Cynulliad Cenedlaethol Cymru

Yn ôl i Chwilio

Y Pwyllgor Newid Hinsawdd, Amgylchedd a Materion Gwledig

Climate Change, Environment and Rural Affairs Committee

28/02/2018

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Dai Lloyd AC
David Melding AC
Dawn Bowden AC
Gareth Bennett AC
Joyce Watson AC
Mike Hedges AC Cadeirydd y Pwyllgor
Committee Chair
Simon Thomas AC

Y rhai eraill a oedd yn bresennol

Others in Attendance

Alex Rathmell Pennaeth Datblygu Marchnad y DU, National Energy Foundation
Head of UK Market Development, National Energy Foundation
James Williams Cyfarwyddwr, Sero Homes
Director, Sero Homes
Jon Bootland Prif Weithredwr, Ymddiriedolaeth Passivhaus
Chief Executive, Passivhaus Trust

Swyddogion Cynulliad Cenedlaethol Cymru a oedd yn bresennol

National Assembly for Wales Officials in Attendance

Chloe Corbyn Ymchwilydd
Researcher
Marc Wyn Jones Clerc
Clerk
Martha Da Gama Howells Ail Glerc
Second Clerk

Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.

The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.

Dechreuodd y cyfarfod am 09:30.

The meeting began at 09:30.

1. Cyflwyniad, ymddiheuriadau, dirprwyon a datgan buddiannau
1. Introductions, apologies, substitutions and declarations of interest

Can I welcome Members to the meeting? Can I remind you to set mobile phones to 'silent' and turn off any other electronic equipment that may interfere with the broadcasting equipment?

Are there any interests to declare? No.

Can I pass on the apologies of Jayne Bryant because she's unwell?

2. Ymchwiliad i 'Tai carbon isel: yr her' - y bedwaredd sesiwn dystiolaeth
2. Inquiry into 'Low carbon housing: the challenge' - fourth evidence session

Good morning. Can I welcome you to the committee? Would it be possible for you to give your names and job titles for the Record? Are there any short opening statements you wish to make or can we go straight to questions?

I'm Jon Bootland. I'm the chief executive of the Passivhaus Trust. I'm happy to go straight to questions.

James Williams. I am a director at Sero Homes. I'm also happy to go straight to questions.

Okay. In that case, I'll start the questions. The majority of people the committee has heard from have suggested that zero carbon in operation should be the low-carbon housing standard that Wales is aiming for. What's your view on this?

I know that we've actually talked about energy-positive being a standard, but I think that what Wales needs to do is decide on a metric—be that energy or carbon—and then set a target to reduce either one of those metrics. The solution may be similar, but actually the focus slightly different depending on which metric we decide to aim for. Then, underneath that, that will allow a number of different approaches, be that a home that generates at least as much energy as it uses across the entire annual cycle or one that's got a super-insulated building fabric. But setting the metric and the level of reduction will allow essentially the market to decide the solution, and people will want a certain type of solution. Maybe we don't know what that is yet for the mass market.

I think I'm completely in agreement with James, actually. Breaking it down into the two component parts, we think that the in-operation part is excellent. It is a great aspiration for you to set. The zero-carbon thing we think is slightly more tricky with regard to what you mean exactly by that definition. We would rather you didn't have to get bogged down in trying to define 'zero', which has taken six or more years in England and across the UK from the English Government. So, to set a target that you are happy with that doesn't have to be absolutely zero and then have a direction of travel towards that we think is maybe a good way forward. Zero carbon might be your long-term aspiration, but don't get bogged down in having to try and set a definition. Just set something that you're comfortable with that is achievable in the very near-term future. That's our view.

We've heard evidence from the Royal Society of Architects in Wales arguing, or suggesting that it might be the case that—and I quote from the briefing:

'rather than seeking to achieve the ultimate standard in the relatively small number of new-build homes, the ambition in Wales should focus on diffusing the effort across a wider number of homes in order to achieve maximum benefit'.

So, what I'm really going to ask you is: do you agree with that statement?

09:35

Shall I go first this time? Great. So, on the new build side, it depends exactly on what you mean by the ultimate standard. So, to go to zero—all the way to zero—straight away might be too much of a step, and to go to a level that everybody can achieve within two or three years, that might be more sensible, but it's close to an ultimate standard. It's very close. The difference is very small. On the existing homes, that is a different equation, and to go to an ultimate standard of zero carbon, or even Passivhaus, on all existing homes is almost impossible at the moment I think—we think. So, therefore, taking a stepped approach on retrofit on a broader front might be sensible. If you're doing that, then we would say you should have the end goal in mind. You ought to have a plan for the whole building for the whole house as to how you're going to get to the end goal, and make sure that the steps help you get to that end goal and don't block you off from getting to that end goal eventually. So, you don't want to go in once and then that stops you from making further improvement at a later date.

I completely agree with what Jon's saying. I think that having that longer term target is important. With setting up a standard or a target now, I very much believe that we should be essentially setting a target now as a gold-plated standard that potentially unlocks other incentives that allow it to happen whilst the rest of the market works towards that longer term goal.

Diolch yn fawr, Gadeirydd.

Diolch am eich presenoldeb yma heddiw. A allaf i jyst gofyn, o gofio bod 84 y cant o gartrefi Cymru naill ai'n perthyn i'r deiliad neu'n cael eu rhentu oddi wrth landlordiaid yn y sector breifat—landlordiaid preifat, felly—beth ydy'r ffordd orau, yn eich barn chi, i Lywodraeth Cymru helpu i bontio tuag at dai sy'n effeithlon iawn o ran ynni yn y sectorau yma?

Thank you very much, Chair.

Thank you for your attendance with us this morning. May I just ask, bearing in mind that 84 per cent of homes in Wales are either owner-occupied or rented from a private landlord, what do you think is the best way for the Welsh Government to support a transition to highly energy-efficient housing in these sectors?

You'll have to guess the question from the answer now. [Laughter.]

I'm going to possibly repeat myself a little bit, actually, from the previous question. When we work out what we think the target should be, finding a way now to say, 'Yes, these homes achieve that target', but allowing developers to potentially access incentives—. So, things such as public land could play a role and the continuation of programmes like the Innovative Housing programme. I know that that's currently testing a number of solutions, but I think, accepting that even though it may have been proven in a previous round of that programme, it's still innovative in the market. So, continuing capital grant schemes like that.

Also, there is the cost of borrowing, potentially. There are ways to incentivise borrowing, maybe through the Development Bank of Wales. There is expedited planning as well and potentially how we view marginal sites. I think we need to recognise that these homes have an environmental benefit, they have a social benefit, they have health benefits, and achieving that target should essentially allow developers almost a fast track through the planning process in order to achieve that. All of this will take cost out of the system and reduce the burden of the over-cost now, and allow the market to get momentum in these initial years against a target, say, in two or three years' time. But it means that, when regulation does change, the market's got momentum. 

09:40

I've got a similar view, but I'm taking this as an existing stock question rather than as a new-build question. The same process should apply in both cases, we think. The target needs to be set and we think it should be a whole-house target. So, not just an energy target, but it should look at the comfort and the health questions as well, because we've seen the problems that can happen if that isn't done, such as in the Arbed project as a Welsh project. And then, once the target and the commitment to a timescale of achieving that target is set, then the incentives come into play that might be different for new build than for existing stock, I think.  But the key differential will be the commitment to achieving the stepped changes over time, so in the market point of sale of homes or of change of lease, market will reflect the change in values. So, the EPC bands at the minute are used as that stepped change process, and if you know that it's going to change in five years' time, if you're a landlord or you're a house owner and if you're planning to sell, you'll know that if you don't make these improvements at the point of sale, the market will discount the value of your home or the landlord's home at that point. So, there's timed implementation and an absolute commitment—a cross-party commitment—to that over time, we think. 

Could I just add that I think we really need to level the playing field? Let's assume that we find a way to do that, then we need to recognise the affordability, actually, of these homes as well. So, if we're looking at an energy saving, essentially—an energy cost saving—just for an example, if a development is 30 per cent affordable homes and there's a 20 per cent saving, say, on that 30 per cent, then that development's got a net 6 per cent saving. But if the entire development has a 10 per cent saving through energy costs, then it's almost double the benefit. And finding a way to level the playing field for the over-cost in such time that the market reduces that over-cost and scale brings them more in line with each other—we're talking traditional, business-as-usual approach—then there's an affordability here as well with energy. But current policy doesn't really reflect energy costs as part of the affordability calculation. 

Thank you. Just one very brief point, of course, is that, in large parts of Wales, a large proportion—in some places almost most of it—is pre twentieth century. Are there any particular problems relating to that? It's old stone houses built in terraces that Dawn from Rhondda and I from Swansea East recognise as the standard sort of accommodation through a large part of our constituencies.  

There are solutions for those properties now in retrofit. Talking from a technology perspective, the scale of the problem from a capital point of view is just greater, I think. Take a traditionally built new build now. You potentially save—. If you put something on the roof, you tend to save the cost of the roof, but what we do need to be mindful of is that if there is a, say, re-roofing programme going on, there are certainly options to look at in retrofit that could dramatically reduce the energy consumption. 

From our point of view, that comes back to this need for the whole-house plan rather than just an energy target. So, traditional buildings pre-1920s, 1930s, I think 35 per cent of your stock in Wales are of that type, and they are breathable structures. So, if non-breathable insulation is used to improve the fabric performance, that will almost certainly lead to significant health risks and building fabric risks as well. So, it's important that the target has other considerations attached to it, not just an energy target, in our view.  

I think that's an interesting point. We've had a number of written submissions to us that would indicate or imply that tenants and home owners are not really very keen on zero-carbon, energy-efficient homes, Passivhaus or whatever you want to call it. Is that your perception as well? Is that the kind of feedback that you get? And, if it is, what should we be doing about that, really?

09:45

So, my first question would be: do they have any evidence of this, to support their statements? The second thing then, from our perception, is that that's not the case at all. In the Passivhaus Trust, we're a business-to-business organisation, and we've had to create a new membership category for occupants of the Passivhaus houses, because they are so keen to talk about the benefits that they have that they desperately want to be involved and to come along to our events and gatherings and conferences and so on to tell people. We didn't want to do that; they've asked us as they want to be involved, and we've had to create that category. So, that's an indication that's interesting in itself, and once you get down to the very low energy bills or heating bills—a Passivhaus house of two or three bedrooms might be £150 a year for heating bills—people suddenly become very enthusiastic about that. So, we think there is demand. Particularly in the self-build and custom-build market where people are living in it for a long time, it's almost seen as being a no-brainer in a way. So, we don't see that lack of demand. Maybe the majority of the market doesn't know what's possible and doesn't know what the benefits are and therefore doesn't know it could ask for that.

We think so. The level of support we get from people who are engaged is just enormous.

I think the source of that opinion is typically where a large-scale house builder will, at the point of sale, say, 'Would you like to pay more to bolt some panels on your roof?', and typically people stretch themselves to buy a home and the last thing you want to do is then add an additional cost that you have to do some work and effort to quantify the benefit of over time. Would people want to live in these homes? I certainly think so, which is why I set out trying to deliver them, but we have no evidence—I think we've got little evidence from the housing sector that people want to live in these homes, but I think we look to other sectors like the electric car market. Electric vehicles are still an ethical purchase and that market has grown 50 per cent year on year for the last two years. So, people want to be green and I think that the younger population is even more climate conscious. It's certainly something that—in my opinion, we just need to get people living in them now and drive desire in that side of the market, but it's difficult to point to evidence that people do or don't want to live in them.

No specifics. We weren't able to establish, for instance, I think, that there was any evidence that the requirement for an energy performance certificate when you're buying or selling a property is actually changing people's behaviours or making any difference to the house choices they make when they're buying. I think we were saying that we didn't get any evidence to that effect, that it was making any difference—people knowing when they were buying houses what the energy efficiency was.

It's also going to be linked to the lending market as well because green mortgages are on the horizon and people may be able to borrow more. For most people, they think about their pocket as a priority. The evolution of green mortgages and the potential, maybe, to buy a house that wouldn't necessarily be outside your means because it's got a low running cost will also start to attract that market. 

Can I just come back on that very quickly? On the EPC question, it's interesting, isn't it? So, in your list of top 10 things that you would prioritise when you're buying a new house or an existing home, your energy performance or your energy bills might be within, say, the top seven but probably not within the top three. It's almost certainly location, location, location and then the number of rooms and proximity to schools and so on. But, actually, when you start to talk about the other aspects that go with a low-energy building in terms of improved comfort as well and the potential health benefits that go with that also, then people would choose to have many of those things. You wouldn't choose to have a home with condensation, for example. You wouldn't choose that. So, just on EPCs, just on energy, it's not going to be your top priority choice, but when you look at the better performance as a whole then that might have a bigger impact, I think. But we don't have the answers to those questions on an industry-wide basis. We don't have the evidence to back that up, I'm afraid.

09:50

What I find strange—and you may agree or not agree with me—is that people seem to take a great interest in the mile per gallon that they get in their cars, so I don't understand why they wouldn't want to reduce the energy costs in their houses. It does seem to go against our knowledge of people when the car manufacturers continually say, 'This car does 80 miles to the gallon' or whatever, as a major selling point, yet house builders don't seem to think it's a major selling point if this house will only cost you £100 a year for heating and lighting.

Yes. I think the point there is that, with car makers, there is the option at either end of the scale, and they could do a good job of promoting efficiency. It goes back to the awareness point, you know: are people really aware of what they could save and the scale of reduction in living costs, not just what they save now, but what they may save in the future, as gas and electricity prices increase? It's that longer term view, but I completely agree that, in other sectors, they seem to do a good job.

I think the key point of your question is that it is the house builders who say that people don't want the lower energy bills, and it's slightly disingenuous, I think. The first few points of your choice of home, new or existing, are your location, the number of rooms, and so on, once you take those out of the equation, if you say to people, 'You're going to have a house here, in this block, would you like one that performs better and has lower bills?' of course people will say, 'yes' at that point, but it gets lost in the noise of those bigger questions. So, if you take those out of the equation, then people will say that. It's a logical, rational decision; why would they not make that choice?

I think the only thing I would add is that the more efficient car doesn't necessarily cost any more, so people can make that decision based on a level playing field. It goes back to what I was saying earlier: we really need to find a way to level the playing field to allow the market to choose.

But you can also choose a car, can't you? If you don't want to buy this car, you can just go and buy another car in exactly the same location or with the same number of seats and the same power—

Exactly. Whereas in the housing market, it's driven in a different way.

I would say that house builders ration housing, but that's a political point. Gareth.

Thanks. Thinking about smaller companies that are involved in the house building industry in Wales, what do you think are the challenges faced by those companies, particularly those trying to challenge a business-as-usual approach?

Well, there are two, really. There's land availability and cost of land, and finance or capital availability and cost of capital. Those are really the two main issues, and they're the issues that we face as a business, going forward, is that getting access to land. Inevitably, it's a higher build cost and land value is linked very much to what people can build for. 

And, how do you think—? Is there anything that can be done to help overcome those challenges?

I think that there is potentially a role for local authorities to come up with strategic sites, or an ambition for these types of properties on public land. I think that there's a good opportunity there, but it needs to be done against a recognised solution. That's where the setting of the target comes. It's difficult to do that against maybe a definition or a standard that doesn't exist. We really need to be able to pin that, so that a local authority can say, 'Are you building to the Wales standard?' for instance, or 'the gold standard', and if so, it allows us to more competitively compete on sites.

With access to capital, there are potentially options there for funding or discounted development finance.

I might be singing James's praises, although I had never met him before this morning. [Laughter.] For small companies, we think if you set a new standard that disrupts the market, then small companies can move faster than the large ones. The large companies have got an inherent advantage in terms of their established supply chains, their purchasing power at scale. So, as the market disrupts with the higher standard that you set, that should open more opportunities up to the smaller companies to move faster.

If you want to also go further, I'm not sure that it's a small company versus large company question, really. There is certainly a possibility for incentives to be put in place. You've got two mechanisms that already exist, rather than trying to create a new mechanism. So, the Welsh housing innovation fund, I think, is one route that could be used to support the move towards a higher standard. The second route is help to buy, which we think that people might—. The Government might want to find a way to exit at some point. It's politically difficult to work out how to do that without abandoning the next generation of young people, but by attaching higher standards to future help to buy, that's another way of using an existing financing mechanism to encourage improvements. So, if developers want to access that funding pot, then they'd have to build to the higher standard in order to do so, and that would be a way of changing the balance of where that money goes, slightly. And also the housing association grants is another way of doing the same thing. I think they're called DRQs here, or DQRs—development quality requirements. But in Scotland, they have a silver and a gold standard for their building regulations, and they provide a slightly higher grant for the gold standard on regulations. So, that's another way you might incentivise it. I'm not sure the incentives would then automatically feed down to small companies, so I maybe haven't actually exactly answered your question, but in terms of incentives, those are several things that might work.

09:55

Yes, just on that point, actually, because I was going to ask about—. You mentioned several times this morning about a level playing field, so what role would a re-look at building regulations in Wales play in trying to create that level playing field, or trying to equalise it somewhat? And then I'll have another question about a different incentive as well that I'd like to ask about, Chair. But first of all with that, particularly from the point of view of trying to construct homes to this standard in Wales.

Well, I think this is why I called it almost a voluntary standard, because with building regulations, we've also got the problem that we need to build homes. I think a rapid change in building regulations may cause us issues in delivering on housing targets. So, this is why I suggest that it's a voluntary standard that, essentially, building regs and that standard will converge at a point in the future. But putting it as a voluntary standard—. I mean, I'm sat here trying to do it without the voluntary standard and the incentives, so it's certainly—. The more of those properties that we get people living in, and the more awareness there is, the more desire there will be, and the more people will attempt to meet that voluntary standard.

Well, the follow-up, then, is about stamp duty, which is now devolved. We've just set our first land transaction tax—as it's officially called—duties. Do you see any scope for linking that voluntary standard to some kind of stamp duty relief on such purchases, to incentivise the market, as you say?

Yes, I certainly do. The threshold's already a bit higher, isn't it? I think the other bit that's important is that there will be a growth in the professional build-to-rent sector, where there are institutional investors coming in to own family homes, essentially, and are professionally managed. And as a developer, looking at stamp duty and that, there's certainly an impact that could have on that particular model. Depending on where the house prices sit, it may not have a huge impact on the private market, but certainly, for a build-to-rent developer, there's great scope for land transaction tax to make an impact.

We were talking about this yesterday. In theory, the industry will just move. If you change your targets on the building regulations, they will just move. There will be a threat from, say, the major house builders, that they would stop building in Wales.

It certainly happened last time—the threat, that is, not that they stopped.

Well, it's interesting to know where they would then build. So, London has a zero-carbon target already. Greater Manchester are talking about implementing one as well. Scotland are moving towards the gold standard. So, their options are reducing significantly as time goes on. So, we think that change in building regulations should happen. Quite exactly when you do that is a decision to be made. There's a discussion to have around that. But, at the same time, to try and avoid that kick-back from the industry, then the incentivisation approach is probably a very good idea. I've mentioned several. The idea of the stamp duty—I didn't realise you have control over that—that's also a good idea.

I've brought one report from the example of Brussels, which adopted Passivhaus as its standard. As it happens, it doesn't really matter. In 2007, they put in place the incentives for the industry to change—apparently their performance at the time was worse than the UK in terms of their building regulation standards—and said that, 'We're going to implement a law that all buildings in the Brussels region will be Passivhaus from 2011 onwards.' So, they gave a four-year period, they gave an incentivisation period for that time to get people ready to implement it and that avoided the kick-back from the industry, saying, 'We can't do that, it's too expensive.' It was just a smooth curve. And then, by 2015 onwards, all buildings in Brussels were Passivhaus. So, they affected the whole building stock—not just housing, but all the building stock. That was within eight years. 

10:00

But I think the thing for that is that we've already been moving since 2006, when the building regulations have changed in three steps already, so we're a long way down the line. We're not where Brussels started from.  

I think you're both quite frustrated that we've not started to build at scale yet and that, you know, the feasibility of this has been demonstrated in terms of energy-efficient, carbon-neutral, whatever, housing. I wonder what state the supply chain is in at the minute. Is that one of the constraints that is stopping us building at scale? 

Shall I go first this time? I'm not actually frustrated, strangely enough, although I can see how you would think that. So, for us, the supply chain hasn't been there until recently and particularly for the Passivhaus brand, we want that to be seen as buildings that work, that have high performance, they don't have a performance gap, they don't overheat. We want you to know that they will do exactly what they say. Therefore, we've built slowly. We’ve built up the capacity to deliver that and we've still only got to the point where there are 1,000 units completed in the UK. So, we can start to scale. We can start to increase it. But, to change the sector tomorrow and say, 'From tomorrow, all buildings will be Passivhaus', things would go wrong. To have control in place, there wouldn't be sufficient supply chain and control to do that all in one go, I don't think. 

Eight years. So, building that supply chain, I think, is important.

A particular gap we have at the minute is on the contracting side, where the better quality processes needed on site are not common culture yet and, therefore, people price the risks—they haven't built like this before, they price the risk of an unknown, and therefore that increases the costs. Given the timespan of a lead in of a number of years and whatever that is, which will be decided, people would get used to that, would have time to do a trial, would have time to do two homes and then 20 and then 100, and then at that point it could be scaled out quickly. I don't think it's 10 years away; it's a few years away. You've just got to have time for the market to respond and to learn how to make the changes that you're after, I think.

I'm sat here with a slight technology focus on this, actually. We're a little more agnostic to the building fabric. I certainly think we should reduce that as much as we can, but we're very much focused around the technology. From that point of view, there's a real common denominator, which is a heat pump. It's a good solution, it's a low-carbon form of heating—very efficient. Attracting, say, a heat pump supplier—essentially, it's the same technology as a fridge, but it's expensive, you know, at the moment, and we don't have that volume in the UK. I think 1 per cent of the market is heat pumps at the moment in the UK. I can't comment on what that is in Europe but it's considerably higher. It's something that will, again, work across the platform, say from Passivhaus. So, I think attracting a supplier, maybe, in that case, would be a good solution there. When we're talking about PV battery systems, that's a global industry. I don't think we're going to get held up by local supply chains on items like that, but I think the heating is one opportunity for Wales, really.

10:05

Isn't one of the ways round people tendering very high, because they're putting their worry into the tender, to actually have joint ventures, and you have cost-plus contracting?

Absolutely. Partnership models will help, but they still have to go through this learning process of the higher quality processes on site. So, there is still a learning curve to go through.

But if you work with the same companies, they should learn relatively quickly, and, like a lot of things, it starts off relatively high cost and as—. I remember when pocket calculators came in, they were very large and very expensive, and they became very small and very cheap within four or five years. You do have those sorts of technological changes that take place when people get better at doing things. Is there an opportunity for you to work with other companies and get them to be more skilled at the work needed?

For sure. I completely agree with you. Within one, two or three years, it could be done for the whole sector. At the Passivhaus Trust, we have 250 member companies, so we don't do the work—we're not just one organisation. There are training courses around the country run by all sorts of people, including BRE Wales, as another example. So, 'yes' is the answer. And on partnering, 'yes'. 

I'll ask both skills questions together, if I may, because it does seem to be logical. Another constraint that's been raised with us is the availability of the required skills, and there are two parts. I want to start with the off-site skills, really—I don't know if I should say the higher skills, but, anyway, planning and design. The royal college of architects or whatever they're called raised this as a real difficulty at the moment, because there's been a reduction in the capacity of planning departments, and in that sort of condition, they're going to play safe and just go with the existing model, I guess. Is this your experience, or are they actually quite responsive and able to take on this challenge, and there isn't a skills gap in terms of how planning departments can react? And similarly with the architects you have to work with—that they are keen to take on these new technological approaches.

I think the pace of innovation is going to create challenges, inevitably. I can't comment on direct experience within the residential sector at this stage, but I'd phrase it slightly different and it maybe doesn't directly answer your question. I think what we need to do at a planning level is have a regional approach to energy. We've got waste heat resources. We may have mines where the mine water can be used as a potential source of heat. We have sites that maybe are south facing on a hill, where there's a site the other side of the valley that doesn't see any sunlight. We need to have a more holistic view of the energy approach within the region and I think that high-level planning is really important. In our sister company, we have a power station in Port Talbot that has waste heat, and Port Talbot is only a mile away, but at the planning level there needs to be a strategy around energy and maximising those resources, and that will then help, when we get into the development—it'll form the strategy at the planning level for that particular development. I think that top-down approach is really important. But it was just the planning skills that you were referring to with this particular question.  

Well, what are the architects like, then? Is there an issue there, or are they fairly keen to adapt?

I believe so, but I don't have any evidence on that at the moment. 

Planning authorities aren't necessarily a problem, I don't think, in terms of interest. We think we find a lot of enthusiasm. We have a campaign at the moment that we've been running called Passivhaus Social aimed at local authorities and social landlords, and we've had strong support and interest on that. What they lack, I think, is an understanding exactly of what they're getting, and whether that will perform as intended in any shape or form. So, some awareness raising or increasing understanding about different approaches and what that gives you we think would be very helpful there. 

The big gap that we do see is in building control officers—so, in control of quality. That regime may or may not be functioning at the minute. The figures on the energy in-use performance gap—so, the amount of heating energy needed compared to your target—are shocking, so 60 per cent to 80 per cent more energy required to run your home than you expect for a new home. The figures on ventilation systems, whether they work or not, in typical new homes, are also shocking, with significant failure rates there as well. So, the verification system at the minute is not particularly working very well, we don't think. And if you're moving to a higher standard, we don't think they have the skills at the moment to be able to assess what they're getting through the building control system. So, if you increase the standard, there will be a significant need for improved training, we think, in the verification system—the building control system.

On architects, over half of our member companies are architects. And, again, given a time period, if they know that that's the new standard that's coming in, that they can differentiate and win work by being more skilled than their competitors, most architectural companies will do that. I don't see that as being a block in this system. 

10:10

What I'd add on architects is that what we may find is a lot of the development to date has been driven by the universities, and there are ways where maybe existing practices will work with—maybe it's an energy consultant-type architectural role, where there's an opportunity for partnership with, as I say, business as usual. But that's just an observation, really, and that's the type of approach that I think will happen initially, where there's an experience in developing these pilot schemes. But also, in the planning stage, I think there will be an emphasis on mechanical and electrical systems as well as part of this, and the understanding of those systems in building control as well will be important. 

Could I ask you a question—do you mind?

One specific question about the planning side, though: the amendments to the Planning and Energy Act in 2008 stated that local authorities were not allowed to require higher efficiency standards than in the building regulations. So, is that correct in—? Does that apply in Wales as well?

As far as I'm aware, yes, unless somebody can tell me something different. You've asked a very good question. You've caught us out, which is something we haven't done to you. But we will find out; I think it's a very important question.

What I was going to ask you was: are there any difficulties in terms of planning in conservation areas, in national parks, in areas that have higher standards of planning rules?

For new build, we've actually found that some authorities have allowed Passivhaus to be an exception site. So, because it's an exceptional standard, they have said you can build to Passivhaus, as long as it meets the same design requirements as before. So that has been a bonus in some places. That's for new build. And actually, Passivhaus is just a standard. You can build it in any style. So, it can be done in a local vernacular style to suit an AONB or a national park. On the existing homes side, conflict between conservation and significant energy improvements is absolutely real and is a constant debate, which is a political decision rather than a technological decision. 

We've come across that in other areas as well. There are places that, because they're listed, can't have changes to the building, but they can't meet the Disability Discrimination Act standard because they can't make the alterations that they need. So, you've got two pieces of law that manage to be in conflict. So I could see where that could happen there as well.

David, do you have another one?

I do think the verification point is an important one. It has been raised by other witnesses. We do tend to think in terms of getting those standards adopted and then built, but then, actually, how they function and are they in a fit state to function is a key issue. I think a few witnesses have said some form of charter mark-type system might be needed, but there is a skills issue there, so—

10:15

Could I just add a tiny thing to that, do you mind? One of the things that we have seen in new-build low-energy homes—we still see some examples of condensation. How could that be possible in a modern, hi-tech solution? It should not be possible for any reason in any other sector—James comes from a different sector in this—you just wouldn't have products that don't perform in that way. It just would not get through their quality assurance systems.  

That brings me on to my second point—it partly may be poor installation, for instance. I'd like to have an idea of how responsive you think the FE colleges and the construction sector are in terms of training and re-training then, when they have a workforce, during their career. I've heard two things, basically: (1) that it's very conservative and they're not really keen on these new skills—but then I go to the local FE college here, and they say, 'We can't provide enough places'—they're always in demand with young people wanting to come in and learn these skills, and they're really up for the new skills. So, where are we in terms of the sector? 

I think both things are true. People who have built things in a certain way for the last 20 or 30 years won't want to change. Building to the new higher standards in traditional brick and block is becoming increasingly difficult, and will become more difficult as the standards ratchet up further. For young people coming new into the industry, it's a new way of working, it's less messy, it's more skilled, and they can take greater pride in their workmanship and the product. So, I can see both sides. My view is that if you change the building regulations and you signal your intent over time, then the FE colleges, CITB training schools and so on will move to—

It's a similar process to what you described in Brussels—giving a good lead-in time and then the system adapts to meet that new requirement. 

I was going to say exactly that. You need the market there in order to drive the skills. People need to learn how to do something that they can then end up doing. Essentially, it's very much, I think, market driven. 

I just wondered where all this has led us now in terms of cost, particularly for new build. So, we've already described and you've already described with us the way that the mass market, if you like, has the supply chains all worked out and is able to achieve that at the very lowest cost possible. Of course, if you're looking at Passivhaus, zero-carbon homes or any of these different high standards, you're looking at something that's cutting-edge, if you like—it's new, it's going to cost more. How real is it for us to imagine that that could become a common standard in Wales, or are we always going to be in the position—going back to where we started this discussion this morning, actually—where you'll have, I don't know, 5 per cent of the new homes, or whatever, being of this very high standard for people who are really early adopters or want to live that kind of life, and who want to invest their resources in that, and the other majority is just being pulled upwards but over a longer period of time? Is that really what we should be looking at, or are you urging a much swifter approach to this?   

We're certainly urging a much swifter approach, actually. What we're trying to do as a business is make this a mainstream offering and, fundamentally, a decision that people can make purely on cost. Complexity becomes an issue, I think, with these types of properties, and there are ways that we can remove the complexities of a house maybe with more systems than it is typically used to. I think the cost burden is around—let's say 20 per cent; that's probably the best estimate. But with a technology focus, a good proportion of that is technologies that have over the years come down at an alarming rate. Lithium-ion batteries have come down 70 per cent since 2010, and photovoltaic comes down 10 per cent year on year. The other side of it—and it's something that I didn't mention earlier on—is that under a model where we've got, potentially, battery systems and generation, there's an element of flexibility in the system, and particularly with properties that are retained either by a housing association or a private developer or an institution, is there an opportunity there for that flexibility to actually generate revenue through other means via the grid? How quickly will that reduce the cost, the over-burden? That's the No.1 focus for us. That aggregation of flexible assets is an innovative market, but there will be wins to be had there in terms of revenue streams that will bring down the cost, and, in a couple of years, it may be that all of that energy efficiency could be offered at no additional cost. But it all needs scale. That's the key.

10:20

You make that point in your paper to the committee. Just to pursue that with you for a moment, you describe it as energy generation, but if you're talking about at-scale, is it more appropriate to think of it in terms of an energy distributor model that just plays its role? The grid is going to have to change an awful lot. It's going to have to decentralise. If we see the growth you've already described, of the electric vehicles that we're seeing, then, in effect, they're mobile batteries, so you're moving around energy in a completely different way than we have done in the past. That may not necessarily be reflected in some of the price mechanisms we have at the moment, but, as the point you make in your paper, that adds to what the Welsh Government wants to achieve in terms of its decarbonisation. So, how do you get the cost of the build, if you like, reflected in these other savings or alternative cost distribution models? Because it's not the same people paying the same penny, is it? That's the problem. Or saving the same pennies.

No, and it goes back to the partnership point. That's fundamental. What's really important for us is getting partners in industry who can bring scale to these developments. But it is a distributed model. The residential demand profile does not align with when the sun shines, and if we're going to put any form of generation on a rooftop then there's a good case for a battery, and if there's a good case for a battery, why shouldn't we be looking at it in aggregation and enabling more low-carbon generation on the system and reducing the burden of peak on the grid? But that distributed model also allows for worst-case events to balance out. You shouldn't necessarily be penalised if you've got a big, mature tree planted in front of your house and you can't necessarily generate as much as your neighbour. The ability to share energy, in a virtual sense at the moment, will be important in actually levelling the costs for everybody, potentially.

Does the Passivhaus model encapsulate that? That's more of a stand-alone model as I understand it. Would it be capable of being adopted for that kind of thing?

So, Passivhaus is mostly focused on the building fabric, and then, beyond that, you can use whatever renewables you want as well at the same time. So, we're almost in complete agreement, and actually, if you reduce your energy need, then the amount of renewable energy you're creating—so, your surplus, which could then pay for other things—is hugely different; it's hugely increased as well. So, again, the benefits from going to, say, a Passivhaus standard accrue to the renewables people as well.

It's a very interesting question, though, isn't it? So, if you look at the car market, then you set new standards and that will drive itself, and you will have differentiation in the market between a Nissan Leaf to a BMW i3 and a Tesla. I'm not sure that the speed of change within the housing sector would drive that differentiation at these new higher standards very quickly, because the supply is constrained, for whatever reasons. So, the need to differentiate and prove you've got a superior product in that way doesn't really exist in the same way. So, for us, going to a building regulations change across the sector that then just happens is probably going to drive change much, much faster than allowing the market to do everything itself. That would take quite a time because of the competitive pressures, or lack of competitive pressures. 

10:25

I like that idea of a neighbourhood energy approach, because we've got miles and miles of terraced roofing, and to look at that, instead of 10,000 separate units, as 500 big units feeding into a general system, I think that has a lot of at-scale potential, I guess.

Of course, my view is that if we can get better at storage, then people can be making their own electricity and they can use it for charging their cars and they can store it up for the times it's needed. Electricity storage has got better with time, but we're still not very good at it. Obviously, we lose some with heat, but if you can actually keep the electricity you're generating and save it up until the time you need it, that would be really the solution, wouldn't it?

Yes, and I think there's also an ability to manage those assets—maybe it's automatic, or maybe it's through another third party managing them—where, if you live in a house with PV and a battery, do you really know whether you're running off the battery or the PV? You're experience really doesn't change, whereas from the grid's perspective, that system could be operated in a way that completely benefited the grid but had no effect on the tenant or the occupant.

We've run out of time and out of questions, which is always good—when the two go together. Can I thank you very much for coming along and for your full answers to all questions? You've left us with a question that we couldn't answer. We will find the answer to it and we will write to you. That's what witnesses normally say to us. It's unusual to have to say it to them, but I think it is important. We'll write to you when we find out the answer to the question you raised. Thank you very much.

You'll also get a transcript. I would urge you to read through the transcript, not because there'll be anything wrong with it, but occasionally, I'm one of the people who sometimes moves away from the microphone and sometimes words don't necessarily get picked up by the people who are transcribing it. So, it's probably best to ensure that some words have not been missed. Okay. Thank you very much.

We'll move into private session and have a short break for 10 minutes.

Sorry, can I just ask? I brought a report from us about the experience in Brussels. Would you like to have that?

Gohiriwyd y cyfarfod rhwng 10:27 a 10:41.

The meeting adjourned between 10:27 and 10:41.

10:40
3. Ymchwiliad i 'Tai carbon isel: yr her' - y bumed sesiwn dystiolaeth
3. Inquiry into 'Low carbon housing: the challenge' - fifth evidence session

We're going back into public session now. Can I invite Alex to provide his presentation to us? Alex, would you be happy for us to ask questions as we go through? It's to the benefit of you and us because, if we don't, we'll be jumping around all over the place after you make the presentation. If you'd like to make your short presentation—and I'm sure we'll interrupt you regularly, so apologies for that.

No apology necessary. That will be absolutely fine, yes.

Good morning, everybody. Thank you very much for having me. It's really nice to be here and to give you the benefit of our thoughts, I suppose, on the low-carbon housing challenge. My name's Alex Rathmell. I'm an energy consultant, and I work with Energiesprong in the UK, among other things. I should apologise, first of all, that I'm not Kerry—Kerry Mashford from the National Energy Foundation—who was due to be here. She sends her apologies because she is unwell, so I will do my best but possibly I don't have her breadth of perspective. We'll do our best to get you the information that you need nonetheless.

So, 'Energiesprong' means 'energy leap', and it is an approach to low-carbon or net-zero-energy housing that originated in the Netherlands about six or seven years ago. It's really based around this vision of desirable, warm and affordable homes, so, not only homes that perform well from an energy performance point of view but homes that are nice to look at and a nice place to live.

In the UK, we are mostly powered by a European Union grant from the Horizon 2020 programme called Transition Zero, so that allows us to have a market development team in the UK to work on some of the issues and the barriers and to develop the pipeline and the opportunity, really building on what's been achieved in the Netherlands. So, the team in the Netherlands are part of our consortium and we can get a head start, if you like, from their knowledge base and their experience. Broadly, the idea is to move away from a situation where every home, every building, that you look at retrofitting is completely different, to a point where the industry can start to realise some economies of scale through standardisation and product-isation, if you like, of certain components that go in those homes so we can start to benefit from the cost reductions that have occurred in other areas that we are familiar with—photovoltaic panels, for example, and batteries are the examples that are most often used.

So, much more on that later on, but our job as a team is to work with the supply side of the industry—so, the supply chain, construction companies, maintenance providers—which is responsible for delivering that sort of solution, and also to work with the demand side, which, for us at the moment, is social housing providers and work with them to generate demand for these sorts of ambitious home energy makeovers. So, we kind of sit in the middle and try and choreograph both sides, if you like, to develop this market. We are also managing a number of demonstrator projects around the UK, and some of those are match funded through an Interreg programme called E=0 as well.

So, the basic principle behind the Energiesprong model is that if you imagine over the course of a 30-year term, the resident of a house might spend £40,000 on their energy bills. So, at its simplest, this proposition is about using that spend, bringing it forward as an investment into upgrading the home, and using it today—taking the net present value, if you like, and using it today to upgrade the home to be a desirable and warm place to be. So, the way that that's done is through an energy service charge. So, from the point of view of the resident, they will experience a home upgrade, their outgoings will be the same as they were before the upgrade, it's just that instead of paying a large energy bill, they'll be paying an energy service charge and a much smaller or maybe even a zero energy bill. So, overall, they'll be spending the same, or less, than they were before. So, that's the way that we hope to unlock that investment, if you like, and apply it today into upgrading the homes.

So, a key principle is that the homes are net zero energy. So, over the course of a year, they generate as much energy as they use. That's not to say that, at certain times, when the sun's not shining, that they won't need to pull some energy from the grid in order to keep going, but over the course of a year, that should all balance out. So, it's a net zero energy model where possible over the course of the year.

So, we're in discussions at the moment and we're starting, if you like, in the social housing sector because we think that that's a way to have one conversation about a large volume of housing stock and it's also an area where there are a proportion of residents at risk of fuel poverty, who would particularly stand to benefit from this sort of approach. But that's not to say that we think that the model is limited to the social housing sector; we think that a similar approach could apply in the private rented sector and, actually, we will be doing our first non-domestic building, which is a council building in Exeter. So, we're looking at it for commercial-type buildings or non-domestic buildings as well, just to test the principles.

So, that's what it might look like, with emphasis on the word 'might'. So, the Energiesprong approach is very deliberately not to say that, 'You should have this' and 'You should have that' and 'You should specify every single line that you need in the refurbishment package.' The approach is to specify the outcome that you want at the end of it, which is a net zero energy home that has certain levels of thermal performance; comfort; certain volumes of hot water—that sort of specification—and leave it to the developer to decide how they're going to deliver that and then guarantee it over the course of the project term.

So, this is an illustration of a home from the Netherlands, and it is fair to say that the net zero energy stipulation or target does give rise to a particular combination of technology. So, most homes will be all electric once the upgrade's been completed, so there won't be a gas supply to the home. And as you can see there, we're looking at photovoltaic panels on the roof—or even a new roof that is a photovoltaic roof—radical external insulation and probably triple glazing, certainly new glazing, to dramatically improve the thermal performance of the building. And then the, sort of, vertical module that you can see on the picture is an integrated energy module, so that contains all sorts of wizardry like the inverter for the PV; almost certainly a battery to make sure that we can maximise the use of the energy that's generated by the home in the home; smart meter; hot water tank; et cetera, et cetera. And we'll come back to that energy module later because that's an absolutely key area.

So, that's typically how the solution starts to look, and in the Netherlands they've also coupled that with interior works to the home—so, new kitchen, new bathroom, that sort of thing—as a way of improving the desirability of the overall package. Now, we're already a little further ahead in the UK around new kitchens and bathrooms for social residents than they were in the Netherlands, so that proposition is a little bit different, but it does at least underscore—. The idea is to give people a better place to live, to make the neighbours jealous, if you like. And so, that's a really key part of it. It's not just about energy; energy is the currency that we're using to upgrade the home; it's not the be-all and end-all.

10:50

I can see the benefit of that in that particular set of circumstances: you've got a terrace of fairly modern, quite unattractive houses, actually, and your makeover actually looks much nicer. How would that work in a terrace of stone-built cottages, for instance, which in themselves are hugely attractive and you wouldn't want to see that put on them, but may not be very energy efficient?

Well, I mean, that's—. Since I've been involved with Energiesprong, that's a question that I've had a lot, and I live in a terraced property but it's quite nice to look at, it's a Victorian terrace, and I probably wouldn't want that kind of radical cladding on the outside either. So, I suppose there's two points to make: one is that there is a vast population of homes to go at that are not in that kind of category, and so the sweet spot, I suppose, is homes built between about 1945 and 1980. I haven't got the numbers in my head, but there's a huge population of very similar archetypes, not just in the UK, but actually in the other countries that form our consortium as well. So, there's real potential for economies of scale there and there's a strong correlation between the social housing stock and that sort of stock as well. So, that's one thing, but the other thing is that perhaps the—. I suppose I'd go back to the technology agnostic position that we take: if there are ways to use the model—so the energy service charge model—to invest in a home and upgrade it, but without using that particular combination of technologies, then there may still be potential for that, and I think that's something we're going to have to explore: as the component costs go down, where can we play with the margins and use different solutions? But, I absolutely accept the point that you wouldn't want to put cladding on an already attractive property, yes.

Okay. So, yes, there we go. That's an illustration, as it were. So, going back to what I was saying about inheriting some of the thinking that's happened in the Netherlands, I suppose. In the Netherlands, this was a programme that had quite a large amount of central government support around the idea of a performance specification for net zero energy housing, so, again, specifying the outcomes that you want rather than the outputs. So, that gets, sort of, distilled into these four principles that are the backbone of the movement that we're trying to develop in the UK, I suppose. So, assured quality is about having a performance warranty for the whole term of the repayment of the investment in the home. Now, that is something that, at the moment, the industry is not in the business of doing—a warranty on a new home is only a few years—so that's a major piece of engagement that we need to do with industry to paint a picture of the potential market and for rethinking the business model that they have around that. So, assured quality is the first one. Non-intrusive—

Obviously, the assured quality goes hand in hand, I presume, with the energy—I'm not quite sure how you described it. How did you describe it, as an energy—?

Service plan, yes. So, does that last also for 30 years, and if so, does this model only apply to social housing then? Can you apply it to private—?

At the moment we're applying it to social housing and one of the reasons is that you would expect residents to be in situ for longer and you've got, if you do have a transition, then there's more scope for managing that transition across. There are problems, though; it's not entirely straightforward because, of course, we have right to buy in the UK, so there is always—

That does make life easier. [Laughter.]

I apologise, I didn't know that, but that's good—good to understand that. Well, forget what I was saying then. [Laughter.] But, yes, you're absolutely right: if we transfer this ultimately into the private rented sector, we do need to have an answer to that question of what happens when a resident leaves. Is it going to be, dare I say it, like the Green Deal, where the idea would be that the debt stays with the property? So we have been looking at whether the Green Deal legislation that's still on the books is something that could be useful for that, but I wouldn't want to presuppose what the outcome of all that thinking is going to be. Suffice to say, yes, that is a question that's still alive, still hovering.

If I can ask a follow-up to that, because the other corollary, therefore, 30 years for performance warranty, as I think you were about to say, is very good in terms of house building, and generally in this market it's a long period of time. It's also a very good source of revenue for the programme. I'm not saying that you shouldn't be getting a good source of revenue for the programme, but is there anything built into the programme to feed back some of those profits?

10:55

We have no commercial stake whatsoever. We're not a commercial entity, so, at the moment, we're just powered by our two European grant funding streams and some membership income.

If this is to last 30 years, towards the end of those 30 years you'll be generating a lot of profit, I think, from this. Or shall we just say surplus rather than profit?

There'd certainly be a margin in there for the solution provider that was going to be on the hook for the maintenance of the solution over that period of time, but I would frame that as—. Obviously, that mustn't be excessive, but that is, I suppose, our way of engaging the supply chain in this conversation. What we're really saying is that what we have here is a model for, to put it nicely, diverting spend that residents would be spending on energy into your industry.

They are not seeing a difference—they're seeing a difference in their lives, but they're not seeing a difference in the spend. I'm just wondering—. This is a new project, but I'm just thinking about the profile towards the end. If this works, you are going to be generating considerable surpluses if it's across a wide range, I would have thought. How might that, in turn, be re-used, re-invested or whatever it might be?

Yes, I think that, probably, the answer to that depends on how it ultimately ends up being managed by the social housing provider. If that margin or that surplus accrues to them, then it will go into their general funds for use on their other properties, I guess. But, yes, just to emphasise that, for us, this is not—we're not a commercial entity.

Sorry, Chair, can I just follow up on that? As I understand it, what you were saying is that the tenant pays no more than they did previously, but it's for a different use—it's for ensuring that this is implemented and that's how it's paid for. Once it's paid for, what happens then? Do they continue paying it at the same level, or does the tenant then get the benefit of cheaper energy?

They would get the benefit at that point.

So, this energy service model is only while the system is being paid for.

That's right, yes, but that's deliberately a very long time. So, it's all about that 30-year period, shall we say—20 or 30 years at least. That gives you your investment envelope that you can apply at point zero.

So, it's tenants 30 years hence who would benefit from that particular—

That's right, yes, which in social housing is often the same tenant.

So, 'non-intrusive' I think was where we were. This is about being resident centric in the way that you deliver it, which, from the work that they did in the Netherlands, turned out to be a really important attribute. So, if you can avoid decanting residents for a long period of time while you're doing the work, it makes it much more likely to happen and much more likely to be successful. So, part of that relates to offsite manufacturing of the key components, and, again, about that productisation, using the economies of the supply chain and standardising products, and then bringing it together in a short space of time onsite. There are some great time-lapse videos and things on the website about how that looks and how that all comes together.

I should say that in the UK we are a little way off realising that sort of target. The demonstrators that we've done so far, which I'll come to—it took an order of months. The residents weren't decanted, but it took a much longer time to get the thing done. There needs to be a whole industry scale-up in order to deliver that sort of time frame. But, that's the principle and that's the objective—that's where we want to go.

We've covered 'affordable', which is about fitting it within that investment envelope, and then 'look and feel' we've covered as well—really important to make this a desirable product.

I won't go into this, but suffice to say that the point is to swap outputs for outcomes. So, specify the outcomes that you want rather than the detailed bill of materials and every screw, nut and bolt that you want to be involved in the construction process, and allow the supply chain to innovate the solutions that they want to use. So, that's just to illustrate that, essentially.

On the cladding, we've all seen the terrible stories about fire and the wrong cladding. So, in terms of this particular cladding, or any future cladding, are the materials that you're currently using tested against that, because that's an obvious, obvious question.

11:00

'Yes' is the short answer, but we wouldn't take that responsibility because, again, our role is to help the social housing provider to do the procurement along the lines of the Energiesprong model. So, we would help them arrive at the performance specification, but we wouldn't be advising on the particular materials that were involved, if you like. But, yes, the panels that have been used for the demonstrators that we've done so far have been manufactured in the west midlands to the latest standards. So, that's certainly an area that everybody's conscious of at the moment, but it's not one that we—. I think that goes back to the point about the performance specification. We, as an entity, are not specifying the actual cladding that needs to be used—that's for the supplier to do.

For anybody who's watching this on television: 30 decibels and 42 decibels—what do they equate to in terms of noise we know?

Good question. It's really about whether you are being disturbed by your neighbours or not. I don't know. I don't have a ready reckoner in my head for that.

Normally when people put noise levels down, they say the equivalent of people talking quietly or the equivalent of people shouting, and it ends up equivalent to a pneumatic drill, standing next to it. We can look it up quite easily, but it would be useful to provide—

Yes, to put some context to it.

So, I think those are relatively known numbers, but my knowledge of decibels is probably not much better than anybody else's in this room, and probably worse than some—it's just something that does put some context to it.

I don't have an answer in my head to that, but I think the point is, particularly in a terraced property, to stop noise from outside, but also between party walls, and that's something that anecdotally we've heard is quite a major feature of these upgrades.

Have you got—? The other thing—two things—[Inaudible.] It's not quiet, it's certainly not silent, and certainly not the 42 decibels. Vibration was the thing that struck me as well, because there's a difference between a continual low hum, and then at times, in this column here, which is housing batteries and all sorts of other things, I don't know whether there are any pumps or anything like that within it because we don't know what's in it, and whether there's—

There would be a heat pump in it normally.

—going to be some vibration from that. That was what immediately struck me.

Well, I think—. The idea is that the performance is specified, and that's an example, and the overall solution needs to meet that performance, and will be monitored to ensure that it does meet that performance. So, the monitoring in continuous throughout that project term. So, if the overall solution does have problems with noise and vibration, that will be monitored, that will be picked up and that will be corrected. So, it's an assured performance model. That's the idea. I appreciate that in real projects gremlins occur, but that's the principle—that it's monitored and assured.

In answer to my question—thanks, Martha—30 is a quiet rural area and mid-40s is something like a quiet birdcall.

Okay. That's good to know. Thank you.

Having Martha two seats away from me is even better. [Laughter.]

Good. So, that's that.

Just a quick slide on the scale of the opportunities, as we see it: £5.2 billion spent around the UK on maintaining social housing stock; £4.2 billion spent by the residents of that stock on energy. So, if you think about this, the Energiesprong model, as a combined answer to those two expenditures, then that gives us quite a large amount of investment to play with in order to upgrade the building stock to get ready for 2050.

It's not the case that all stock—and we've already talked about it—is going to be appropriate today or tomorrow, but it's important, I think, to paint a picture of what's possible. And this is really about, as I say, diverting spend on energy into housing. That's really what this is about.

I won't go through these because you've got them in the pack and it just illustrates what I've already said. So, this is just about the energy service charge and how you swap the energy bill for an energy service charge. So, it's just a picture of that, essentially. Also, I'm not going to go on about this for too long, because I think we're all aware of some of the constraints around social housing and some of the constraints or issues around the energy sector as well.

But I always want to make the point here that we're focusing on the social housing sector not because it's particularly more of a problem than anywhere else, but actually, probably, some of the most efficient stock in the UK is social housing stock and they've innovated a lot, they've tried lots of different things, but they do have a proportion of residents who are still at risk of fuel poverty. And, as I say, we can have one conversation with them about an entire portfolio of stock, some of which will be totally unsuitable, some of which we could make happen very quickly. So, that's why we're focusing on social housing; it's not about a critique of the social housing sector.

But I think more positively than all the news about fuel poverty and excessive energy costs, we are living in a time where the cost of the solutions that are needed—we've mentioned batteries and we've mentioned photovoltaic—those cost curves are coming down, in some cases, very rapidly. So, the availability and commercial feasibility of these technologies is at an unprecedented level, really.

We're also at a point, I think, where there's a real recognition of the need for change, particularly in housing, for low-income families—there is a recognition that we can't continue to do it in the way that, perhaps, we have. So, I think our argument is: well, let's link those things together, and let's use energy as the currency for employing the solutions that are now just becoming technically possible.

So, what we do in the UK is—and this is a quick tour, I suppose—we work with the housing sector to build demand and work with the supply chain to build their capacity and their capability to deliver. So, we're mostly focused on refurbishment, but we're also increasingly looking at new build. So, the concern is always that homes that are being built today will need retrofitting in a fairly short space of time in order to get them ready for 2050 standards. So, far better to build the home to a high standard—a net zero energy standard when it's constructed. And, again, the energy service charge offers a mechanism for recouping the marginal cost of that extra level of performance and technology that's needed in order to get there. So, we're actively looking for projects to put into a new-build pipeline to demonstrate the model in that way as well.

We've done a lot of work on developing the business case, so the two major economic ingredients to that business case, I suppose, are the energy service plan but also the avoided maintenance spend from having an assured-performance home over the course of the project term. But there are other elements as well, so feed-in tariffs and renewable heat incentives and other possibilities from having a portfolio of energy assets under management. As a social housing provider, potentially that could allow you to participate in flexibility in grid services markets later on. We're not saying that we're there yet, but as scale improves. We've got the potential there for controllable assets under management to participate in energy markets. So, we've done a lot of work on those different business cases to help housing providers asses their stock at a portfolio level. We've got a number of demonstrators, which I'll talk about in a second.

The area that concerns me most is the supply chain side. I think that we don't yet have enough of the right companies innovating in this space. We don't yet have the depth of skills that we need in this sector. We're not geared around off-site manufacturing and then rapid deployment of the solution on site, and we're not thinking in an integrated way about how these new technologies integrate together to form a net zero energy home. So, we have found that the number of viable bidders for the projects that we've helped social housing providers to go out to procure has been very small, and that's despite our efforts over 18 months to two years to try and develop the supply chain.

It's not that there aren't examples of fantastic good practice out there. I was at the SPECIFIC project at Swansea University yesterday—absolutely fantastic technologies on display. I know you've already heard from suppliers as well. So, this is, again, not a critique, but that is, I think, the single area where there's a sort of cultural shift towards specifying outcomes rather than outputs, assured performance, warranted performance, and the integrated whole-house approach—we need to build capacity in that area. 

11:10

And what happened in Holland—as soon as they said they were going to do it, they set the scale. Did the supply chain kind of develop then, or did they actually take other measures?

There have been some Government-funded programmes to stimulate innovation, I suppose, and to develop the supply chain. So, there's a company that's received some support. I don't know whether it's Dutch Government support, or whether it's European, but there's a company that makes energy modules, for example, that's had some support in that way. I think a lot of it comes from being able to show a meaningful pipeline of viable projects that will happen, so that industry can scale-up accordingly and have the confidence to do so. We're asking industry, to be fair, to adopt quite a different model than the one that they're used to, either in construction of maintenance, and they need visibility of that forward pipeline. So, it's how we drive that, how we do that in the absence of—. Building regulations are not going to get us there on their own. How do we send the signals to the housing providers, in whatever sector, that this is the way to address their asset management over the course of 30 years? So, I think it's that certainty. I've got a slide at the end, if we get to it, which is what we're going to try and do about that, but I think it needs a much bigger move than us. So, that's that.

Just to say, very quickly, that Energiesprong is not just me and a few other consultants. We are quite well supported from the industry, and also from the social housing sector, and on the policy side as well. But that, I would say, is not yet a critical mass of support. I suppose that's what I'm saying. We need to get this to be much broader. 

In terms of progress, then, just before Christmas we were able to unveil, I suppose, the first Energiesprong homes outside of the Netherlands, in Nottingham, which was fantastic to be able to do that. And it's slightly remiss of me, but I don't have a picture of the finished article, but it's in an attractive shade of purple, as chosen by the residents, and you can see pictures of that on the website. And we're operating a tour of that site to speak to all the people involved on a monthly basis, if that's of interest to anybody. So, that's fantastic, and that demonstrates a lot of different aspects of everything that I've been talking about, from the technology—. Although the technology solution that was used is a little bit different to the typical home that we looked at earlier on, this is all electric but it uses a heat network, so it has heat pumps in a small energy module at the end of the street, rather than individually per house. And there are a few other differences. They're a very strange archetype, these houses, but, nevertheless, have demonstrated the model. So, there's a voluntary energy service charge that's used, and it's Nottingham City Homes that collect that. And the feedback from residents has been fantastic. I was there just before Christmas, and they were looking at a warm Christmas and there was a genuine feeling of, 'This is fantastic', because these were very cold houses, and a huge range of different energy spends across even just that one row, because some of them were really underspending on energy because they couldn't afford it. So, it's great to see, albeit on a tiny scale at the moment, but it's starting to make a difference.

Sorry, just on that, because, as you've just said, at the moment people are taking individual decisions about how much money they spend on energy, including, in particular, in some circumstances, just heating one room and threatening their own health, possibly, but they have to take those decisions in these times. When something like that is done, which is more of an envelope project on an individual home, is the cost then evened out around everyone? How is it all calculated to make sure that people aren't suddenly, because their own individual decision making was to underspend, faced with a doubling of a bill? Yes, they've got a nice warm home, but it still affects them in that sense. 

Absolutely. It could be not just a threat, it could be very serious. So, our model is that the energy service charge for an individual resident is calculated based on their baseline energy consumption. So, on a portfolio basis, the idea is that those who are underspending, if you like, and those who are overspending will balance out over the course of the portfolio. But that's one of the issues that means that the assessment that's needed is quite detailed in order to get to a proposition that works across a whole portfolio, because you do have to drill into individual dwellings, and we find that the quality of—well, the integrity of the data that's held about housing stock is not all that it might be, and—

11:15

Exactly. Well, also, it's about the assets themselves and when they were last maintained, what sort of state they're in, all of which are just problems or issues that we've got to work through. But yes, you're absolutely right, if we took a blanket approach that could be very problematic for some residents who are essentially just wrapping up warm.

So, this project was delivered by a midlands-based company, Melius Homes, and the panels were manufactured in the west midlands. So, it was kept relatively local. Obviously, some of the more advanced components were from further afield, but there was a real sort of local economic story to it as well. It's great to be able to point to something that's tangible, I suppose, and hopefully there's lots more where that came from. So, we're looking at getting on site and deploying other demonstrators later this year. I've said the rest.

So, the idea is to get to this tipping point on the green line there on the chart, whereby the price of the overall retrofit package has come down to a point where it fits within the investment envelope of a typical resident. As we just said, there's no such thing as a typical resident really, but you can deal in averages. So, that happens when you do lots of the same thing again and again. So, the example here is of the energy module. When they first started deploying these in the Netherlands, they weren't a module at all; they were a disparate set of components that were installed in the loft or throughout the house, taking up quite a lot of space. So, again, that's things like the inverter, that's the heat pump, that's the, you know, x, y, z. Putting all that into a module was the first step in getting the cost down, and also that's helpful with our target of making it a minimal impact for the residents. But now that it is in a module and it's built in a factory rather than being built by a plumber on site, it means that you can really aggressively drive the cost of that solution down, and also innovate. The latest innovation is to try and integrate it within the roof panels so that it doesn't interfere with floorspace inside or garden space outside. So, the idea is to take that productisation approach to all the different components involved and force them all down the experience curve as quickly as possible.

There is some evidence from the Netherlands to say that that will work, so that's not just an assertion, hopefully. So, the cost has come down since they started the programme, quite dramatically; again, with that forward assurance of 1,000 units a year and 100,000 units altogether—that's the objective. So, the sort of pinkish line on that chart is just an illustration of where we are in the UK, but the typical cost at the moment is somewhere north of about £70,000. That's got to come down by almost 50 per cent, we think, in order to get to that mass-market tipping point where it will kind of look after itself. So, I'm not here to pretend that we are there yet. At the moment, all of our demonstrators have a layer of grant funding in them in order to make the economics stack up. But we think that, by setting these conditions, we can get there, and that's very much the objective.

I want to ask a question on this. We've got different [Inaudible.] Let's just pick up PV panels, for example. The cost of those has come down. So, when you're looking at reducing the overall cost, there must be certain constituent parts that make up the whole that have reduced significantly compared to the other parts, just through scale. So, when you look at these and you project forward this 30-year tie-in for whoever owns the property, should that not then be able to do perhaps two things—either reduce the 30-year service that people are tied into, if that's what you want, or reduce the cost of the energy in that particular home? What I would have liked to have seen here was some explanation of those reductions. What was PV as an element of the whole before, and what's the reduction? Because when you're talking about mass production, we have to be bringing down the constituent parts. 

11:20

Absolutely. That's what the whole thing is founded on, so if you're talking about PV, then of course we're benefiting from other sectors that are deploying PV as well, and that will drive the panel price down. I can certainly follow up with a breakdown of this slide, absolutely. I completely agree: it's all about—. So, part of it is about using standardised components that are used elsewhere, so that we're maximising the economy of scale, but it's also about reducing the cost of bringing them together into a system, and I think that's the point I was making about skills and industry scaling up as well. We're not quite there yet. Every project feels like the first project at the moment, and the idea is to get to a point where we, for want of a better phrase, can churn these things out, and it becomes the norm. So that's a huge part of the cost that needs to come down as well. But I'll certainly follow up with a breakdown on this and a bit of commentary about the trajectory as we see it.

Good. So, that's just a summary of the pipeline as it stands at the moment. So, we've got about 300 and some homes committed by social housing providers over the next few years with different flavours of grant funding in there to make those happen, and we're keen to build out of that pipeline both in terms of refurbishment and new build. That just puts some specific numbers on the solution cost. As I say, we're £70,000 or more—ish—now, and that needs to come down to £40,000 or £45,000, something like that, we think, according to our models, which are just models.

Good. And just final thoughts: so, the plan is to try and get that forward commitment to volume. So, this is something that the French team that are working on Energiesprong have done very well. They've managed to get social housing providers to commit to thousands of units, and that's allowing the supply chain to say, 'Okay, that's interesting—that's an interesting opportunity.'

Can I stop you? Because I was hoping you were going to mention this when you went on to the next slide, and you didn't. You've shown no interest in Wales—from any of the housing providers in Wales. Has there been any interest? They should be on the next—

I haven't personally. But I think that is just a product of where the genesis of this has come from in the UK. I don't think it's significant in any way other than that. So, the thing was started through people who were working at the National Housing Foundation, and it just had a London-centricity to it, I suppose. But we'd certainly be interested, yes.

Sorry, it's drifted out of the London-centricity, hasn't it? Because you've talked about north Devon, Nottingham, Liverpool, greater Birmingham, Manchester, the black country, Leeds, Glasgow. So, it's certainly drifted out of there.

Yes. It's not significant other than where some of our consultants happen to be based. I wish there was a better answer, but there isn't.

No. You're quite right.

And quite a lot of organisations do deal with south Wales and the west country as an entity. I just wonder if it would be worth him talking to two or three of the largest housing associations.

Absolutely. We'd absolutely love to. Any and all suggestions and introductions are welcome. We're in the market for expanding the pipeline, definitely. But it's not significant that there are areas that are not covered. It's just that we're resource constrained and that's where we've got to so far.

We can certainly let you know who the two or three largest south Wales housing associations are. I think Wales and West and Pobl are two. We can provide that information to you.

Yes. Pobl are involved with the specific project that I saw yesterday.

Okay. Anyway, the point of this is just simply to say that by getting that forward commitment, we hope that that will give the supply chain confidence and part of that is both giving confidence to legislators and regulators, but also getting confidence from them that there is commitment to this low-carbon housing agenda over the medium and long term. So, there we are, that's the end of the slides.

So, just to sum up I suppose: there is quite a lot of work to do. There is quite a big gap between where the solution cost is now and where it needs to get to. All we're suggesting is that this is a mechanism for getting there, I suppose, and it combines a number of attributes that have proven to be helpful in other markets. But really, it's very simple: it's about offering residents a warm and desirable place to live and putting residents at the heart of decision making around it. That's really what we're suggesting.

11:25

Thank you for that presentation. Just one point and it's probably on one of the last slides: in terms of, obviously, you were set up with European funding, and I don't know if you noticed, but there was a little referendum a little while ago—

Unfortunately, we're leaving Europe and that source of funding. So, I take it from your projections here about the forward volume that the surplus that Simon indicated earlier—that in time, those surpluses will replace your need for European funding to ameliorate all this happening.

I don't have an answer yet to how we, as an entity, will be funded. There are a number of options. So, one is that we ask the Government to fund a small market development team in some form or another. Other options might include taking a contribution from successfully deployed projects or a membership model from supply chain partners that want to be involved. I wouldn't want to presuppose which way it's going to go. But suffice to say, yes, we will have to, in quite a short time frame actually, replace that grant funding certainty that we enjoy currently with something else that probably will be less certain. So, I think that does focus our minds on trying to get as much of this model out there into industry and to make it as mainstream as possible in as short a time frame as we can.

Okay, thank you. Anyone else? It falls to me to thank you very much for your presentation and thank you very much for answering our questions. You'll be sent a transcript of this and I would urge you to check through it. What happens is that, sometimes—and I'm one of the worst for this—you turn away when you're talking to the microphone and they miss certain words, so could you check it to see if you've moved away and they've missed the odd words, so that we can make sure that the transcript is correct? Thank you very much. I found it very illuminating and I'm sure that my colleagues did as well. Thank you.

Thanks very much for your time.

4. Papur(au) i'w nodi
4. Paper(s) to note

Can we note the letter from Wales Environment Link on environmental governance post Brexit?

I read this with interest—[Inaudible.]—forward together. And I just think that if there's one area that we need to be looking at going forward, watching this space, this is one of them. I seriously think it's one of them, particularly in Wales, when you've got the fisheries, agriculture and all the rest of it. But my view is that we need to take this, and I'm sure we will, very seriously and we need to perhaps speak to the Wales Environment Link for further information on the possibilities going forward.

I think it's the subject of this afternoon's Constitutional and Legislative Affairs Committee report. How the formation and governance of freight work works is critical to the future of devolution in the UK and I thought this was interesting as well because we've not fished for this—it's just come in—and it very much echoes the concerns that all parties have about how this will be taken forward.

[Inaudible.]—partnership equals respect and all that—[Inaudible.]

11:30

Well, just to say I have raised the aspect of the European Court of Justice and the environmental matters with the Counsel General, in questions to the Counsel General. 

5. Cynnig o dan Reol Sefydlog 17.42(ix) i benderfynu gwahardd y cyhoedd o'r cyfarfod heddiw ar gyfer Eitem 6
5. Motion under Standing Order 17.42(ix) to resolve to exclude the public from Item 6 of this meeting.

Cynnig:

bod y pwyllgor yn penderfynu gwahardd y cyhoedd o'r cyfarfod heddiw ar gyfer eitem 6 yn unol â Rheol Sefydlog 17.42(ix).

Motion:

that the committee resolves to exclude the public from item 6 of this meeting in accordance with Standing Order 17.42(ix).

Cynigiwyd y cynnig.

Motion moved.

If I can move the motion under Standing Order 17.42 to resolve to exclude the public from item 6 of this meeting. Is that agreed?

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 11:30.

Motion agreed.

The public part of the meeting ended at 11:30.

Archwilio Cynulliad Cenedlaethol Cymru