This page was transferred from Snippets, so it needs a rewrite. Here I have looked at the way the Energy Performance Certificate for one's house (EPC) is calculated. I've also looked at rising energy costs and wonder where the point is at which we might decide to act – to spend capital so as to reduce consumption.
This all falls in an environment in which we know, because we are told repeatedly, that the housing stock of Britain is poor and poorly insulated. That means we waste a lot of energy in heating our homes, in the sense that with better insulation we would consume less. Also in the mix is our enormous consumption of domestic gas, which remains significantly cheaper than domestic electricity. To match electricity, gas would need to be four times more expensive than in 2020 and very much closer in price to electricity, ideally for electricity to be cheaper than gas. Yet, as I have written repeatedly, what we deem an acceptable (national average) spend on energy (domestically) is still far less than the figure we spend on connectivity (phones, streaming, broadband, etc etc) and, if we deem heating as a necessary and connectivity as mostly leisure, then we clearly have the capacity to change. One suspects that the limiting factor is disposable income when measured against the perceptions of need. Simply, when prices move, the marginal disposable income reduces and it is our perception of 'normal' and 'luxury' that affects our perception of 'enough' or even 'satisfaction'.
In general, people appear reluctant to spend capital so as to change running expenditure. The financial calculation that is taught is to take the perceived gain, say a saving of £1000 per year, and divide by the interest rate (being the perceived effect of other use of the money, so inflation is ignored because this is the interest available above inflation). If you take a 5% interest rate, this then equates to twenty years of gain, or justifies a £20k spend. Halving the interest rate doubles the capital spend justified. I suggest immediately that reducing your energy bill by £1000 a year is something that only now are we prepared to look at; even then, it is only those with capital sitting idle who are going to look at spending tens of thousands of pounds. The vast majority of just-about-managing are simply incapable of funding any such change. That difficulty renders the national prospect very gloomy and implies that politically this is a significant challenge that is going to require some dramatic new thinking.
Here's an idea; remove the old inefficient housing stock and replace it with housing that actually works. Of course, we know what would happen; housing will be too crowded, the actual living space will reduce (again) and no-one is prepared to actually pay for this. Yet, if we are to cause change to occur, something dramatic is what is required.
I've written several times already that the cheapest solution, if you have the money, is to simply move to a more energy-efficient house. That fixes your immediate problem but it does nothing to cure the national one, as the house you have left remains (as a relatively inefficient one, though possibly an improvement for the new owner). So logically we extend this idea so that at a national level many move house (upwards in some energy conservational sense) and at the same time we need to be removing the worst performing houses, causing everyone to move 'up' in some sense – and we have to find ways of paying for this.
A significant rise in domestic energy costs—a year ago gas was ¼ of the cost of electricity per kWh—is expected to work through to the consumer during the year, so that the average (mean, I guess) domestic bill will rise by £700. Which I think means from £1300 to £2000, though I'd like to see the distributions for myself. That still doesn't push one into committing resources into alternative heating methods and there are two responses I deem most likely; either suck it up or turn the heating down / off. But I have long felt that many of us have our houses too warm. I'm sure that we ought not to let ourselves be cold, but that does not require the whole house to be heated. Yes, our kitchen is unwelcomingly cold. I spend a lot of the winter days wearing a hat (indoors) and often, in the hour before the next meal, a coat too. Much as one did in school in China in the winter. Warm is 17º, but I don't need two rooms at that temperature. While most of the increase goes to actually paying for more expensive gas (energy), quite a lot of our increased fuel bill will go towards covering the cost of failed energy suppliers. Quite why this is passed onto customers I fail to understand. The obvious long-term solution is to improve the housing stock (campaign to note, Insulate Britain). But, as [90] says, a nationwide efficiency drive does not appear to be at the top of the UK government’s list of proposed solutions to tackle the energy crisis. The measures taken by the chancellor are a one-off gift of £150, which I think will be recovered through council tax (oh, joy) and a £200 loan to be repaid in bills across the next four or five years. I view that second position as forced borrowing, which I do not like and I will simply increase the direct debit to our supplier to meet their charges.
I recognise that improving house insulation is difficult and exactly one of those things that politicians make noise about but achieve nothing. It is one of those effects where the state expects that the state will fund what amounts to incompetence in handling one's capital. You bought a house which is badly insulated and expensive to run. Part of me wants to ask why it is that anyone else is responsible for your bad choice? Why should the state pick up this bill? We have energy efficiency rating for houses, the EPC, but if you look at house prices, the market does not reflect any recognition that this has importance. That is wrong and has been wrong and should have been nudged to good effect a long time ago. We could set regulation that affects the prices landlords and home-owners perpetuate; I am sure there is a lot more we could do to change the way we view inefficient housing but, instead of pushing up the value of the efficient, we should be lowering the value of the inefficient. We could do that quite easily (I.e at low political cost). For example, providing a (temporary) reduction in (council) tax for succeeding in shifting the EPC up a category – in effect providing a return on the spend incurred.
[91] https://www.carbonbrief.org/analysis-cutting-the-green-crap-has-added-2-5bn-to-uk-energy-bills
[92] https://www.ofgem.gov.uk/news-and-views/blog/how-youre-protected-when-energy-firms-collapse I can see that switching from a failed supplier will often result in paying a higher tariff—that makes sense, the company guessed the market behaviour and the market move scuppered the plan and the company—but I do not see why this generates additional money demand. I can see that the way in which gas is paid for means that the suppliers are paying for the gas in advance of collecting charges and that therefore there is a significant lag in cash flow when the (gas) price rises, in that there could easily be six months to a year's delay in recovering money spent. I can see that this might well incur borrowing charges. I can see that therefore any existing supplier deemed a supplier of last resort (SoLR) will set the 'new' charge to be as high as it can get away with (energy price caps apply) and again that this means that the customer sees a jump in energy price. I still do understand how companies going out of business generates other charges that the customer must pay for; how do we have liability for their failure? Yes, bills will go up, but one has known this for most of a year already (and allowed for it, advancing the direct debit already). Government has made it clear that we will not prop up failing companies – this is not in customers’ interests.
[94] https://www.ons.gov.uk/peoplepopulationandcommunity/housing/articles/energyefficiencyofhousinginenglandandwales/2021. The mean EPC in England is D, at 66, where 68.5 is the boundary between categories D and C. I have several times bought at D/E and sold at C, where B is a target rarely achieved. This house is one such, bought at an EPC of 52 (E) and already at 70 (C) mostly thanks to the solar panels. Nudging that up to B requires cavity insulation (not for Blackpool) or replacing the floors, which is such a significant intrusion it is cheaper by far to give up and move on. But there is the national problem in a nutshell; it should not be that way; there should be sufficient incentive to us (me) to raise the insulation standard up to category B. In the case of this house, which is in a conservation area, that solution, as I see it, requires replacing the floors wholesale so that copious insulation occurs, changing the heating to be in the floor at the same time, and probably lining all the external walls with 100-150mm of insulation, perhaps with triple glazing to the north face. If we were not in a conservation area I'd do the insulation on the outside. I note that the EPC indicates estimated costs, saying ours are over £7k per year. Rubbish, try £2k before the changes we wrought, though the estimates did have the proportional reduction about right. Cost of energy per square metre would be a much better measure for comparing properties. Here, about £6/m²/year in 2022. You could affect such a number by declaring more house as 'outside' or 'buffer space', meaning unheated, like our 'garage' that is 'workshop', or the lobby between the front doors.
[95] https://projects.bre.co.uk/sap2005/pdf/SAP2005.pdf If you want to work out your own EPC, start here. I spent a working day fighting with the form, to produce a reference significantly worse that the EPC from five years ago. A lot of the form works out the energy consumption, when one could look it up on the household bills. For this house the calculation assumes we want nearly 19º as a functional temperature (sorry ,17º in an occupied room and 15º elsewhere would be okay, but it is often more like 9º in the unused rooms) and the calculated heating demand was 45MWh/year, not the 12MWh/yr we actually use. The way I read the form, the end calculation takes the energy consumption, in expected money per year, and divides it by the house area. There are two ways to improve this: (i) reject whole areas of the house as habitable rooms so as to lower the area (ii) dramatically reduce the energy consumption. To move to a category C we need the EPC number (a SAP rating) to be something like 70, which would imply an energy cost factor ([95, table 14] of around 2.1, which in turn requires our total energy cost to be between £700 and £750. That is irrespective of the house design and our usage, simply a function of the house size.
There is a very clear statement in the EPC form that this is about design temperatures, not actual usage. So this means that the energy cost is what the calculations expect, not what one actually uses. I reckon we have the house cold so our usage should be better than the calculation but our paltry energy bills still put us firmly in category E (awful) and, as I calculate above, it needs to be remarkably close to 50% of the current figure on 2021 pricing. Literally, half as much. I do not see how that is possible. To move to EPC category D we would need the energy cost to be between £825 and £1025 so the minimum improvement is to move the energy cost to 70% of its current value.
Let me turn all of that around even more. Suppose you see an opportunity to spend capital so as to reduce your energy costs. Suppose you want a reduction of £1000 per year. Spreading this over ten years implies a £10k spend though we ought to do present value calculations. As I wrote above, spreading a £1000 gain in perpetuity at 5% interest rates is a £20k spend (now) and that is irrespective of inflationary effects. Now wonder what one might do with £20k. So one might say that the house value would go up by <number> if the EPC rating was improved, or to indicate that various attributes imply the house is worth a good deal more when altered to suit. The way the EPC is designed, one ought to move to maximise the effect on the energy calculation, which means looking at where the energy goes or whether one could replace the system with something more effective.
For this sort of money, one should look at a heat pump system. Disregarding the capital now but looking at running costs, a heat pump system runs on electricity and is typically three times as effective as direct electrical heating. Which, as I've written several times, is only worthwhile (switching from gas to electricity) when gas is more than a third of the cost of electricity, something which may have changed. Suppose we accept that this must occur. To make a heat pump effective, the radiators need to do something like double, since the operating temperature is low. That in turn suggests that what one needs is underfloor heating—that makes the floor a big radiator—and one might set the target operating temperature to be something like 25º; this high number is based on experience.
Suppose you do that throughout the ground floor; that involves rethinking the whole floor design (and the design of the whole floor) and, particularly, moving all the services that run under the floor, probably so that they run around the edges, say in the skirting. Yet, in terms of heat losses, the bigger target is the losses through the walls, and in this house that represents more than half of all losses – this is not only the largest component area, it has the worst U-value. Actually, I notice that reducing the house volume would have a similar effect, which might mean dropping ceilings or creating buffer zones, effectively lobbies. I do not see this as practical; it would be a lot less expensive to simply move house and leave the problem to someone else. Again, then, I conclude that the problem is too difficult and too disruptive to fix; in terms of incentive, the cost of energy has to move a long, long way before this is a significant enough proportion of total spend. If we turned over as little as £30k a year and our energy bill was around £2k on 2022 pricing, then I don't see it as sufficiently huge as to justify capital spend. I wonder just what proportion of household bills energy has to represent before one would feel differently. Perhaps everything reduces to marginal spend, how much one has left as disposable income. I'm afraid that I put heating well above the perceived need for connectivity.
DJS 20220301
St David's Day