Rating Manual section 6: valuation practice

Part 5: practice note 5 - 2010: phase out of refrigerants used in a variety of commercial cooling equipment - including air conditioning systems - cold storage and most other refrigeration applications

The Valuation Office Agency's (VOA) technical manual for the rating of business (non-domestic) property.

This practice note gives guidance to assist when considering hereditaments, or parts of hereditaments, that include equipment containing certain types of refrigerant, such refrigerants are due to be progressively phased out as a result of European Union and domestic legislation.

There is a need to explore the potential impact of the phase out on rating assessments and this practice note is provided in direct response to representations concerning the phase out of common refrigerants such as ‘R22’.

1. Introduction

1.1 Use of refrigerants

Refrigerants are the liquids and gases that allow fridges and freezers to work. While different refrigerants are needed in different applications, the basic chemistry and physics are the same. Whether it is a domestic fridge / freezer, or the water chiller used in a large office air conditioning system, both will use refrigerants in the cooling equipment.

1.2 How do refrigerants work?

The ability to produce a controlled cooling effect by expansion of liquids, (or liquids into gases) has long been recognised. The refrigerant is forced around a closed circuit of copper tubing using a pump (compressor). Once compressed, the hot vapour passes through a condenser where the heat is released to outside (similar to a car radiator). Once the heat is released, the hot gas becomes a liquid which then passes through an expansion valve to an evaporator (or expansion vessel) where the liquid absorbs the heat from its environment, giving the cooling effect. The evaporator will be in contact with the air (or water) that is to be cooled/chilled. As the refrigerant expands into a gas in the evaporator, it draws heat from the environment, thus producing the cooling. Once expanded, the refrigerant is re-compressed into a hot gas which cools again in the external condenser by removing heat and this cycle then repeats.

Compounds that can withstand repetitive expansion and contraction (or evaporation and condensation) are potentially useful if such compounds can survive unaltered in the process and are able to behave predictably, with a good conversion of energy into cooling effect, then these compounds will make the best refrigerants.

Domestic fridges have been in use since before the 1930’s as have commercial cold stores. While different refrigerants have been used over the years the most common ones are listed in Table 1 below.

1.3 Why are certain refrigerants now being phased out?

With the growing belief that the release of certain chemical compounds into the Earth’s atmosphere might be contributing to climate change, use of these chemicals has become subject to regulation and restriction in recent years. It is thought that certain refrigerants are potentially much more damaging than others. The damaging chemicals fall into two main classes.

“F Gases” are those compounds containing the Halide element Fluorine, the chemical symbol for Fluorine being ‘F’. The common abbreviation for these compounds is HCFCs (hydrochlorofluorocarbons).

Ozone Depleting Substances or ‘ODS’ include compounds containing one or other of the two Halide elements (Chlorine and Bromine) in addition to Fluorine, these compounds are more commonly known as ‘CFC’s’ (Chlorofluorocarbon’s) or ‘Halons’ (when Bromine or Iodine is present in the compound).

It is thought that the CFC’s, Halons and F Gases are many thousands of times more potent in damaging the ozone layer and causing climate change than is carbon dioxide.

1.4 Restrictions and controls on use

The Montreal and Kyoto Protocols resulted in the passing in 2000 of the European Commission Ozone Regulation EC 2037/2000 and subsequently European Union EU Regulation 842/2006 and EU Regulation 1005/2009. The effect of these regulations has been to make F Gases and ODS subject to usage control and ultimate phasing out.

In December 2000 the Department of the Environment, Transport and the Regions (DETR), together with the Department of Trade and Industry (DTI) published guidance on the phase out; this document can be found here: DETR Guidelines

By late 2000, the timetable for restriction and phase out was publicly available; ‘virgin’ HCFC’s could no longer be added to new or existing refrigeration equipment after 1st January 2010 and the adding of recycled HCFC’s would be banned from 1st January 2015.

In the UK, various statutory instruments have come into force, for example SI 2008 No. 41, (Environmental Protection, The Fluorinated Greenhouse Gases Regulations 2008) has been followed by similar regulations in 2009 and in 2011. These regulations set out the requirements as to usage monitoring and leak detection, along with the associated penalties for non compliance.

1.5 Effect of the regulations

CFC’s, thought to be the most environmentally damaging refrigerants, have now effectively been phased out and have been unable to be used to ‘top up’ refrigeration equipment since January 2001.

With the exception of some sealed domestic scale equipment, CFC’s have now been almost entirely replaced by HCFC’s.

HCFC’s are in turn subject to controls, such as careful monitoring and remedy of leakage, together with a progressive phase out.

All new equipment produced has had to be free of HCFC’s after 1st January 2001, except for fixed air conditioning equipment with a cooling capacity less than 100kW and reversible air conditioning / heat pump systems using HCFC’s, which could still be produced up until 1st July 2002 and 1st January 2004 respectively.

The restrictions are clearly intended to motivate users to replace their usage of HCFC’s with less environmentally damaging alternative refrigerants.

There is no ban on the use of equipment, just certain types of refrigerant. ‘Sealed’ equipment may, in practice, continue to be used quite acceptably for many years after the ‘ban’, but practically, it may be difficult to continue to use equipment that requires ‘topping up’ with a banned refrigerant after 1st Jan 2015.

Current shortages of certain restricted HCFC’s may already be impacting upon the use of equipment following the ban on ‘virgin’ compounds in 2010.

1.6 Implications

The majority of new refrigeration equipment installed since 2001 will be HCFC free and thus unaffected by the refrigerant ban, hence equipment still charged with HCFC’s will be at least twelve years old at the time of writing this Practice Note.

Older equipment, including air conditioning systems, cold stores and commercial fridges and freezers will potentially contain refrigerants subject to progressive restriction and eventual phase out. It is inevitable therefore, that this topic may be raised in connection with the value to be placed on hereditaments containing such equipment.

1.7 Practical solutions to the phase out

It has been suggested that some refrigeration equipment has, or will become, redundant as a result of the restrictions. This may be because, it is argued, there is no replacement refrigerant available for the installed equipment. The only solution being to install expensive modern replacement equipment.

A common refrigerant. R22, affected by the restrictions, is apparently capable of being successfully replaced in many circumstances with a new compliant refrigerant. In some cases, seals and gaskets may need to be replaced at the same time as recharging with new refrigerant. There may be costs associated with disposing of old refrigerant however, although some suppliers will pay for reclaimed R22 as they are still able to recycle it and use it to ‘top up’ equipment elsewhere, at least until January 2015.

From research, the evidence appears to be that only rarely will equipment replacement be the only option. For example there is no current replacement thought to be available for refrigerant R123 thus requiring a replacement chiller unit in that scenario.

However, taking into account the age of the plant, installation of a brand new system with compliant refrigerant can be the most cost effective solution for systems over 15 years old. If this seems to be the case, advice should be sought from the Buildings and Machinery team via the Technical Adviser.

2. Rateable and non-rateable equipment

2.1 The hereditament

Some refrigeration equipment will form part of the hereditament to be valued, some will not, it is, as a starting point, necessary to consider if the equipment alleged to be affected by refrigerant phase out is, or is not, part of the hereditament.

2.2 Non-rateable equipment

The hereditament will consist of land & buildings (premises), together with the setting and rateable plant and machinery.

In the case of refrigeration equipment that is not rateable, since it is simply equipment deemed to be brought to the hereditament by the tenant, it is legitimate to consider that the presence of such equipment has no effect on the value to be determined one way or another. See Edmundson (VO) v Teeside Textiles Ltd. RA/289/1983 and Leda Properties Ltd. v Howells (VO) RA/62/2006.

Thus it is the hereditament as provided by the hypothetical landlord that is to be valued as at the AVD.

If the ‘ban’ on HCFC’s affects non rateable equipment, then it is difficult to see how this will impact upon the value of the hereditament as the hypothetical tenant will simply bring to the hereditament refrigeration equipment with an effective compliant refrigerant.

The cooling circuits used in commercial cold stores will generally not be rateable for example, per SI 2000 No. 540 and the Class 2 exception for ‘manufacturing operations or trade processes’.

2.3 Rateable equipment

The most commonly encountered equipment that will normally be considered rateable, will be that forming part of air conditioning systems to be found in offices, shops or industrial properties.

Other affected rateable equipment exists, for example high voltage electrical switches, transformers and circuit breakers containing the compound SF6, (Sulphurhexafluoride).

3. Circumstances in which an effect on value might be considered

3.1 Compiled lists valuations

The restrictions discussed above were known about before the Antecedent Valuation Dates and compilation days for both 2005 and 2010 rating lists. It is inevitable that occupiers of hereditaments where HCFC’s are employed will face increased running costs and possible future capital expenditure but they would probably have been well aware of this particularly at the 2010 lists’ AVD.

It follows that any value effects of the restrictions and ‘ban’ are already reflected in rents relied upon to underpin tones, but see ‘Repair’ below.

3.2 Material change of circumstances (MCC)

It is not considered that restrictions on use, and phase out of, HCFCs made by regulations after the AVD constitutes an MCC.

They are not akin, for example, to the Smoking Ban, as they do not constitute a restriction upon the physical enjoyment of the property.

3.3 Repair

Should it be established that rateable equipment affected by the restrictions on HCFCs cannot now be used due to a lack of refrigerant, or requires significant alteration, replacement or conversion and such factors are not fully reflected in the value already adopted, then it is not possible to view the equipment in disrepair. The equipment itself is not in disrepair but simply un-useable due to the unavailability of compliant refrigerant.

As at the 2010 AVD the necessary consumables would have been available so the equipment would not have been un-useable at that time.

It is thought however that even in the worst case scenario the need would be to replace chiller units rather than the entire system. This might be viewed as a ‘minor alteration’ in the context of the hereditament as a whole. See the Court of Appeal judgement in the case of R F Williams (VO) v Scottish and Newcastle Ltd and Allied Domecq RA/2001/41

For the 2017 Revaluation the factual position at the AVD, expected to be 1 April 2015, will need to be taken into account and the valuation of premises with non-functioning plant will need to reflect the inability to obtain the necessary refrigerant. However as above, it is considered the replacement of chiller units is likely to be a minor alteration and therefore the bid of a tenant prepared to undertake the work at the tenant’s own expense should be considered.

Full costs should be requested from ratepayers or their representatives itemising the expenditure necessary to bring the equipment back to proper function. In the absence of costs, assistance may be requested from the BAMS team via the technical adviser.

4. Advice summary

Situation

Advice

Comment

Equipment is not rateable – replacement refrigerant unavailable

Since the equipment is not rateable it forms no part of the hereditament to be valued. – The lack of compliant refrigerant or the need to replace the equipment, or part of it, has no effect on value.

Per Edmundson

Equipment is rateable – compliant refrigerant is obtainable.

If an alternative compliant refrigerant is available then it can be assumed that the refrigerant replacement and replacement of consumables etc associated with the re-gassing will amount to a ‘minor alteration’ and thus are assumed to be done within the Rebus assumption.

Per R F Williams

Equipment is rateable – compliant refrigerant is unobtainable, but equipment is still in use.

If the equipment is still in use at AVD and the Material Day then any value effect due to the restrictions on refrigerant use will already be reflected in the values adopted, no further value adjustment should be made.

 

Equipment is rateable – compliant refrigerant is unobtainable and equipment is out of use.

Advice should be sought from BAMS via your TA.

A replacement chiller unit is likely to be required and a decision made as to whether such a replacement can be deemed a ‘minor alteration’ within Rebus.

     

5. Table 1

(Reproduced as a guide to refrigerant types only, statements as to uses and alternative refrigerants should not be taken as authoritative.)

Number

Ozone Friendly

Uses

Chemical Components

Alternatives

Notes

R410A HFC

Yes

Designed for new R22 applications, but can also be used to retrofit R13b1 systems.

HFC 125 - 50% HFC 32 -50%

 

Long term ozone friendly replacement for R502 / R22 Low GWP

R500 CFC

No; banned under Montreal protocol

Low temperature R12 CFC.

CFC 12 -CFC 115 -

R401b; R407d

 

R502 CFC

No; banned under Montreal protocol

Widely used low temperature refrigerant in the United Kingdom.

HCFC 22 -48% CFC 115 -52%

 

 

R503 CFC

No; banned under Montreal protocol

Low temperature refrigerant -80 to -100°C.

 

R95, R508a, R508b

 

R507 HFC

Yes

Low temperature refrigerant - application similar to R502/R404A

HFC 125 -50% HFC 143 -50%

 

Long term ozone friendly replacement for R502 / R22

R508A HFC

Yes

Low temperature replacement for R503.

HFC 23 -39% HFC 116 -61%

 

Long term ozone friendly replacement

R508B HFC

Yes

replacement for R503.

 

 

Long term ozone friendly replacement

R600a HC

Isobutane

Hydrocarbon, possible long term alternative for small units. Designated flammable.

 

 

 

R717 NIK

Ammonia

Refrigerant in large industrial systems. Toxic and Flammable

 

 

 

R1150 HC

Ethane

Ultra Low Temperature Refrigerant. Designated Flammable

 

 

 

R-1270 HC

Propylene

Low Temperature Refrigerant. Designated Flammable

 

 

 

HC-30

Hydrocarbon blend

Hydrocarbon blend R600a/R290 for R12 application

 

 

 

HC-50

Hydrocarbon blend

Hydrocarbon blend R290/R1170 for R502 applications

 

 

 

R413 HFC

Yes

Drop-in for R12 applications, high global warming potential

R134a

Perfluorobutane propane

R401a R408a R409a

Ozone friendly but high GWP

R290 HC

Propane

Designated flammable.

 

 

 

R401A HCFC

No; Will be banned under Montreal protocol

High temperature R12 applications. Evaporating at-15°C and above.

HCFC 22 -53% HCFC 124 -34% HFC 152a -13%

 

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Short term non ozone friendly blend

R401B HCFC

No; Will be banned under Montreal protocol

R12 Low temperature alternative. Evaporating at -15°C and below.

HCFC 22 -61% HCFC 124 -28% HFC 152a -11%

 

Short term non ozone friendly blend

R401C HCFC

No; Will be banned under Montreal protocol

Specialist application R12 alternative.

HCFC 22 -33% HCFC 124 -52% HFC 152a -15%

 

Short term non ozone friendly blend

R402A HCFC

No; Will be banned under Montreal protocol

Low temperature R502 alternative

HCFC 22 -38% HFC 125 -60% HC 290 - 2%

 

Short term non ozone friendly blend

R402B HCFC

No; Will be banned under Montreal protocol

High performance R502 alternative

HCFC 22 -60% HFC 125 -38% HC 290 - 2%

 

Short term non ozone friendly blend

R403A HCFC

No; Will be banned under Montreal protocol

High performance R502 alternative

HCFC 22 -75% HC 290 - 5% FC 218 -20%

 

Short term non ozone friendly blend

R403B HCFC

No; Will be banned under Montreal protocol

Alternative to R502.

HCFC 22 -56% HC 290 - 5% FC 218 -39%

R401a R409a

Short term non ozone friendly blend; high GWP

R404A HFC

Yes

Widely accepted HFC alternative to R502 for new low temperature applications.

HFC 125 - 44% HFC 134a - 4% HFC 143a -52%

 

Long term ozone friendly replacement for R502 / R22

R407A HFC

Yes

Alternative to R404A; low GWP

HFC 32 -20% HFC 125 -40% HFC 134a- 40%

R404a

Long term ozone friendly replacement for R502 / R22 Low GWP

R407B HFC

Yes

Retrofit alternative to R502

HFC 32 -10% HFC 125 -70% HFC 134a- 20%

 

Long term ozone friendly replacement for R502 / R22 Low GWP

R407C HFC

Yes

R22 alternative for direct expansion systems operating at high temperatures.

HFC 32 -23% HFC 125 -25% HFC 134a - 52%

 

Retro fitable - Long term ozone friendly replacement for R502 / R22 Low GWP

R407D HFC

Yes

HFC Retrofit alternative for R500

HFC 32 -15% HFC 125 -15% HFC 134a -70%

 

Long term ozone friendly replacement for R502 / R22 Low GWP

R407E HFC

Yes

HFC retrofit alternative to R22

R134a; R125; R32

 

Long term ozone friendly replacement for R502 / R22 Low GWP

R408A HCFC

No; Will be banned under Montreal protocol

R502 alternative for medium and low temperatures

HCFC 22 -47% HFC 125 - 7% HFC 143 - 46%

 

Short term non ozone friendly blend

R409A HCFC

No; Will be banned under Montreal protocol

R12 high temperature alternative.

HCFC 22 - 60% HCFC 142b-15% HCFC 124 -25%

 

Short term non ozone friendly blend

R409B HCFC

No; Will be banned under Montreal protocol

low temperature R12 alternative

HCFC 22 -HCFC 142b -HCFC 124 -

 

Short term non ozone friendly blend

CFC

No; banned by Montreal Protocol

Foam blowing agent, refrigerant, aerosol solvent: flushing systems Should NOT be used with R134a

Trichlorofluorornethane

R123

Short term HCFC and not easily retrofitted

fl-12 CFC

No; banned by Montreal Protocol

Used for high/low temperature refrigeration applications, domestic refrigerators, foam blowing agent, aerosol propellant

Dichlorodifluoromethane

R134a R401a/b/c/ R409a R406

Requires ester oil for retrofit Drop in's but may need Alkyl Benzene oils to be sure, Short term replacements

R-13b1 CFC

No; banned by Montreal Protocol

Low temperature refrigerant-40 to -60°C.

 

R410a

 

fl-13 CFC

No; banned by Montreal Protocol

Low temperature refrigerant

Chlorotrifluoromethane

R23

Not easily retrofitable

R-22 HCFC

No; Will be banned under Montreal protocol

Low, medium, and high temperature refrigeration and air conditioning, also foam blowing. And aerosol propellant

Chlorodifluorometane

R407C R404a R410a

Retrofitabie R410a much higher pressure

R-23 HFC

Yes

Low temperature refrigeration systems: -40 to -80 °C.

Trifluormethane

 

 

R-32 HFC

Yes

Low temperature refrigerant, designated flammable.

Difluoromsthane

 

Used on R407 series of refrigerants, low GWP

R113 CFC

No; banned by Montreal Protocol

Limited application in Centrifugal refrigeration systems, widely used as a solvent in the dry cleaning industry.

Trichtorotrifluoromethane

R123

Retrofit is not easy. Short term affected by protocol.

R114 CFC

No; banned by Montreal Protocol

Widely used in heat pump applications.

Tetrachloromethane

R124 - retrofit

R124 not easily retrofitted

R115 CFC

No; banned by Montreal Protocol

Principally used as a component for R502

Pentafluorochloroethane

R125 in blends

 

R116 HFC

Yes

Used as a component in R95, with no other known refrigeration applications.

Hexafluoroelhane

 

 

R123 HCFC

No; Will be banned under Montreal protocol

Used as a retrofit alternative to R11/R113 (See notes on these products)

Dichlorotrifluoroetane

 

Short term R11 replacement

R124 HCFC

No; Will be banned under Montreal protocol

Can be used as an alternative to R114 in heat pump applications (see notes on R114)

Chlorotetrafluoroethane

 

Short term replacement for R114; mainly used in short term blends to replace

R125 HFC

Yes

Used as an alternative to R115 and a component in blends 404a, 507, 408a

Pentafluoroethane

 

Long term replacement for use in blends

R134a HFC

Yes

Used for high/medium applications. Foam blowing agent, a component in blends.

1,1,1, tetrafluoroethane

 

Long term replacement for R12 in medium to high temp uses, requires est oils

R141B HCFC

No; Will be banned under Montreal protocol

Widely used as a foam blowing agent.

Trichlorofluoroethane

Cyclopentane or H/C's

Short term replacement soon to be replaced

R142B HCFC

No; Will be banned under Montreal protocol

Used as a component in blends.

Chlorodifluoroethane

 

Short term use in non ozone friendly blends

R143a HFC

Yes

Used as a component in blends, cf. R125 Designated flammable.

Trifluoroethane

 

Long term use in ozone friendly blends. High GWP

R152a HFC

Yes

Used in blends, also in the glass industry for floating various lustre's. Designated flammable.

Difloroethane

 

Not commonly used as refrigerant

R218 HFC

Perfluoro-propane

Component in some blends.

 

 

High global warming potential