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Tackling the flaw at the core of UK energy policy - Richard Hipkiss - Chairman (ESTA)

Challenges in the financing of renewables projects

If you compare the focus on energy supply with the attention given to demand reduction, there is a clear imbalance. And that imbalance has consequences for the UK economy as a whole, as well as for individuals and organisations the length and breadth of these islands.

The bill for ensuring security of supply over the next two decades will be huge. Not only will there be replacement power stations for the existing fleet and a large investment in renewables (both in development and deployment) but significant upgrading and expansion of distribution grids will be needed. Our dependence on imported fossil fuels – particularly gas – is unlikely to diminish so we will still be prey to the volatility of the world markets.

Now no-one would suggest that demand reduction will eliminate the need for substantial investment in energy supply and distribution. Yet it might alter the scale of the challenge. There is plenty of evidence to suggest that an overall reduction in demand of about 20% is achievable and cost-effective; both the UK government and the European Commission regularly quote figures of this order. Reducing the national energy bill by one-fifth makes the cost of new supply networks that much lower as well. Of course, energy efficiency needs investment too but not on the same scale. Most initiatives are made at local level, ie in individual buildings, and pay for themselves quite quickly – normally in terms of months rather than years.

While government announcements recognise these arguments and proclaim the need to increase energy efficiency, official action does not back up the rhetoric. Why is it that something universally regarded as ‘a good thing’ struggles to find a place in government or boardroom agendas?

In the world of highly paid and extensive lobbying, of course, the size of the corporate wallet is bound to have an effect. The demand reduction side is represented by a number of organisations, with different aims and strategies, which struggle to compete with the well-funded, more direct campaigns for greater generating capacity from the major energy suppliers. That is why ESTA is working with other like-minded groups to create ‘critical mass’ for energy efficiency as a way of counteracting the current lurch toward the supply side. It is challenging work: after all, each organisation has its own constituency and its own goals. But we are finding common ground in the search for greater resource efficiency, lower environmental
impact and a better deal for consumers.

The need to mainstream energy management

Particularly in the non-domestic sector, there has been a lack of appreciation of the benefits of energy efficiency amongst senior management. This can most obviously be seen where investment plans are drawn up and projects with a five-year payback receive more favourable treatment than energy management investments with a two-year payback. There is plenty of evidence of the inability to grasp the opportunities presented by a focus on energy: Carbon Trust studies suggest that little more than 10% of the savings their consultants identified were actually achieved.

So why the disconnect? Is the concept of energy management so difficult to understand? Perhaps the development of new frameworks for structuring and reporting energy management may help it find a common language with the boardroom and the investment committee.

Many large organisations – and an increasing number of SMEs – have adopted independently-audited operational standards like the ISO 9000 Quality Systems series and ISO 14001 Environmental Management Systems. These offer procedures and reporting methods that are common across a number of different management disciplines. Energy management now has a similar framework – ISO 50001 Energy Management Systems – that should help energy and facilities managers to be better understood when they seek support for their plans from senior managers.

The development of international standards is raising the status of energy management and helping it to fully integrate with other management disciplines. Formal CPD programmes, ensuring that practitioners keep up to date with developments in the industry, are helping too. Likewise, independently accredited schemes for specific areas within the industry, such as the new Register of Professional Energy Consultants (RPEC) developed jointly between ESTA and the Energy Institute.

Measuring the investment

When new supply capacity infrastructure is funded with the help of general taxation (whether through grants or subsidies), it does not really impinge on the consciousness of individuals or businesses. Yet upfront investment in energy efficiency does. That is why programmes like the Green Deal are such a good idea; consumers pay back the cost of the improvements over the lifetime of the measures but they see immediate savings as well. The idea is not new, of course, contract energy management, or performance contracting as it tends to be known in the USA, has been around for years and works on a similar principle.

Yet a traditional problem with contracted services – in fact, it is an issue in procurement generally – lies in trying to compare apples and pears. A supplier offers a contract based on estimated savings, with the figure arrived at in a particular way with a number of additional benefits. Other offers have different figures and different additional benefits. How can these be compared? There is also the question of how robust the calculations are and how transparent.

Once again, the introduction of internationally accepted standards of measurement and verification will put this onto a more secure footing. ESTA has been promoting the International Performance Management and Verification Protocol (IPMVP) as an effective tool for just this requirement.

When used by a suitably trained and qualified independent professional – such as a consultant on the RPEC – it can be a powerful tool for reporting on  and justifying energy efficiency measures to senior management.

Energy management can seem rather like a ‘black art’ to those outside the discipline. In fact, its principles and techniques are straightforward and logical.  etting traction in the wider world may therefore be primarily a matter of perception and transparency. The introduction of evidence- based  accounting, as well as operational frameworks more closely aligned to other widely accepted management standards, will help to bridge this gap.

With robust procedures and results, the arguments for more energy efficiency as a pre-requisite in any sensible energy policy may carry more weight. And that will be very good news for the UK in general and individual energy consumers as well.

Richard Hipkiss - Director - Information Prophets Ltd and Chairman - ESTA

This articles appears in the October 2012 issue of Energy World Magazine