Energy Performance of Buildings (Scotland) Regulations 2025 - EPC reform consultations: SG response - update

5. EPC Calculation Methodology and Rating System

Chapter 3, ‘EPC Rating System’, of the January 2025 Government Response^[11] detailed the proposed changes to improve the EPC rating system for both domestic and non-domestic buildings.

Domestic EPCs

We can now provide an update on our approach to the ratings that will be displayed on domestic EPCs and the development of the new calculation methodology, using the new Home Energy Model. In informing the development of this model, we have engaged in further user testing with consumers, and with expert stakeholders on the built environment to help advise on the logic which the new HEM-based calculation should follow when generating the new EPC ratings. Below we set out our initial high level intentions. These will be further refined during 2025-26 ahead of publication and adoption of the full calculation methodology under the new regulations when they come into force in autumn 2026.

5.1 Approach to Heat Retention Rating

As set out in the January 2025 Government Response, the Heat Retention Rating design will allow consumers to understand how well-insulated their home is, by giving information on how much energy they need to use to heat their home to a comfortable temperature.

We have designed the rating system, and tested it with users, to ensure that it reflects Scottish Government policies on improving home energy efficiency. Buildings with the highest heat retention will be those at Band A, with the greatest level of insulation and which therefore use the lowest amount of energy for heating. Those at Band G conversely will use the highest amount of energy because they have the poorest heat retention. Band C represents a good level of energy efficiency (and has been set to ensure equivalence with 80% of homes which are currently at Band C on the old-style EPC under the 2008 Regulations – see Section 5.2 below on amendment to the bandings following further modelling using the Home Energy Model).

The Heat Retention Rating will be calculated based on the energy (kWh/m²) needed to maintain the temperature of the dwelling’s living area at 21^oC. It will be displayed on the EPC as a current and potential rating.

The Property Report accompanying the EPC will suggest potential improvement measures that the property owner could take to improve the Heat Retention Rating. It will set out all of the measures that would be necessary to ensure the property achieves a good level of energy efficiency (Band C on the HRR). The measures selected will be ranked according to the lowest installation cost (in £) and the greatest amount of heat saved (in kWh) – with those which achieve the greatest saving for the lowest cost, suggested at the top of the list.

The potential improvement measures presented on the EPC may require further investigation to determine whether or not they are suitable for a particular building.  The Property Report will therefore also clearly state that building owners should always seek further professional advice on suitability before installing any measures.

We are continuing to test the presentation of this approach with users as we finalise how this information will be displayed on the redesigned certificate.

5.2 Adjustment to Heat Retention Rating Bands

In the January 2025 Government Response, we set out our approach to the A-G banding of the Heat Retention Rating. Our Response made clear that we had used the level of performance of the existing EPC Band C (on certificates issued under the 2008 Regulations) as the benchmark for Band C on the new Heat Retention Rating. This was to maintain a level of equivalence between the Heat Retention Rating and the existing cost-based Energy Efficiency Rating – and to ensure that, as far as possible, most properties achieve a similar Heat Retention Rating to their current EPC banding.

The Scottish Government has therefore made a clear commitment to ensuring that the bandings which we adopt for the new fabric Heat Retention Rating will retain broad equivalence with the current EPC Band C, which has been long-recognised as being a ’good’ level of energy efficiency. We are therefore committed to ensuring that Band C on the new Heat Retention Rating will also represent a ‘good’ level of energy efficiency. Ensuring equivalence between current EPC Band C and HRR Band C is vital to minimise any detriment from moving to the new rating system, particularly for those property owners who have already taken action to improve their property to current EPC Band C.

In setting the thresholds for each band, we cited research conducted on behalf of the Scottish Government^[12] that showed where Heat Retention Rating Band C was set between 71-120 kWh/m²/year of energy used to heat the home, then for a sample of Scottish dwellings around 80% of homes that are currently at EPC C would also achieve Band C on the Heat Retention Rating.

This modelling used the current Standard Assessment Procedure (SAP) calculation methodology, but not the new Home Energy Model which will be used to calculate ratings under the 2025 Regulations. Since June 2025, the Scottish Government has now been able to use an initial version of the Home Energy Model to test the performance of the stock against the new Heat Retention Rating more precisely. This is because the Home Energy Model is a more sophisticated, and therefore accurate, tool than SAP^[13].

In June 2025, we commissioned an independent study^[14], by Cotality, who have now run the Scottish housing stock through this initial version of the Home Energy Model to provide an updated analysis of the stock using the Heat Retention Rating. It is important to note that this modelling has been undertaken using the current version of the Home Energy Model, which is not yet final. The results will be reviewed when the UK Government’s development of HEM, and our development of the Scottish version of HEM, completes in 2026, ahead of it being adopted as the official calculation methodology under the new Regulations.

The Home Energy Model calculation showed that the actual level of energy consumption for 80% of homes currently at EPC Band C was in the range of 91-159 kWh/m2/year, rather than the range of 71-120 kWh/m2/year, estimated by BRE. When the upper boundary of the band is set to 120 kWh/m2/year, only 50% of properties currently at EPC Band C achieve HEM HRR Band C, as opposed to around 80% of the sample modelled with SAP. This would therefore not meet our objective of ensuring equivalence with current EPC Band C.

If we retained the Band C thresholds previously calculated using SAP (71-120 kWh/m²/year), this means that the Band C performance standard would be much closer to the equivalent of what the Home Energy Model is showing as the energy consumption of properties currently at EPC Band B – i.e. a higher level of performance than current EPC Band C. This is because the median HEM HRR for homes in SAP EPC Band C is 127 kWh/m²/year, 23 kWh/m²/year higher than the median previously calculated using SAP. The range for current Band B is 31-90 kWh/m²/year, which represents a significant overlap with the 71-120 kWh/m²/year range proposed for HRR Band C by BRE.

If we were to retain the bandings suggested in the BRE research, we would therefore not ensure that HRR Band C was broadly equivalent to current Band C, and would instead be asking many properties to achieve a level of performance equivalent to current Band B.

The Scottish Government has therefore decided to adjust the bandings on the Heat Retention Rating which we intend to adopt for further more detailed modelling between now and the final version of the Home Energy Model which is expected to become available during 2026. In adjusting the bandings in this way, we are ensuring full transparency for stakeholders and Parliament when scrutinising the new Regulations and understanding their impacts. The ultimate bandings adopted as required by Regulation 10 of the new Regulations, when they come into force in October 2026, may see some further adjustment, but this will always be done to meet our commitment to ensuring HRR Band C is broadly equivalent to existing EPC Band C.

The adjusted Band C for further modelling will now run from 91-159 kWh/m²/year of energy used to heat the home. This then continues to ensure that around 80% of homes that are currently at EPC C would also achieve Band C or better on the Heat Retention Rating and does not make it harder or easier for properties currently at EPC Band C to achieve HRR Band C.

We believe that this decision demonstrates that we are continuing to take a proportionate and fair approach to finalising the new rating system prior to adoption, and to ensuring that we are banding a ‘good level of energy efficiency’ at a level which is broadly equivalent to Band C on the existing EPC. This approach recognises and safeguards for the significant majority of properties, the improvements and investments that many building owners have made in good faith to reach Band C under the 2008 Regulations.

We are therefore adjusting the Heat Retention Rating bands as below for the purpose of undertaking further modelling, ahead of the Home Energy Model being finalised in 2026.

This revised banding approach means that approximately 54% of the stock achieves HRR Band C or better. This aligns with the pooled Scottish House Condition Survey data for 2019, 2022 and 2023, which found that on average 51% of dwellings achieved EPC Band C or better over the period^[15].

These revised bandings will be used as a basis for further more detailed modelling of the specific measures that would need to be installed across the housing stock in order to achieve Band C on the Heat Retention Rating. As development of the Home Energy Model is finalised during the next 12 months, the Scottish Government will continue to refine its modelling and assessment of the current stock. We will therefore ensure that the final bandings adopted in the statutory calculation methodology (which will be adopted when the regulations come into force in October 2026) maintains our commitment to ensure that Heat Retention Rating Band C is broadly equivalent to current EPC Band C and therefore minimising any detriment of moving to the new fabric-based rating system.

5.3 Approach to Heating System Rating

The Government Response issued in January 2025 set out our intention that the Heating System Rating would be based on emissions categories (clean, renewable, hybrid and polluting) and would have separate ratings of the running cost and thermal efficiency. It also set out our intention to subject this to further user testing.

After issuing the Response, we have undertaken significant development and user testing of the new EPC rating system, including with both expert stakeholders and members of the general public. We commissioned two phases of iterative design and user testing over the past year. This included a range of participants who had interacted with EPCs (i.e. house buyers, sellers, landlords, and tenants). We also led stakeholder working groups with recognised experts from academia, industry, and consumer groups.

This engagement provided clear, consistent, feedback that users prefer straightforward, simple, information and ratings that provide a clear message to building owners. Feedback suggested the public understand a single colour-coded A-G letter rating. They are familiar with this because we already use this on EPCs, and it is widely used in energy labelling of products. We also received feedback from experts in the Regulatory Review Group that the labels ‘polluting, renewable, clean and hybrid’ would not be well-understood by the public and risked consumer confusion.

We have therefore refined our design of the Heating System Rating from the one set out in the Government Response in January. Instead of using labels such as ‘clean’ or ‘polluting’ we will now use a single, colour-coded A-G letter, which is consistent with the approach we are taking to the EPC’s Heat Retention Rating and Energy Cost Rating, which will also use colour-coded A-G ratings.

Additionally, reflecting user feedback, we have now decided to refer to the rating as the Heating System Rating, rather than Heating System Type Rating. This is a simpler way of communicating the purpose of the rating to the public.

5.4 Amendment to Heating System Rating – new Bandings

The new Heating System Rating design will allow consumers to understand both the emissions and efficiency of their current main heating system and the impacts of alternative, lower emission and more efficient heating systems. Heating systems with the lowest emissions (and highest efficiency) therefore receive an A rating and those with the highest emissions (and lowest efficiency) receive a G rating. The rating will be displayed on the EPC as a current and potential rating.

The bands are ranked according to a single calculation of the emissions and the efficiency of the heating system using standardised factors used within the Home Energy Model. This system means that, for instance, a gas boiler could achieve a rating within E-G depending on the boiler efficiency. However, any fossil fuel heating system with direct greenhouse gas emissions could not be rated C or better, and a clean fuel could not be rated worse than C.

The Property Report accompanying the EPC will suggest potential alternative heating systems that the property owner could install which would represent improved levels of efficiency and reduced levels of emissions. It will also include information on the estimated costs of installation and operation of these potential alternative heating systems. Each home will receive a potential rating at Band C or above, which will suggest alternative heating systems (with Band C (or above) representing a good level of emissions and efficiency).

If the home’s current heating system creates greenhouse gas emissions from combustion of fossil fuels, and so is rated D or worse, the EPC will state that the building can achieve a Heating System Rating of C or better (i.e. by installing a heating system based on bioenergy, district heat, or electricity).

If the heating system is already using a clean fuel, and so rated C or better, the EPC will state A or B can be achieved (i.e. that bioenergy could be replaced by electric heating or a heat pump to improve the rating). If the heating system is a heat network, no improvements will be suggested (the EPC will also record where a building is located in a Heat Network Zone). If the heating system is already rated Band B (and not a heat network), Band A (a highly efficient zero emissions system such as a heat pump) will be suggested.

Given that there is no requirement for a property owner to act upon the potential alternatives suggested by the EPC, the Heating System Rating remains for information-only.

The alternative heating systems presented on the EPC may require further investigation to determine whether or not they are suitable for a particular building.  The Property Report will therefore also clearly state that building owners should always seek further professional advice on suitability before installing any alternative heating systems.

We are continuing to test this approach with users as we finalise how this information will be presented on the redesigned certificate.

5.5 Approach to Energy Cost Rating

The January 2025 Government response set out our decision to retain the current Energy Efficiency Rating used under the 2008 Regulations, and to rename this as the Energy Cost Rating. The Energy Cost Rating (£/m²/year) will tell consumers how much it costs to power a home each year to provide things like heating the home to a comfortable temperature, hot water demands, cooling, lighting, and ventilation. It will use an A-G rating scale, with A indicating a property with low energy costs and G a property with high energy costs. Band C will represent a reasonable energy cost. The rating will be displayed on the EPC as a current and potential rating.

We have designed the Energy Cost Rating, following feedback from users and public consultation, to follow as closely as possible, the approach used to generate the Energy Efficiency Rating on EPCs under the 2008 regulations. This rating is generated by combining the estimated energy demands of the building’s heating, lighting, cooling and ventilation (taking into account its level of insulation), with reference tariffs for common fuels. The old EER assumed that all dwellings rated were located in a UK average climate, whereas the new Energy Cost Rating will assume a Scottish average climate.

To calculate the Energy Cost Rating, the system will use standard energy prices based on what costs are expected to be from 2026. The Energy Cost Rating will therefore take the results for the Heat Retention Rating and Heating System Rating (together with energy used for lighting, cooling and ventilation) and use them to calculate the current cost of energy to the homeowner, and the potential cost of energy if the property was to achieve its highest potential rating on the Heat Retention Rating and if it was to install each of the alternative heating systems at Band C or above on the Heating System Rating.

This will result in a single current Energy Cost Rating and a range of potential Energy Cost Ratings, depending on the different alternative heating systems which could be installed. We are continuing to test this approach with users as we finalise how this information will be presented on the redesigned certificate.

Non-domestic EPCs

5.6 Non-domestic ratings

The January 2025 Government Response set out our intention to introduce 3 ratings on non-domestic EPCs:

• Energy Efficiency Rating (A to G, kgCO2e/m²/year) – based on modelled emissions from regulated energy use relative to a reference building to align with the rating system used across the UK;
• Direct Emissions Rating (kgCO2e/m²/year) – the building’s modelled direct emissions from regulated energy use to allow a focus on the decarbonisation of individual buildings. For buildings which only use grid electricity, or are connected to a heat network, this will be zero;
• Energy Demand Rating (kWh/m²/yr) - the building’s modelled regulated energy use under standardised conditions to allow comparisons between buildings.

We also said that we would clearly show a rating for the main Heating System for the Building, based upon the same Heating System Type Rating classification as used on the domestic EPC.

We are still finalising user testing of the redesigned non-domestic EPC and new ratings. Following this, we are making very small changes to rename the ratings to help ensure they more clearly reflect the thing they are measuring:

• rename ‘Energy Efficiency Rating’ to ‘Energy Performance Rating’ (with everything else remaining the same as set out in January 2025);
• rename ‘Energy Demand Rating’ to ‘Energy Use Rating’ (with everything else remaining the same as set out in January 2025).

Following further user testing, we propose to adopt, as a secondary indicator, a Heating System classification similar to the one that we will use in the revised Heating System Rating for the domestic EPC.