support – Somewhat support – Neither support nor oppose – Somewhat oppose – Strongly oppose – Don’t know.

Please include any additional comments below.

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9. Of the options presented for the interim targets, which one do you support for the SHNZS?

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10. What are your views on whether neighbouring landlords could work together to reach such a target on a regional basis?

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11. Are there any additional options for interim targets that you think should be included? If yes, please describe these here:

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12. To what extent do you support the requirement for mandatory connections to heat networks under certain circumstances?

Strongly support – Somewhat support – Neither support nor oppose – Somewhat oppose – Strongly oppose – Don’t know.

Please include any additional comments below.

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3.5 Exemptions to the SHNZS

3.5.1 The experience of delivering EESSH1 and EESSH2 shows that landlords need to be able to make decisions based on what is best for their houses and tenants. This is because landlords also have a duty to communicate and explain their decisions to their tenants, while their overall performance is monitored by the Scottish Housing Regulator.

3.5.2 Ideally, the SHNZS would apply in the same way to all homes. However, we recognise that some buildings will face additional costs and other difficulties which mean that more time is needed before they are able to comply. In prescribed circumstances, landlords can report temporary exemptions for properties that can’t meet the SHNZS.

3.5.3 We believe that an exemption to meeting the SHNZS may be appropriate under the following circumstances:

• Social: An exemption may be appropriate in circumstances where social landlords share buildings with other tenures, tenants or owner occupiers may refuse to participate in the installation of energy efficiency and heat upgrade works necessary to achieve the SHNZS by the target date. This situation can also arise in mixed tenure properties if owners are unwilling or unable to contribute to the cost of common works. In such instances the landlord must have made every reasonable effort to inform and explain to the tenant or owner occupier why the work is necessary, when it is being done, and why their participation and co-operation is so important. Landlords should also review the exemption when the property becomes vacant or owners move.
• Heat network: If the building(s) are within a designated Heat Network Zone, and have been notified of this, then they will be exempt if they commit to meet the SHNZS by connecting to a network by 2045. This will preserve the business case for a new heat network development by ensuring that buildings which are likely to connect are not forced to adopt another system before time. In a case like this the fabric efficiency rating part of the SHNZS will still need to be met. Additionally, the time limit to this exemption ensures that the transition to clean heating still occurs by 2045 should a heat network not be developed in time to meet the 2045 clean heating standard.
• Legal: There may be legal issues which need to be considered and addressed when embarking on a programme of energy efficiency, and heat upgrade works. If the necessary work required to achieve the SHNZS cannot be carried out legally or may be subject to a delay while these issues are resolved, then there are likely to be grounds for either an exemption or the granting of additional time.
• Disposal: In circumstances where a social landlord plans to dispose of a property through demolition or sale on the open market, and this has been formally agreed through the landlord’s relevant governance arrangements, then the property will be exempt from the requirement to achieve the standard.
• Long term void: If landlords are aware of any properties which will be void for a long period of time, and energy efficiency and heat upgrade investment would not be appropriate, then the property should be considered exempt from the requirement to achieve the standard until that is no longer the case.

3.5.4 These exemptions do not in any way absolve landlords from their responsibilities to their tenants regarding the minimum fabric efficiency standard.

Consultation Questions: Exemptions

13. To what extent do you support the need for landlords to have an element of discretion to ensure measures are cost effective and in the best interest of tenants?

Strongly support – Somewhat support – Neither support nor oppose – Somewhat oppose – Strongly oppose – Don’t know.

Please include any additional comments below.

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14. What, if any, are your views on whether targets should be varied by guidance from the Scottish Government in specific circumstances?

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