Landlords and Tenants will feel the pressure to improve their energy efficiency with new building standards set to change from EPC-E to EPC-B. Small and Medium-size Enterprises (SMEs) make up more than 99% of businesses in the UK, 60% of employment, 50% of private sector turnover (£2.3 trillion) and 50% of commercial emissions. A lack of non-domestic smart meter access as well as an uncommitted group of SMEs is hindering development in innovative energy efficiency solutions. These businesses will need to find ways to improve their approach to sustainability and utilising renewable energy through various legal means and agreements, relying on Smart Energy Services or innovative business models in order to cut their energy costs and carbon emissions.

Landlords and SMEs – The issues they face

85% of rental properties will need to improve energy efficiency by 2030 or Landlords will be prohibited from leasing out buildings. However, these Landlords are quite often not very forthcoming or open to invest in energy saving measures because the Tenant will receive the financial benefit; such benefits being lower energy bills for instance. In addition, a new report recognising the findings from the Boosting Access for SMEs to Energy Efficiency (BASEE) programme has found convincing opportunities for innovation in supplying smart energy services to SMEs.

At present, there is a debate for the Minimum Energy Efficiency Standards for commercial rented buildings to rise from Energy Performance Certificate rating EPC-E to EPC-B by 2030. Despite the strong incentive of saving costs, the BASEE project identified that only a minority of Landlords or SMEs had invested in making the energy efficiency of their properties better; some Lease agreements even limited the actions a Tenant could perform. What’s more, access to cheaper finance is also limited as giving loans to SMEs is fundamentally more dangerous due to their weaker credit ratings and uncertain business longevity. There are also no standards or requirements to guarantee quality control for non-domestic energy efficiency along with the fact that the quality varying between providers and installations is not always subject to due diligence procedures.

The Challenge for Developers

The BASEE project found that a large proportion of developers making energy services for SMEs needed smart meters. However, only 12% (or around 167,000 out of 1.4 million) of non-domestic properties even had smart meters. With information on deployment rates across certain areas or geographic locations being unobtainable, developers have also had difficulties with getting information regarding which businesses belonged to that 12%. This means that essential services cannot be chosen or clients being used for trials to improve schemes cannot be located. Similarly, the cost of creating smart energy services for individual SMEs, which could comprise of site surveys, engineering designs & performance verification, frequently damages the commercial viability of plans.

Current Energy Service Providers

While there is a market of current energy service providers such energy brokers and energy suppliers, they usually focus their attention to schemes at clients of larger businesses. These schemes normally have compulsory regulatory requirements such as Energy Savings Opportunity Schemes. Furthermore, nearly every system that is utilised by energy suppliers and energy brokers rewards greater consumption of energy and does not incentivise clients to save energy instead.

Solutions for Improvement

Legal Agreements

The use of Green Leases can offer a more climate-progressive legal approach. Green Leases promote collaboration between Landlords and Tenants with key principles like energy consumption data sharing or more progressive joint investment strategies. A greater use and standardisation of such Lease agreements would quicken the decarbonisation of the privately rented non-domestic building stock. Green Leases also have additional provisions that impose obligations on Landlords and Tenants to control and moderate the environmental impact of a property through various improvements.

Additionally, a more flexible alternative to Green Leases is a Memorandum of Understanding. This is an agreement entered into between Landlords and Tenants that states how the environmental impact of the property should be managed. A Memorandum of Understanding is not legally binding; however, it is simpler to update and amend than a Lease. Therefore, it is generally seen as a faster method for agreeing environmental objectives between the parties.

Smart Energy Services

Smart energy services give SMEs more financial certainty with regards to things like energy bills, investment returns and payback periods for energy efficiency measures. These services can identify fast and easy energy saving measures – such as systems calibration or behavioural measures – and may provide additional revenues like proposing Demand Side Response for flexibility markets. Service providers should also use more live energy statistics to provide better schemes for SMEs that improve client relationships and credibility.

Business Models

The use of innovative business models can also help to bring smarter energy services to SMEs. This can be done through means such as: specific tariffs that correspond with a client’s needs on cost or carbon; integrated data-driven energy efficiency projects, including installation and finance; optimisation services with access to behind the meter resources that provide flexibility services.

Energy services must be simple to understand, access and focus on the benefits. Furthermore, combining SMEs to expand services and lower the price to serve for each individual SME can help to reach economies of scale. This would offer cheaper access to energy supply contracts, energy efficiency installations, low carbon technology and finance.

Conclusion

Finding ways to cut costs and take advantage of a great return of investment are essential to a successful business. Renewable energy can cut down a business’ energy costs in the long term as well as offer an easier solution to their utility needs. While Landlords and Tenants may be apprehensive at first to adopt or adapt to greener methods in a commercial setting, there may eventually be a need to do so and in time they will see the benefits of taking ownership of such methods.