Martin Lawson, Head of Impact and Innovation at Resonance, has been leading the development of “Project Breathe”. In this blog, he explains the project's aim of piloting ‘a just transition for low-income households to low-carbon living’ and how this can be achieved, and the impact this will have on the tenants housed by our seven property funds and beyond…

The Need

Many private and social landlords providing low-cost accommodation for low-income households are struggling to meet the regulatory target set by the government, which is that all properties achieve Energy Performance Certificates (EPC) of C or above – by 2025 for newly rented properties, and by 2028 for those already tenanted. EPC ratings give a property an energy efficiency rating from A (most efficient) to G (least efficient) and contain information about a property’s energy usage and typical energy costs.

Improving the energy performance of a home benefits the occupier through lower energy bills, which is particularly significant to lower-income households who usually must pay a poverty premium for energy. However, neither the value of the property nor its rental income increases with any upgrades to energy performance, so there is little incentive for a landlord to make such improvements.

The need to address this issue is enormous, both in the UK and globally, and it is a key consideration in relation to our own seven property funds. Resonance has over 1,000 homes (the vast majority of which are rated EPC C and above). These properties are leased to over twenty specialised housing partners that provide a vital lifeline for many people facing housing crisis. Resonance estimates that there is a £20,000 funding gap per home to transition these properties to our ambitious low-carbon standards. If we were to make these improvements to our current housing stock, we would need an additional £20m in order to fit the necessary equipment to meet our net-zero targets. However, if we take into consideration that by 2030, Resonance has the ambition to have acquired 5,000 homes for people at risk of homelessness, we will need additional investment of £100m to meet our targets. This starkly highlights the scale of the issue, and is replicated across the vast majority of private rented sector and social housing landlords.  Finding solutions that would work across the sector would have a significant impact.

THE SOLUTION

The technical solutions are:

1) Landlords and social housing providers must start with a ‘fabric first’ approach, prioritising the energy efficiency of a property from its initial development process, before seeking help from elsewhere. In effect this means looking at the walls, roofs, floors, windows and doors to make improvements in energy efficiently, before considering any additional mechanical or electrical systems.

2) Domestic heating accounts for around 14% of UK emissions (1). To achieve net-zero emissions targets, analysis by the Committee on Climate Change suggests we need to ‘decarbonise all heat’ in buildings (2). This is achieved through the electrification of heating using a combination of heat recovery ventilation, air source heat pumps as well as other technology as it matures. 

3) Actively engaging with the grid by using smart meters, batteries and where possible, solar PV or other local/community generation.

THE ECONOMICS ARE COMPELLING

A £20,000 investment into low-carbon equipment, in theory, should be able to reduce energy costs from c. £2,500 per year to £1,500 per year at current prices (Jan-Mar 2023). The equipment typically has a twenty-year lifespan, ignoring inflation, the savings could pay for themselves and still deliver important meaningful bill savings for tenants. However, the cost of capital, inflation, market volatility and supply chain challenges, ultimately prevent investment from flowing, especially if a return on capital is required.

The challenge Resonance faces by taking on ‘Project Breathe’, is to develop and deliver a combined technical and financial solution that works for all parties involved.

PROJECT OUTLINE

The first step to deliver ‘Project Breathe’ involves piloting the project on a few preliminary properties, so that we can demonstrate the benefits of low-carbon homes and the positive impacts this can have on low-income tenants, such as:

·       Reduced and more predictable energy bills

·       Improved home air quality, improving the health of tenants

·       Carbon reduction having a positive impact on our environment

·       Grid benefits through active grid management 

·       Supply chain efficiencies through economies of scale

Resonance is partnering with Sero to trial a mechanism of sharing in the savings of energy reduction for tenants. This would work like this:

- The initial capital can be recouped over time as part of the energy charge;

- It uses a ‘comfort’- based charging approach, delivering consistent comfort and stable, lower, energy bills for tenants. 

Effectively, the partnership allows for an integrated low-carbon solution that delivers ‘comfort-as-a-service’ to tenants on a small number of retrofit homes, as well as running a control group alongside the pilot properties to validate performance.

The preliminary properties will most importantly address issues of generation, insulation, ventilation, heating and financial services, and solutions that support a retrofit process, in a way that meets the needs of tenants, housing partners and investors.

Resonance and Sero will benefit from a Knowledge Transfer Partnership programme to deepen understanding and integrate tax-efficient capital recovery for the investor. Resonance also aims to develop an approach that better aligns capital, revenue, and the financing costs of the project. 

The pilot programme will be across Resonance’s own housing stock, along with those of other housing partners. This will ensure that the trial provides a realistic and available base of tenanted properties that accurately reflect the housing available to low-income tenants.

Sero will support Resonance to integrate any technology, energy, and performance within the properties in a way that creates dynamically controllable systems, locally or remotely, that maximise the efficient use of energy for heating and ventilation to provide tenants with a healthy environment. Trialling mix of heat recovery ventilation, generation, and storage for both heat and electricity, will allow the tailoring of solutions to both specific properties and the individual needs of the tenant.

NEXT STEPS

Phase One: The initial pilot will be running over an eighteen-month period. The aim is to attract up to £250,000 of grant funds. The funds will be broken down into £200,000 for capital equipment and £50,000 for learning and development. Resonance currently has £50,000 raised for capital equipment, so an additional £200,000 of capital is required to launch the pilot project.

Phase Two: To develop a more advanced and deeper pilot project using learnings from Phase One. The goal is to raise a further £1m in the form of grant money and interest-free loans.

Phase Three: Subject to the success of the programme, Resonance will be looking to unlock £20m+ in a fund, using income streams from capital recovery through tenants’ bills for ‘comfort’, government grants, tax reliefs and carbon credits to achieve the necessary capital for the scale required. 

FOR PARTNERS

Phase one development will allow Resonance to test the technologies, financing and structures needed to progress a longer-term project with the goal of creating a wider positive social and financial impact for those most affected by the UK cost of living crisis, namely low-income tenants. Resonance intends to work closely with investors and housing partners to share progress, learnings, and expertise to co-create solutions that will work for all parties involved long term.

If you would like to know more about ‘B, please continue the conversation by emailing Resonance at: [email protected]

(1) Institute for Government

(2) A Guide to Decarbonisation of Heat