Scottish Government

EXECUTIVE SUMMARY

Research background and objectives

1. Davis Langdon was commissioned by the Scottish Government ¹ to undertake a research project to establish, for a range of typical dwelling types, the likely capital and lifecycle cost implications of achieving specified EcoHomes ratings and reductions in carbon dioxide (CO ₂) emissions. Underlying the research is the Scottish Government's Purpose and in particular the 'Greener' Strategic Objective of "Improving Scotland's natural built environment and the sustainable use and enjoyment of it". More details of this and other objectives are available at http://www.scotland.gov.uk/About/purposestratobjs.

2. The baseline dwellings were based on recent Scottish social housing schemes, adjusted to ensure compliance with the 2007 Scottish building regulations and with the Housing for Varying Needs standards. The dwelling types included in the study were one and 2 bedroom bungalows, 2 and 3 bedroom houses, and one, 2 and 3 bedroom flats.

Analysis and costing of EcoHomes improvements

3. Whilst in an urban location, all dwelling types comfortably achieve a Pass, in a rural location the baseline houses and bungalows fail to achieve an EcoHomes rating. This is largely due to the location credits which reflect proximity to public transport.

4. The package of measures required to achieve an EcoHomes Very Good rating typically includes sound insulation pre-completion testing, energy efficient internal and external lighting, cycle storage, internal and external recycling bins and internal water consumption reduction measures.

5. The package of measures required to achieve an EcoHomes Excellent rating typically includes sound insulation pre-completion testing, energy efficient internal and external lighting, cycle storage, internal and external recycling bins, internal and external water consumption reduction measures, space and services for a home office, low nitrous oxide (NOx) boilers, and flooring materials of an 'A' rating in the Green Guide to Specification. In some dwelling types it also requires reductions in CO ₂ emissions of 30% or more, and/or rainwater harvesting and/or sustainable drainage systems ( SUDS).

6. Capital costs associated with achieving different EcoHomes ratings are shown in the table overleaf, along with the percentage increases over the baseline capital costs.

Capital cost of EcoHomes ratings

7. The cost of achieving higher EcoHomes ratings is significantly less in the urban locations which can earn transport and location credits. In rural locations it is impossible to achieve an Excellent rating without incorporating 30% CO ₂ reductions for the flats and houses, while for the bungalows, a 60% CO ₂ reduction is necessary. In urban locations there is a significant cost increase from Excellent to Excellent with mandatory CO ₂ reductions.

8. All the flats achieve the required EcoHomes ratings at a lower cost than the houses and bungalows. This is because flats have a higher base score as a result of their greater energy performance and their low floor area to building footprint ratio.

9. For the flats in rural locations, 30% CO ₂ reductions are necessary to achieve an Excellent rating, while for the bungalows, a 60% CO ₂ reduction is necessary. The baseline EcoHomes performance of bungalows is the lowest of all dwelling types due to their reduced energy performance caused by the larger areas of external walls, floors and roof.

10. The ranking of EcoHomes upgrade costs varies depending on whether it is undertaken on a capital or lifecycle cost basis. The capital cost rankings may differ from the 30 or 60 year net present value ( NPV) rankings, for example due to account being taken of energy cost savings over time. However, each shows an exponential trend, where an Excellent rating, mainly due to the necessary energy reduction and water attenuation measures, is significantly more expensive than Good and Very Good ratings.

Analysis of reductions in CO ₂ emissions

11. A number of individual options for improving the CO ₂ emissions of the baseline dwellings were modelled using the Standard Assessment Procedure ( SAP)-based software and the results were used to identify 17 potential grouped improvement scenarios. The choice of scenarios was guided by the likely cost and practicality of achieving the desired savings.

12. The scenarios that achieved the 30% and 60% CO ₂ savings are as shown in the table overleaf:

Identified scenarios for 30% CO ₂ reductions

* % reductions for houses and bungalows only. Fails to achieve target for flats.

Identified scenarios for 60% CO ₂ reductions

* % reductions for houses and bungalows only. Fails to achieve target for flats.

13. Due to the already demanding 2007 energy standards, improvements to insulation levels alone are insufficient to achieve the 30% target. Even with advanced levels of insulation and airtightness levels of 3.0 m ³/m ².h, coupled with a 90% efficient whole house mechanical ventilation with heat recovery ( MVHR) unit to maintain air quality and limit the risk of condensation, the 30% target is not achieved for the flats.

14. Wherever advanced insulation upgrades are modelled it has also been necessary to assume that an airtightness level of 3.0m ³/m ².h will be achieved and consequently to include an MVHR system. Whilst MVHR, or some other equivalent ventilation system, is considered necessary to maintain air quality, it does in some cases have the effect of reducing the CO ₂ reductions beyond the target levels.

15. As the above tables show, it is almost impossible to define a range of improvement options that will precisely meet the target levels of CO ₂ reductions. Indeed, in a number of scenarios, it has been necessary to exceed the target levels by 10-20% in order to define a range of options capable of reaching the minimum threshold.

16. The impact of each improvement scenario varies between the different dwelling types. Bungalows have greater floor and roof areas, therefore improvements to the insulation values for these elements have a relatively greater impact. Conversely, the baseline flats are assumed to be mid-floor in a 4 storey block and therefore have no exposed floors or roofs. As a result, the fabric insulation upgrades have a lesser effect on these dwelling types than on the houses and bungalows.

17. With regard to low carbon technologies, greater CO ₂ reductions are often achieved with the flats than with the other dwelling types. This is due in part to the greater impact of heat generation plant relative to insulation in the flats, and also due to the efficiencies that can be achieved through the use of centralised plant serving a number of dwellings.

18. The most cost effective scenarios for achieving 30% CO ₂ reductions are intermediate insulation plus low and high capacity communal wind turbines, both of which add between 2.3% and 4.3% to the capital costs. This equates to £2000 - £2500 for the flats, £3700 - £4400 for the bungalows and £4000 - £4500 for the houses. These are also the lowest cost options in relation to the NPV of the cost increase over 30 and 60 years.

19. For the 60% improvements, the lowest capital cost options are advanced insulation with MVHR and intermediate fabric upgrade plus biomass boiler (options 13 and 16). These options add between 6.3 % and 9.3% in capital cost. This equates to £5700 - £7300 for the flats, £8000 - £9600 for the bungalows and £8500 - £10,200 for the houses. Option 13 is also the lowest cost option in relation to the NPV of the cost increase over 30 and 60 years.

20. None of the 30% options add more than 10% to the capital costs or more than 7.1% to the 30 and 60 year NPVs. None of the 60% options add more than 16% to the capital costs or more than 15% to the 30 and 60 year NPVs.

21. The capital costs of the cheapest options for achieving the 60% CO ₂ improvements are approximately double those of achieving the 30% improvements.

22. None of the renewable heat or microgeneration technologies generates a net cost saving over 30 or 60 year periods at retail price index ( RPI) plus 1%. Some technologies generate net cost savings using higher fuel cost growth assumptions. Their use could also be considered on the grounds of reductions in CO ₂ emissions.

23. It should be noted that the modelled energy performance for all the baseline dwellings used in this study is slightly better than the 2007 Technical Handbooks guidance, with the Dwelling Emissions Rates ( DER) being slightly less than the Target Emissions Rates ( TER), because the baseline dwellings reflect current social housing practice (i.e. combi-boilers rather than system boilers). It is therefore probable that some of the scenarios will slightly underestimate the necessary improvements relative to the 2007 Technical Handbooks.

Reductions in CO ₂ v energy consumption

24. Whilst the focus of this study has been to identify options for achieving CO ₂ reductions, it is recognised that there is not necessarily a direct correlation between reductions in CO ₂ emissions and reductions in energy consumption. Indeed, some solutions such as biomass can result in increases in energy consumption due to relative inefficiencies in converting the fuel to heat compared to gas, which is a highly efficient fuel. Further research into the effects of the proposed CO ₂ reduction options on energy consumption levels is recommended.

Savings in tenant energy costs

25. The improvement scenarios all generate savings in the annual energy costs for tenants, albeit at a level that would take many years to pay back the initial capital investment. The energy cost saving could potentially be reflected in increased rental levels to offset the additional costs to registered social landlords ( RSLs). The pay-back periods for the additional expenditure are considerable, but should annual energy prices rise in excess of RPI, the pay-back periods would be significantly reduced. We therefore recommend further analysis to establish the pay-back periods for each scenario under various energy price inflation assumptions.

Impact of dwelling location

26. The baseline dwellings for this report assume the availability of mains gas. For rural areas without access to mains gas it is assumed that the heating and hot water system will use liquid petroleum gas ( LPG). Substituting mains gas with LPG results in a higher TER, but has little effect on the percentage CO ₂ reductions achieved through the scenarios modelled. We are satisfied that the key CO ₂ reductions findings for this study are equally applicable to rural locations with no access to mains gas, as they are to urban locations. However, LPG is significantly more expensive than mains gas. We recommend further comparisons based on oil and electricity, which are also widely used in areas that are not served by the gas grid.

Impact of dwelling occupancy levels

27. For the majority of scenarios the level of occupancy has very little or no effect on the modelling results. We have not therefore modelled different occupancy levels as part of our analysis.

Recommendations

28. The key recommendations from this study are as follows:

• In urban locations it is possible to achieve an EcoHomes Excellent rating without implementing any CO ₂ reduction measures.
  
  
• There is not necessarily a direct correlation between reductions in CO ₂ emissions and reductions in energy consumption. Further research into this relationship is recommended.
• The CO ₂ improvement scenarios all generate savings in the annual energy costs for tenants, albeit at a level that would take many years to pay back the initial capital investment. The energy cost saving could potentially be reflected in increased rental levels to offset the additional costs to RSLs. The pay-back periods for the additional expenditure are considerable, but should annual energy prices rise in excess of the RPI, the pay-back periods would be significantly reduced. We therefore recommend further analysis to establish the pay-back periods for each scenario under various energy price inflation assumptions.
  
• Further analysis should also be carried out of the impact of rural housing where the heating is powered by electricity or LPG, both of which are significantly more costly than mains gas. This price differential is likely to generate shorter pay-back periods for the cost of fuel efficient and micro-generation technologies.
• The assessment of EcoHomes and CO ₂ improvements on a lifecycle cost basis has had little impact on the findings of this study due to the long pay-back periods for most improvement options. However, should fuel prices continue to rise in excess of RPI, pay-back periods will reduce significantly and a lifecycle costing approach will demonstrate clearer findings. We therefore support the use of lifecycle costing in the investment option appraisal process.
• When assessing lifecycle costs there appears to be little benefit to be gained from assessing the NPV of EcoHomes or CO ₂ improvement options over a 60 year period rather than a 30 year period. Many of the improvement options considered in this study have a design life of significantly less than 60 years. There is also considerable uncertainty in predicting lifecycle costs over a 60 year period. We therefore recommend that a maximum 30 year appraisal period is used for lifecycle cost analysis of this type. It should be noted, however, that the design life of dwellings will be considerably greater than 30 years. When assessing the 30 year lifecycle costs of dwellings it would be appropriate to include a residual value factor in the calculations.