Smart Buildings

Brexit, Brexit, Brexit… and Smart Buildings

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While the UK still has many environmental challenges it has also become a world leader in renewable energy and smart technology over recent decades. Many, inside and outside the UK, credit much of the reform to the UK’s entry to the European Union (EU) in 1973, so now, as Britain's exit from the union looms, what will it mean for the UK’s building energy and smart technology sectors, and all those that deal with them?

Brexit has been a rollercoaster for the UK and EU since the British public voted to leave the union by a 4%, or a 1.3 million vote, margin on June 23rd, 2016. The turbulent process has divided British society, and has done no favors for the British pound, nor Britain's global reputation. Opponents still forecast catastrophe, proponents still see a prosperous road ahead.

Changes have already begun for businesses inside the UK, as well as those who deal with them. All yearn for foresight, to best prepare for what is to come. The UK is entangled in the EU and world economies, London rivals any city as a financial hub with established connections to every corner of the world. While those facts are not about to change, at least not overnight, the continued uncertainty created by Brexit is creating a range of challenges for UK businesses and their non-UK relationships.

Last year, a survey by major global insurance firm Allianz sought to unearth the biggest challenges facing small and medium-sized companies (SME) in the UK. The survey of 500 business leaders, found that Brexit concerns were only second to “data loss/theft/misuse” in the biggest challenges facing SMEs today. Theft or malicious damage to business equipment or property, rising technology level of competitors, and significant interruption to business operation made up the top five.

The smart building industry is in the center of it all, an SME dominated industry, with supply chains and customer networks stretching across Europe, and has been built on a base of environmental responsibility. In the short-term, at least, Brexit means rising costs and diminished markets for UK firms. Similar is true for EU firms dealing with the UK, and the increased price of UK smart building products and services will put off customers around the world, leading to a potentially severe slowdown in what was a blossoming sector.

The UK HVAC and smart energy product market alone is estimated to be worth £4.5 billion, nearly $6 billion. Growth was expected to be a respectable 3.1% in pre-Brexit 2016 but BSRIA research now forecasts shrinkage to a “meager 1.1%”. Commercial fire and security, as well as building control products, account for 68% of the 1.6 billion smart technologies market. These products are more likely to be put in towards the end of commercial projects, raising fear about the impact on budgets for current projects and the de-smartification of projects in planning phases.

Last month, automotive giant Nissan announced that it would soon stop the production of its X-Trail SUV at its factory in the northern British city of Sunderland, due to Brexit and their push towards energy storage technology for vehicles and buildings. Nissan said, “the continued uncertainty around the UK's future relationship with the EU is not helping companies like ours to plan for the future". In this scenario, Brexit Britain loses an automotive factory and the chance to attract a modern energy storage production facility, which would have supported its smart building, city and grid ambitions.

Brexit’s influence on the UK energy market and the knock-on impact for smart buildings is even less clear. On one hand, if energy efficiency and smart technology prices do go up as expected, it could reduce the market for smart building products. On the other hand, withdrawal from the Energy Union and rising inefficiency could increase energy costs in the UK, which then raises the business case for greater energy efficiency and storage in buildings. The UK government could also fundamentally change its stance on energy and the environment to ease the economic strain of Brexit.

If and when Brexit takes place, the UK would suddenly be free of a significant amount of environmental legislation, such as the European Energy Directive (EED), Renewable Energy Directive (RED), and Energy Performance of Buildings Directive (EPBD) which sets high-efficiency targets for new building projects. While there is no reason to think a non-EU UK government would “care” any less about the environment, it is reasonable to assume that a post-Brexit government may relax environmental regulation to boost the economy, much like the Trump-led US government has done, and especially considering the popular British rhetoric around EU ‘red tape.’

This could be a blow for the smart building sector, which still enjoys many advantages from environment focused policy, legislation, and political will. Recent environment-related decisions by the UK government are not encouraging though. In 2014, the Green Deal for home and business energy-saving improvements was scrapped, while solar incentives were reduced after the 2017 election. There is a growing fear that the its departure from the EU could lead to the UK becoming “the dirty man of Europe” once again.

Nottingham, for example, was selected as one of the “lighthouse cities” of the European REgeneration MOdel for accelerating the smart URBAN transformation (REMOURBAN) project, which aims to accelerate smart urban transformation. A plan is in place to retrofit hundreds of social and private homes with energy efficiency and smart technology to reduce bills and improve environmental performance. 130 properties have been renovated, many more are in the design and planning phases, but it is not clear what happens to projects like this after Brexit.

“After Brexit was announced, we have been asked to re-evaluate all of our internal budgets,” said Emily Braham, head of Sustainable Energy at Nottingham City Homes, who believes the budget for the REMOURBAN project “will be safe, but other projects may suffer.” Others, like Vinicius Valente, communication adviser at renewables association EUREC, also highlight that “it is unclear if, post-Brexit, the contracts will be honored with EU-money or British money.”

The UK smart buildings industry may also suffer from a deepening skills gap which exists across the technology sector. The Office of Budget Responsibility has estimated that the UK will lose a staggering 50% of its EU national workforce after Brexit. This has huge implications for sector growth but also safety and security in our increasingly connected urban environments. The skills shortage in cyber security is already very bad, so further shortages after Brexit could lead to cyber vulnerabilities.

The actual departure of the UK from the EU is not the problem, nor does a non-EU UK necessarily means the UK economy will suffer. Yes, there will be challenges, but any post-Brexit UK government would work extremely hard to smooth the transition, building trade connections with Europe and around the world, and may still create greater prosperity from its new found freedom. However, right now, the only certainty is uncertainty and that will continue to damage the smart building sector and the wider UK economy until there is a clear path.

Last week was a pivotal week in the Brexit process but successive defeats of government Brexit proposals have only increased doubt. This week, more parliamentary votes are expected but a resolution would be a surprise. A ‘no deal’ Brexit, where Britain leaves the EU without a plan on March 29th, next week, is still a possibility and would result in a turbulent few years for the UK economy.

Extensions, re-negotiations, and even a second public referendum are all still on the table. As with many other sectors, the fate of the UK smart building industry hangs in the balance.

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