In my previous blog about putting net zero at the heart of corporate strategy, I wrote that the achievement of net zero carbon across the social housing stock will require providers to challenge existing economic models. This raises some important questions. What needs to be challenged? And ultimately what needs to change? In a nutshell, as the saying goes, “You can do anything, but not everything.”
Our Senior Consultant, Adam Borrie provides his insight into investment planning to achieve net-zero objectives.
Achieving net zero requires accurate and complete attribute data. Ideally, this dataset should not be based on sample data or projected archetypes. It is common for providers to engage surveyors to undertake sample surveys to improve stock condition survey data. This is done to refresh historic data or fill data gaps quickly and at low cost. Arguably, this is tolerable when planning the renewal of single components. This is because it is relatively straightforward to exclude properties at the delivery stage, when the actual condition is better than the data the programme was modelled on. However, because of the scale of investment and the complexity of work required to achieve net zero, every effort should be made to assess what is required at a property level to prevent unnecessary spend on the one hand and smooth on-site delivery on the other.
Asset management needs to transition away from planning investment around single components to whole asset investment and whole life cost models. Investment strategies are typically driven by the life cycles of specific components. The life cycles of components vary in length and renewal is driven largely by the end-of-life date. It is common for programmes of work to span large geographies or move in a non-sequential way, geographically.
Similarly, as the renewal dates affecting a property are staggered, it is common for the same property to be visited by different delivery teams renewing different components over time. As component renewal is delivered within distinct programmes, it is also common for the same property to be visited more than once in a relatively short period of time. Either way, this is not the best way to deliver investment for net zero in a cost-effective way.
The level of experimentation needs to increase so programmes of work can be planned with a higher degree of certainty. Organisations should not be afraid to experiment with different methods or models so they can test project assumptions robustly. This will help firm up project plans, cost estimates, and allow delivery partners to learn important lessons. It also carries a lot less risk than committing to largescale investment that it is more difficult to curtail or exit from contractually.
Prototyping, market testing, sampling, A and B testing, etc. is commonplace in other sectors and is a critical success factor in go-to-market strategies. Asset managers should be encouraged to commit to this approach with confidence.
The specifications of work given to contractors need to be better policed as work progresses. This is because as-built information is critical to assessing where assets stand on their journey to net zero. Not all social housing providers are able to retain in house expertise to specify or measure works, relying on sub-contractors to do this for them. Whether quality monitoring is undertaken in-house or outsourced one of the learnings from the small number of net zero development initiatives that have taken place already, is that building standards controls to achieve the design standards required to achieve the right outcomes, need to be strict at every stage in the process.
Once completed, buildings need to be re-assessed to ensure that progress toward net zero, at least from a design point of view, is being made. Re-assessment is critical to assess the accuracy of initial project assumptions.
If a whole asset, or a partial approach to investment is planned as part of the journey of an asset toward net zero, then this will require roles within asset management teams to work together more often. Those delivering single component renewal projects will need to combine with others to form whole asset investment teams that contain the right skills and experience to deliver whole asset investment successfully. Similarly, inter-departmental co-operation will need to be high.
By reorganising to whole asset investment programmes, we believe some resources can be released to manage quality, but fundamentally organisations must commit knowledgeable, qualified people to oversee Zero Carbon works. One only has to look at failed EWI programmes to know why this is essential.
Achieving net zero homes has a behavioural dimension to it as well as an asset one. It is therefore important for organisations to carefully consider how teams can work together to inform, educate and involve tenants prior to programmes being planned and then undertaken.
The net zero investment model needs to be self-financing and not reliant on government grant because we know that government like to move the goal posts when it suits. The Feed in Tariff was launched in 2010 and started to be dramatically reduced from 2011. These sharp reductions effectively killed the market and the effect on the renewable energy sector was devastating. The Renewable Heat Incentive suffered a similar peril. More recently, grants and incentives for the purchase of electric cars have been offered to help offset the high purchase price, then been cut. Taken together, government has a poor track record of providing the right conditions enabling the economics of net zero to be sustainable over the long term and it would be naïve to expect long term sustainable funding to be available from the Exchequer.
There has been a lot of discussion about the supply of products to achieve net zero and the need to drive these costs down to make the numbers stack up. This will only come by committing to long term purchase agreements, of the type being developed by our colleagues in CHIC (www.chicltd.co.uk) which in turn will enable suppliers to produce at volume. It is commitment to volume that drives down the costs. This is what happened with the panel and inverter prices associated with solar installs. As the volume of installs grew, the pence per kilowatt halved over time. It is reasonable to assume the same will happen with the products associated with net zero homes. Scale and long-term delivery or supply partnerships will deliver more for the same investment.
This leaves the question as to how social housing providers can commit to long term supply agreements using their existing resources. Firstly, social housing providers should seek some comfort in their ability to manage debt. It is part of the existing business model and almost all have debt secured against their assets over sustained periods. As the finance sector get behind the net zero initiative, it is reasonable to assume that new financial instruments will be made available to finance net zero projects at an affordable rate.
At the same time, organisations should consider using previously untouchable spend areas. Our benchmarking data indicate that repair and void activities account for around 26% of asset investment. Any investment in the housing stock should be aligned to net zero goals because both repairs and void activity, at least in part, are focused on components within the home that can help deliver net zero improvements. More radically, organisations should question whether overheads can be reduced to release investment into net zero from existing spend areas. The cost of overheads within the sector are high and typically higher than the private sector. Organisations should challenge, investigate, and experiment whether IT, HR, L&D or other in-house delivery teams are necessary at the scale they are currently.
Fundamentally, whether a goal is achieved or not, comes down to the priority and importance placed upon its achievement. As I said at the start, “you can achieve anything but not everything”. If an organisation is committed to achieving net zero, then the status quo within an organisation needs to be challenged if it stands any chance of funding the investment required from a level close to existing levels. If net zero it is simply added as another priority within business plans, then arguably this will push investment need beyond what is possible or sustainable. Attempting too much may lead to an unstainable increase in debt.
Ultimately then, the goals of an organisation need to be narrower because this will enable a re-alignment of spend areas and other resources around the achievement of this goal. This shift in focus and direction is likely to generate cheers from a few, but boos from many.
ARK provides strategic development and asset management support to the social housing sector. Let’s continue the conversation, share knowledge and collaborate as we adopt a net zero approach. If you need help formulating a net-zero investment approach for your organisation.
The writer, Adam Borrie, is an experienced Asset Management Consultant with a business systems and change management background, who has developed a holistic approach to business improvement. He has operated at a senior level, both as an internal client and contractor. Adam has been a Director of two renewable energy SME’s and has worked for a US manufacturer of Solar PV inverters.