Viability
An energy or emissions target for a site will typically be met through a combination of energy efficiency and decentralised and renewable or low carbon energy (DRLC). These are likely to give rise to additional, upfront development costs and potentially to additional, ongoing operating and maintenance costs. You should consider though that energy efficiency in particular can be argued to be an inherent feature of good design and evidence of some levels of its adoption should be present in all building designs even if DRLC is not.
It’s also useful to recognise that this additional upfront investment may be returned, at least in part, by upfront income or ongoing revenues. Financial incentives may also influence viability, including market mechanisms (see Mitigation Key Incentives for more information), taxes and any future carbon pricing.
Viability can be considered from the perspective of the developer or the future building owner / occupier.
For the developer, the question is:
- Can the developer pay, or pass on to others, the additional upfront costs related to satisfying the policy (alongside all other development costs) and still meet their investment criteria, usually return on investment?
For the future building owners / occupier the question is:
- Will those with a longer term interest in the development be able to afford ongoing operating and maintenance costs?
If the answer to one or both of these is ‘no’ then applicants may well put forward proposals that fall short of policy citing grounds of ‘viability’.
Testing ‘viability’ as a constraint on planning proposals
If an application contains an energy strategy that doesn’t meet the requirements of a policy on the grounds of viability despite compliance being technically feasible, you should expect to see suitably quantified justification.
Below are set out a range of issues likely to be raised around the viability of DRLC and the Viability Checklist sets out a range of factors that developers should consider in detail and therefore include in their application. It also gives examples of sources of data you might expect to see as evidence.
| Issue | Guidance | Potential Evidence |
|---|---|---|
| The use of one or all DRLC options is not affordable to the developer | As this issue depends on a range of factors which are not entirely objective, it must then be considered on its own merits in the context of the development |
Development cost plans (from a Quantity Surveyor or cost consultant) Quotes from manufacturers Benchmarking against market rates for sale / lease / rent of similar buildings |
| No third party finance available | The developer should have considered the use of ESCOs in their financing arrangements for large scale DRLC (particularly site wide systems). | Evidence of a public call for expressions of interest and responses received (or lack thereof) |
| Residual costs to developer after third party finance not affordable | As this issue depends on a range of factors which are not entirely objective, it must then be considered on its own merits in the context of the development or by benchmarking with similar developments where cost effective solutions have been found |
Development cost plans (from a Quantity Surveyor or cost consultant) Quotes from manufacturers Benchmarking against market rates for sale / lease / rent of similar buildings |
| Third party finance forces unaffordable energy prices on potential owners / occupiers (meaning the building may not be sufficiently marketable) | Careful consideration needs to be given to the ongoing costs to owners / occupiers particularly where they might be tied to an energy supplier for a lengthy period (such as with a district heating network) | Financial models indicating all capital investment and ongoing operating costs. These models should indicate the levels of costs being passed to owners / occupiers and the level of return being required by investors |
Difficulties of assessing viability
Faced with a non-compliant proposal, you should first satisfy yourself that a reasonable set of feasible scenarios and costs have been identified, and that options for transferring costs have been adequately explored (i.e. to ESCOs, in connection charges to building users etc). After that, decisions relating to viability often come down to a judgement on whether the developer and building owners and occupiers can afford the costs of achieving the target. If they cannot, the challenge is to agree a sufficient contribution from renewable or low carbon sources corresponding to a level of cost that can be borne. There is currently no catch-all test or assessment process to answer these questions and the situation is similar to that for other issues negotiated during the planning process (e.g. for section106 agreements).
