Pointless Part L

Posted on November 15, 2012 by Doug King

A question following a lecture I gave at the Building Centre the other morning asked why it is that Part L of the Building Regulations is still failing to deliver substantial improvements in building performance. The answer is so obvious that I thought I’d better share it more widely.

“Commercial competition drives quality standards down”.

In the case of building regulation, a previous government thought that it would be a good idea to open Building Control up to competition from the private sector in the form of Approved Inspectors. Once you remove the protected status of Building Control then the whole field of regulation actually becomes one of competition for work.

Now consider, if a Building Control Officer or an Approved Inspector needs to be concerned about where future work will come from, their priority is to ensure that their clients are happy with their service. Happy clients will return or recommend the service to others. This is a basic requisite of business, but it is entirely contrary to the need for a regulator to enforce unpopular regulations. The basic incentive of continuing employment means that the regulator is unlikely to insist on strict compliance but will work to find loopholes for the client to exploit.

Enforcing regulations will inevitably create conflict. That is why the jobs of the enforcers need to be protected against unhappy clients and developers who have fallen foul of the regulations.

Innovation Ignorance

Posted on October 10, 2012 by Doug King

There has been a plethora of debate recently about stimulating innovation in the construction industry, but it seems to me that all discussions have missed the fundamental point:

“There is no incentive for construction industry players to innovate.”

Innovation is expensive so there needs to be adequate reward for investment in innovation. In manufacturing, innovation is rewarded by lower production costs or higher product sales, which when multiplied by thousands or millions of products adds up to a considerable incentive.

In construction, a team is assembled to deliver a single product. They may never have worked together before and may never work together again. Some of them may be competitors. The main beneficiary of any innovation is certainly not going to be any of the design team; it is most likely to be the end user who may not even be known at the time of design. How then is the team incentivised to innovate?

Innovation may be in the interests of the developer if this means that buildings are more attractive to customers, but our dysfunctional property market means that the premium for location outweighs that for building performance by such a margin that innovation becomes irrelevant. Further, the developer has the counter incentive to pay the lowest design and construction cost possible to maximise his return in the market.

The reality is that the construction industry won’t innovate unless there is a strong reason for doing so, but that can’t happen with the present property market. Government could lead the way by procuring public sector construction in a way that directly rewards innovators, rather than persisting in least first cost procurement, but that would require joined up thinking which has never been their strength. However that would be a much more productive approach than continuing to lambaste an industry for something beyond its control.

FiT for Investors

Posted on August 19, 2012 by Doug King

Aviva, on of the UK’s largest financial investment operations has bought up 23MW of domestic PV installations from Homesun, one of the UK’s largest installers of “free” solar panels.

How does Homesun provide people with free solar panels? It allows homeowners to benefit from the electricity generated (if they are at home during the day to use it) but keeps the Feed in Tariff (FiT) payments. Obviously Homesun will have done their homework to ensure that all their installations are on optimally sited roofs (they don’t do installations in Scotland) and as a business I’d guess that they are knocking out installations for little more than £5,000 each with a return of £1,000 PA from the FiT. Of course Homesun don’t use their own money for the installations, they borrow money and now pay a hansom return on those loans, keeping a healthy profit for themselves into the bargain.

Does this sound familiar? In March 2010 I wrote in this blog that FiTs were a public subsidy for the rich and I have gone into print predicting that they would become a means of funneling tax payer’s money to the bankers.

So why would Aviva be interested in Homesun? When the financial markets are in turmoil investors run for low risk investments, typically gilts, but with concerns about sovereign debt even those are not guaranteed anymore. So imagine the attractiveness of a government guaranteed annual payment well in excess of the rate on gilts. That is what Aviva bought when it bought Homesun’s 23MW portfolio, a guaranteed annual income of around £9M. No wonder they were happy to pay some £100M for it.

As I’ve said before: everybody wins, the homeowner with free electricity, Homesun’s shareholders and Aviva’s investors. The only people who lose are those who Homesun judged to have unsuitable roofs, who will fund the FiT payments through increased electricity bills.

Since the recent cut in FiTs, Homesun no longer offers “free” PV installations.

A Shot in the Foot

Posted on November 2, 2011 by Doug King

I have often bemoaned multi-headed government and its total inability to communicate between the left-hand and the right-hand, but this takes the biscuit.

In a valiant attempt to increase the uptake of small-scale renewable energy Secretary of State for Communities and Local Government, Greg Clark, signed into legislation on 30th August an order to extend permitted development rights for the installation of solar panels on properties in Conservation Areas and World Heritage sites. This meant that, for the first time, millions of homeowners could consider the option of installing PV from 1st December 2011.

Then, on 31st October, Greg Barker, Minister for Energy and Climate Change, without warning, announced a dramatic cut in the feed in tariff support for domestic PV effective from 12th December 2011.

At a time when solar installers’ order books are full until spring next year, government has given a large proportion of the population just 12 days to install PV and benefit from the feed in tariffs that many others have enjoyed for the last couple of years. I wonder how many cases will end up in the European Court of human rights over this issue?

By the Skin of Their Teeth

Posted on November 12, 2010 by Doug King

I’m a big fan of unintended consequences, particularly when they arise due to hasty, ill-considered carbon policy. Well, thank goodness that the coalition has woken up to the unintended consequence of the Carbon Reduction Commitment (CRC). Now that they have revised the scheme I can talk about it freely without letting the cat out of the bag.

Prior to the Comprehensive Spending Review, the CRC would have raised money by charging large businesses for emitting carbon and used the money to reward those that cut their emissions year on year. The scheme started in April with a measurement year to establish a baseline against which future reductions would be rewarded. The blindingly obvious consequence of this is that anyone who wanted to benefit from the CRC would consume as much energy as they possibly could in the measurement year, so that they could then progressively turn their lights off and get the cash reward whilst still emitting more carbon than before the scheme was introduced (call me an old cynic!)

Fortunately, the Coalition has announced that it is now going to keep all the money raised, so the CRC has simply become a Carbon Tax. This will cost millions and has been dropped on the business community with no prior warning, so I can’t see it lasting for long, but at least there is no longer a financial incentive to emit even more carbon than business as usual.