Integrating sustainability initiatives in the housing sector: barriers and opportunities

The Government has set itself the target of delivering 1.5million new homes over a five year period. The scale of the ambition is commendable but, according to a recent report by the Housing Forum, delivery against this objective has fallen short in year 1 of this Government and is likely to do so over the term of this Parliament. Lack of availability of funding, regulatory red-tape, a focus on existing stock, planning delays, skills' gaps and the overall state of the economy are some of the key factors at play.

So in this context, how can housing developers integrate sustainability initiatives in their development proposals?

"Sustainability in Practice" was the title of one of the sessions at The Housing Forum annual summit, which this year focused on "Affordability, Sustainability and Regeneration: Meeting the housing challenges of the South West", held in partnership with Foot Anstey at our Bristol office.

During this session, Aliki Zeri (a Managing Associate in the Energy & Infrastructure sector at the firm) explored the importance of retrofitting existing housing stock to address high energy bills and bring wider societal benefits to bear, the advent of microgrids in addressing grid constraints, as well as new regulations being introduced in the context of communal and district heat networks. Aliki brought the firm's 'real life' experience to life, highlighting common pitfalls and best practices when considering any of the above issues.

Retrofitting

The benefits of retrofitting existing housing stock are widely acknowledged and understood. Retrofitting, though either mechanical or fabric interventions (or a combination of both) has the potential to reduce energy bills, combat illness and bring wider societal change. Yet, when it comes to implementing the necessary measures, there is no 'one size fits' all. The age of the property, method of construction, geographical location and available energy consumption data, all play a role in determining the most suitable interventions.

Additionally, cost considerations and customer engagement are key to the success of any retrofitting scheme. There are different ways of funding the cost of retrofitting initiatives. Some developers will rely on a combination of Government grants and their own cash reserves, whereas others will consider partnering with private sector organisations specialising in relevant interventions (for instance, companies involved in the installation of solar pv panels), to deliver such initiatives.

Any scheme that involves improvements or alterations to the property will require the active engagement of the householder or occupier. Anecdotal evidence suggests that such engagement is often low. This is either due to a lack of understanding, a difficulty to clearly demonstrate the benefits of a particular retrofitting solution over a period of time or the requirement for a householder or occupier to enter into an agreement with the company undertaking the retrofitting works to allow for repayment of the cost of these works.

Microgrids

A microgrid is a privately owned and operated electricity network that incorporates different electricity generating technologies (most often solar pv) alongside, battery energy storage and electric vehicles. Microgrids are not new, but have risen in prominence in the last couple of years largely due to the significant grid constraints that new housing developments face. Aside from addressing such constraints, microgrids have the potential to offer lower electricity bills (compared to grid-supply) and create a sense of community and ownership in the places where they exist.

Through discussions with stakeholders, it has become apparent that: (i) the cost of setting up a microgrid, (ii) the complexities of operating this and maintaining the network and (iii) the ownership of the microgrid (typically by an energy service company and not a licensed electricity distributor or licensed electricity supplier) are key barriers to the wider adoption of microgrids.

That said, those involved in the distribution and supply of electricity through a microgrid are still subject to certain regulatory requirements, as set out in the Electricity Act 1989. Additionally, microgrids need to be constructed in such a manner as to be able to be 'adopted' by a licensed electricity distributor and ought to allow customers connected to a microgrid to opt for an alternative, licensed electricity supplier, should they wish.

Heating Networks

Foot Anstey has covered the changes to the regulatory environment for district and communal heating networks in a series of articles, which can be found here.

What is interesting is that despite the secondary legislation introducing heat networks zones not being in effect yet, local authorities in areas where a district heat network is already in operation, may include an obligation on new developments (including housing developments) to connect to the district heat network as part of a proposed s106 agreement in accordance with local planning policies. The Government's consultation on formulating said secondary legislation, introduced the concept of 'conditional exceptions' from such requirement, including where there is a "cheaper, highly localised, lower carbon heat source" for the development. However, this does not always translate in a proposed s106 agreement. The onus is then on the developer to engage with the local planning authority and make arguments in favour of being exempt from the requirement to connect to such network. In order to avoid such late-stage negotiations, we recommend engaging with the local planning authority as soon as possible (for example at the pre-application stage) in order to establish their position and discuss practical or viability related issues.

What can Foot Anstey do for you?

Navigating the complex regulatory environment surrounding retrofitting, electricity licensing and heating networks can be challenging. This becomes even more so when overlayed with competing commercial interests and financial pressures and different regulatory regimes such as that of the Social Housing Regulator. Over the years we have worked with clients in this space to help them identify innovative solutions for retrofitting their housing portfolios, and have helped clients structure their electricity supply and distribution arrangements in a manner that is compliant with both energy and consumer rights legislation. We have also worked with clients to identify the risks associated with connecting to a district heat network and have suggested ways of mitigating these. More broadly, we are keeping abreast of regulatory changes in the heating networks space and are helping clients prepare for the increased scrutiny that is to come.

If you are currently involved in (or are considering) any of the schemes mentioned here, please get in touch with our dedicated team of development legal experts now. Having a clear understanding of the regulatory limitations and risks associated with each scheme, is key in reaching an agreement on the commercial terms of any transaction and the allocation of risk and responsibility between the various parties involved.

To find out more, please get in touch with Aliki Zeri, Mark Greatholder, Paul Butterworth or Lara Borrett-Lynch.