In 2019, the UK became the first major global economy to commit to achieve Net Zero by 2050 (a 100% reduction in greenhouse gas emissions against 1990 levels). But achieving Net Zero requires a step-change in the way we heat our homes and buildings, and this presents significant challenges for owners, developers and landlords.
Scale of the challenge
The heating sector in the UK accounts for around a third of the UK's annual carbon footprint. In 2019, around 17% of all heating emissions came from homes. Natural gas remains the dominant energy source for the residential sector (with 86% of homes using natural gas boilers) and commercial and industrial heating also relies on gas. Shifting the UK away from gas creates practical issues. Changes to building regulations will ensure that new homes and buildings are Net Zero ready, retrofitting existing homes and buildings will be costly and will place additional demands on our electricity grid..
The UK housing and building stock presents a challenge in itself. With such a diverse mix of sizes, ages, fabric, and varying historical and architectural interest – there isn't going to be a "one size fits all" solution. Options for decarbonising heating will need to be assessed on property architype and location, with the primary solutions focused on the electrification of heating (using heat pumps), connection to heat networks, direct electric heating and (potentially) hydrogen fuel.
New Build and Retrofit
For new-build properties, a combination of new requirements to build to world-leading fabric standards and install low-carbon technology will help deliver properties that are net-zero ready (needing no further retrofit) from 2025 onwards. The recent interim changes to Building Regulations: Part L and the upcoming Future Homes Standard and Future Buildings Standard will deliver a step-change in the way we design and construct buildings.
The real challenge is for the approach to existing buildings. Every home and building built under current Building Regulations will require further retrofit to bring it up to Net Zero standards. That will include removing gas boilers and installing alternative heating sources (most likely electric heat pumps) and carrying out other fabric upgrades. Although the benefits are clear (in terms of reduced energy demand and improved performance), technical challenges and funding gaps remain as barriers to implementation.
We advise on all aspects of heat decarbonisation projects. This includes legal support in developing energy strategies, advice on landlord and tenant issues, and wider advice on grant funded and financed routes, procurement, construction and operation and maintenance arrangements. Our experience covers the full range of contractual approaches, including district heating concessions and heat network connections, financed energy performance contracts and innovative 'energy as a service' cost recovery structures.
Achieving Net Zero will likely require a mix of low-carbon heating solutions. Heat networks form a large part of the Government's strategy, particularly for high density areas. There is continued support for the feasibility, design and development of heat networks which includes supporting low carbon heat networks through the Green Heat Network Fund. The forthcoming regulation of the heat sector will accelerate this transition, giving licenced ESCOs equivalent rights to other regulated utilities. Heat Network Zoning will also transform the development of heat networks in urban areas, with the requirement to connect buildings within certain timescales making it easier to develop city-wide district networks.
We regularly review and negotiate concession agreements, connection agreements, energy centre leases and supply agreements with established ESCO providers, including SSE, E.ON, Equans (formerly Engie), Metropolitan, Vattenfall, Pinnacle and Veolia. We also advise new entrants to the market (including local authorities, developer JVs and social landlords) covering advice on corporate structuring, risk analysis, funder agreements and contract documentation.
As the market develops, we are at the forefront of changes in the contractual approaches. That includes giving clients advice on utility-style models for heat infrastructure, ambient loops, geothermal, ground source and river based systems, and the interface between supply agreements and leases.
Impact of regulatory change
As we transition to low-carbon heating and a regulated heat sector, tracking Government policy and changing legislation is essential to navigate the regulatory landscape, mitigate potential risks and benefit from potential grant funding.
We bring together lawyers from across the business to provide seamless advice on the delivery of low carbon heating. We understand the importance of properly joined up thinking on property structures, landlord and tenant issues and delivery contracts. Working with commercial and technical consultants, we help guide clients through the changing heat market.
We advise a range of clients including master developers, plot developers, landlords and ESCO providers. That includes early advice on risk management and regulatory issues, procurement, landlord and tenant issues and drafting and negotiating contracts. We also work closely with property colleagues to address wider public realm issues, access arrangements and flow-down of obligations into leases and freehold transfers.
What it will help you to achieve
In a rapidly changing market, it is essential to pick an experienced adviser that understands the key risks and helps maximise the opportunities. Early advice from experienced lawyers will help you navigate regulatory issues, procure a suitable partner and deliver low-carbon heating for your development.