In recent years, energy bills have been one of the most significant contributors towards the cost of living crisis. While it is not reported as heavily in the press, this crisis has impacted businesses just as severely as consumers, particularly as government support is reduced from April 2023. Purpose Built Student Accommodation (PBSA) developers and operators are particularly exposed as they often operate an ‘all inclusive’ model so will be bearing the brunt of these rising prices.
This blog post gives a brief overview of several steps PBSA developers and operators can take to reduce the impact of present and future price shocks.
Experiment with your charging model
One way to offset rising energy costs is through the funding model used to pay for them. At present, many operators use ‘all inclusive’ tenancy agreements where energy is paid as a proportion of rent. The risk here is that if energy bills rise, but rent does not, the operators may find themselves footing the bill.
Operators have several means of avoiding this outcome. One is reserving, in the contract, the right to charge an extra supplement if their energy bills increase, albeit such clauses are required to be fair under the Consumer Rights Act 2015.
Another option is a ‘Fair Usage Policy’, in which the agreement is only ‘all inclusive’ up to a certain point. This is logistically challenging due to the sheer number of tenants, and the difficulty of calculating individual use so that the policy is fair. This can be managed by using sub-meters in each flat.
Finally, operators may pass the full cost onto students rather than having them pay an arguably arbitrary and inflexible sum in their rent. However, while this may reduce direct costs for the operator, students would see an increase as a result.
All of the above would have the consequence of further exposing students to the cost of living crisis, as their bills would rise and fall with market forces. If bills get too high, PBSA operators could find themselves in the precarious situation of students opting to live in cheaper private housing, staying at home, or alternatively choosing a provider who isn’t seeking to pass this risk on to students.
Protect your supply
Operators may choose to take out a Power Purchase Agreement (PPA), a long-term supply agreement where power is bought at a fixed price. This approach has already been used successfully by universities. For example, in 2019 20 leading UK universities struck a £50 million deal to buy energy directly from windfarms owned by Statkraft, a Norwegian energy giant. The fixed prices in PPAs help mitigate fluctuations in energy pricing, though they may only cover a portion of an organisation’s total energy use.
Try out different energy saving technologies
As an alternative to passing the bill onto students, energy saving technologies may be used to bring the cost down for all parties rather than simply shifting the responsibility for paying bills from operator to student.
As mentioned above, installing sub-meters in flats can be an effective way of reducing energy bills through ‘Fair Usage’ contracts, or by simply making residents aware of their consumption. There are a host of other technologies available, including solar panels on the roofs of buildings, LED and other power-saving lights, heat pumps, and double glazed windows.
Energy saving is not just limited to technology. Innovative building techniques should also be considered as a means of reducing energy. The importance of quality insulation has gained traction in recent years, particularly when judging UK housing stock against European counterparts’ during the cost of living crisis. Equally important, however, is the need to keep accommodation cool during increasingly warm summers without relying on energy-intensive tools such as fans and air-conditioning. Developers need to ensure continued air circulation and maintain access to light to reduce the use of electric alternatives. The rise of standards such as Passivhaus construction, and building techniques such as cool roofs and motorised window-shades, are a promising sign of where developers and operators may go to reduce day-to-day consumption in the future.
Naturally, the problem many of these technologies face, in contrast to the other routes discussed in this article, is the upfront cost of investment and whether or not it is viable to retrofit them in existing buildings. Operators and developers should carefully consider which energy saving technologies will be most appropriate for different properties, and the practicalities of their installation.
Students are there to be educated, so help them learn!
A third course of action may be to educate and empower the students themselves. Between 2009 and 2011, the National Union of Students conducted research with funding from the Department of Environment, Food and Rural Affairs to investigate the best ways to encourage adoption of new habits by students.
The research noted the effectiveness of using multiple interventions in different contexts. Information campaigns should be eye-catchingly placed in the locations where behaviour is carried out, such as next to kettles and light switches. Emails full of dense information will usually be ignored. Competitive interventions are particularly powerful, for example free pizza being offered to the greenest floors. Naturally, operators should be careful to prevent cheating.
Carried out properly, such campaigns may encourage students to reduce their own energy consumption, not just in PBSA but throughout their lives. In turn, the cost to operators using an ‘all inclusive’ model could decrease as their tenants become more sustainable.
Combined alongside energy saving technologies, and changes to the funding model of utility bills, PBSA operators and developers should be able to sustainably insulate themselves from the cost of living crisis and any further market shocks that come in the future.
If you have any questions about the topics raised in this article, please get in touch with Matt Walker, Abi Evans or Robin Creek.
About the author(s)
Abi is a senior associate in the Commercial, Development and Investment department at Gowling WLG and has developed wide-ranging legal experience having trained in planning, property litigation, commercial real estate and corporate teams.