Election fever – climate boiling point?

Renewable energised

First and foremost, the Labour party manifesto set out a clear desire to decarbonise the UK’s grid by 2030 to battle climate change, enhance energy security and reduce household costs. In 2023, renewables accounted for a record 47.3% of all electricity generated in the UK, from 41.9% in 2022, with offshore wind accounting for 17.4%, nuclear 14.2%, onshore wind 11.4% and solar 4.8%.

Doubling down on these technologies form the heart of the decarbonisation plan, which includes:

-??????? doubling onshore wind capacity to 35GW,

-??????? tripling solar photovoltaics (PV) power to 50GW, and

-??????? quadrupling offshore wind to 55GW.

This is no small feat. Capacity of onshore wind, offshore wind and solar PV will need to grow by 12%, 21% and 17% respectively if this is to be achieved - two to four times the rate of the past five years (see table below). The government has appointed Chris Stark, previous head of the Climate Change Committee, to lead these efforts.

Our Solar Power Report highlights the possibilities of utilising grey space, by expanding solar installations to rooftops and car parks, which will help to boost capacity and offer property owners ancillary income and tenant appeal through clean energy.

Renewable growth

With current connection dates for some new schemes already stretching into the 2030s, this could be one of the most significant barriers. Labour’s manifesto pledges 'to work with industry to upgrade … national transmission infrastructure and rewire Britain.' Yet, as David Goatman global head of energy, sustainability, and natural resources at Knight Frank, highlights, "the immediate issue sits with planning".

Analysis of the Renewable Energy Planning Database (REPD) shows a shortfall in meeting targets even if all current projects are completed.

Where are the pinch points and prospects? Analysis by James Pryor finds that of the 152 Local Planning Authorities (LPA) where more than 10 solar applications have gone through, a third have approved all, with 60% approving more than eight in ten. None have rejected all at this level (see map below).

Green Finance capital of the world

The UK is already seeking to make a mark on green finance with the Green Finance Strategy set out in 2023. The government-backed?Green Finance Institute?(GFI), formed in 2019, partnered with UK financial firms, including Aviva Plc and M&G Plc, to develop investment vehicles to accelerate Britain's efforts to reach net-zero emissions.

To further aid the energy transition and broader net zero goals, Labour will mandate UK-regulated financial institutions to develop and implement credible transition plans that align with the 1.5°C goal of the Paris Agreement.

For property, this could mean enhanced ESG due diligence on lending and stricter criteria, as well as financial repercussions for inefficient assets. On the flip side, as Lisa Attenborough , Knight Frank's head of debt advisory, points out, "We could see more lenders raising ESG-specific funds which are competitively priced to advance decarbonisation. For lenders, there are several potential benefits in doing this”. Those benefits include lower risk and enhanced property value.

Energy efficiency light on detail

Labour plans to reverse the loosening of energy efficiency standards in the private rental sector (PRS) announced in September 2023. Whilst the pledge is to ensure homes in the private rented sector meet minimum energy efficiency standards (MEES) by 2030, whether that is EPC C remains to be seen. More than half of the residential stock in England is below EPC C including more than three million homes in the PRS.

Perhaps to aid this, Labour has pledged to invest an extra ￡6.6 billion over the next parliament, to upgrade five million homes. The Warm Homes Plan will offer grants and low interest loans to support investment in insulation and other improvements such as solar panels, batteries and low carbon heating to cut bills. However, this is some way short of the ￡64 billion the UKGBC has estimated? is needed over 10 years as part of a long-term strategy.

The prospect of future environmental regulations is having a stronger influence on residential buyer decisions. In total, a quarter of respondents to our latest sentiment survey said that this was the main factor driving them to buy a more energy efficient home, up from 20% two years' ago. In addition, new-builds are becoming of greater interest due to better energy efficiency credentials. Overall, a fifth said they were looking for a new-build home, up from 13% for the three consecutive prior years. Of those, the majority (over 60%) said energy efficiency was the key reason why.

What was not mentioned in the Labour manifesto regarding inefficient properties was the non-domestic sector. Some 70% of commercial floorspace is below the previously proposed minimum of EPC B. Whilst many in the industry have begun looking at efficiency improvements due to mooted MEES, there are several other factors at play such as: the increase in disclosure requirements remain (around 40% of respondents to our?ESG Property Investor Survey?require EU Taxonomy compliance with acquisitions); net zero targets; and occupier requirements. In addition, the above cited financial institution policies could add more impetus. However, certainty and clear direction is required to drive major investment at pace to tackle climate emissions in one of the largest contributing sectors.

What about France?

Europe is one of the most advanced in terms of legislation and clear climate focused policies – just this year we have seen the updated European Performance of Buildings Directive (setting minimum standards), Corporate Sustainability Due Diligence (which mandates companies to create transition plans requiring them to document actual emissions reductions) and Nature Restoration Law (to restore at least 20% of the EU's land and sea areas by 2030). Yet, the European parliament elections saw losses for green parties calling into question the future direction of policy.

The biggest immediate consequence however was to set in motion a surprise legislative French election. In the first round of voting, the National Rally (RN) took the lead yet with some tactical candidate reshuffling, the second round saw the left-wing New Popular Front (NPF) became the largest party, falling short of an absolute majority, with Emmanuel Macron’s party, Ensemble, coming in second.

I have often written about France for its forward-thinking climate policies, such as solar on car parks or circular economy laws. The RN’s shift to third after the second round could be seen as good news for the green agenda as previously they have pledged to halt the development of wind power, remove the planned ban on the sale of internal combustion engines from 2035 and loosen housing-renovation requirements. The NPF aims to boost green measures, including legislating for carbon neutrality by 2050.

It is not yet clear who will form a government and what policies will follow, so watch this space.

Affordable housing for social impact

The continued supply and demand imbalance of housing across all tenures is evident and is particularly acute in affordable housing. There are currently 1.2 million households on social housing waiting lists in England unable to afford private rents or access home ownership, government figures show. Last year, less than half of the 145,000 new affordable homes required, as estimated by National Housing Federation (NHF), were delivered. Even as Labour pledge to 'deliver the biggest increase in social and affordable housebuilding in a generation' it is likely that institutional capital will be increasingly required to help plug the delivery gap. ESG performance is a key driver for this investment in the sector, according to our survey. The ability to deliver social impact with long-term income and inflation-hedging characteristics has meant a tripling in the number of for-profit registered providers over the past decade.

The lack of subsidies/grants and price expectations remain the biggest challenges. The incoming government will need to enhance this, and we will watch for further detail on their plans for the sector. For the full report from Oliver Knight and survey results read the report here.

Stat of the month – 8%

Nicola R. , senior ESG analyst, shares her favourite stat of the month.

“The last election, in 2019, was billed as the net zero election, but in last week’s it was clear the focus and impetus has shifted. The word 'climate' appeared in only 8% of 2024 election articles, compared to 17% in 2019. Similarly, 'climate change' was mentioned in just 2% of articles, down from 10% in the previous election. Before the election, the incoming government watered down their ￡28 billion green plan yet the manifesto provided some promising direction, as highlighted above, particularly for renewable energy.”

What else I am reading

ISO - International Organization for Standardization to launch global net zero standard, over the Atlantic and Mexico elected the 'most scientifically experienced climate premier in history', ?Value creation is the primary driver for sustainability strategies, a 1°C increase in global temperature leads to a 12% decline in world GDP, Denmark to impose carbon tax on farmers.

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