New Government Energy Reduction Scheme

Later this year businesses can apply for an energy efficiency grant as part of the government’s Energy Demand Reduction scheme.  In this post I discuss grant eligibility criteria, and provide advice on what measures to implement to maximise your chances of receiving it.  Finally, I provide my thoughts on the energy efficiency grant and why overall I am impressed with the Energy Demand Reduction scheme.

Energy Efficiency Capital Projects

Starting in October 2014, companies can submit a bid to receive Department of Energy and Climate Change (DECC) funding, from a £20M pilot for the Energy Demand Reduction scheme.

Measures will be piloted over 2 years, and if successful, all companies will be able to bid eligible demand reduction measures into the ongoing UK Capacity Market.

The Energy Demand Reduction scheme will target energy efficiency improvements that deliver at times of peak demand, allowing an economically efficient trade-off between the alternatives of investing in new capacity and in saving energy.  This should allow the nation to manage security of supply and capital availability issues arising from the retirement of old thermal and nuclear generating plant over the next 10 years.

Firm details of the pilot will be released in June 2014, and energy efficiency grant funding applications can be submitted in October 2014.  Some form of auction will take place in November/December 2014 to fund the best value for money and most relevant measures out of the £20M fund.  Energy efficiency grant contracts will then be issued in January 2015.

Eligibility for the Energy Efficiency Grant

There are a number of eligibility criteria and exclusions.  Energy Demand Reduction scheme measures must:

• Be based in the UK;
• Be based on capital investments;
• Deliver lasting savings;
• Deliver savings between 1500 and 1900 from November to February;
• Deliver an aggregated demand reduction of at least 100kW;
• Deliver savings that would not have happened anyway;
• Most likely have simple paybacks of over 2 years;
• Not just shift demand in time;
• Not be based on switching to off-grid supplies
• Not be based on reducing economic output;
• Not be based on measures which already receive government financing support or tax relief
• Not be based on behaviour change.

Measures can:

• Combine several technologies on the same site;
• Aggregate reductions across several sites;
• Be installed up to 9 months after acceptance of the bid.

Monitoring and verification must be robust, but can be based on a mixture of before and after metering, engineering estimates or even deemed savings for well-accepted situations.

Additionality:

The Energy Demand Reduction scheme will also be focusing on the question of whether measures are additional to business-as-usual, and measures which help to address this will be particularly welcome.  These will probably be in areas where the conventional wisdom is that while savings are technically feasible, investments are unlikely to take place because of barriers such as:

• Poor paybacks, due to high capital or implementation costs;
• Internal funding priorities which deliver higher returns;
• Inconvenience in gathering data to build the business case;
• Lack of resource to mobilise information or drive forward multiple internal and external stakeholders;
• Difficulty in making the case in situations where the accepted wisdom lags behind the availability of new technology and techniques.

Energy Efficiency Grant Payment

The energy efficiency grant payment will be split between completion of installation and delivery of savings.  It is likely that a flexible regime will be adopted to trigger receipt of the final payment, based on the robustness with which savings can be demonstrated.  It will most likely require assessment of the existing equipment and demand, based on historic consumption data, with data required from one season of delivery between November 2015 and February 2016.  Deemed savings measures may be able to receive payments more quickly than this.

Our Overall Thoughts on the Energy Efficiency Grant

This is a very exciting scheme, as it starts to bring reality into the energy supply market.  For too long policy has neglected security of supply and failed to drive home the equivalence between energy demand reduction and capacity availability.  At this stage the DECC seems receptive to opening the throttle on energy demand reduction, so opening the door to massive replacement of capacity.  We expect that depending on the outcome of the pilot, energy generators will firstly consider how to lobby and trim the potential of the scheme - after all, selling power is their core business.  We also think that when they have reflected, the Energy Demand Reduction scheme will stimulate generators to abandon their old business models and move to offering fully integrated energy services to customers.  In fact, we hope that most generators will already have their service models in a late stage of development.

The Energy Demand Reduction scheme will transform the way in which the UK thinks about and uses energy.  This change in mindset may see the UK rapidly abandon some of the failed experiments in early adoption of new technologies, such as solar PV.  Once you start stacking up a market-led merit order of generation and energy demand reduction measures, massively subsidised imported technologies quickly cease to make sense - financially, sustainably and politically.

Getting back to earth though, by providing that long-awaited “grant” style approach, the Energy Demand Reduction scheme may help to overcome some of the inertia that has held back energy efficiency projects - free money from an energy efficient grant is too tempting for many decision makers!

The ability to aggregate measures across technologies and sites also gives welcome flexibility for organisations that are distributed in nature rather than centralised.  The further ability to combine measures between separate organisations will boost the competitiveness of the SMEs that are increasingly important to employment and our economy.

Energy Demand Reduction: Next Steps

We know from DECC that this pilot is an information-gathering approach, so measures based on new technologies and techniques are likely to be favoured as they will help stimulate new reduction opportunities in future.  We think that the best strategy for companies interested in this pilot is as follows:

• Use it as an internal excuse to get your energy efficiency opportunities properly organised, so you can start investing in the no-regrets measures!
• Once you have identified your opportunities, screen for those whose characteristics are likely to score highly in the bidding process.

Projects to target for the energy efficiency grant:

1.    Have paybacks that are just outside of your financing threshold;

2.    Are not obvious - avoid measures such as basic replacements of outdated lighting or boilers, unless you can offer very sharp pricing;

3.    Have particular barriers to implementation that can be referenced;

4.    Apply in situations where general business margins are low and capital is tight;

5.    Involve early adoption of a proven technology - whilst taking care to avoid the usual pitfalls!

6.    Are scalable across many potential adopters and sites.

We think that the successful applicant in the energy efficiency grant process will take great care to offer value for money.  While a welcome boost to the cost-effectiveness of projects, the Energy Demand Reduction scheme will not support a feeding frenzy for consultants and installers to boost margins with pass-through costs.

The details of how to apply for the energy efficiency grant will be released in June.  It’s been a long wait, but we are nearly there!

For further information connect with me by following this link: Jonathan Churchman - Davies. My earlier sustainability posts can be read by following this link: Business Sustainability

Is the criterion for the energy efficiency grant achievable for your business?  Will you be applying for the energy efficiency grant?  Do you share my optimism for the potential of the new scheme?  Please leave your comments below. 

 Photo Credit: Kav777

Tags: business advice, sustainability, uk government