The CRC Energy Efficiency Scheme – Finance, Administration, Carbon Burden or Benefit?

1. The CRC Energy Efficiency Scheme – Finance, Administration, Carbon Burden or Benefit?

2. Preparations • Information and guidance obtained from: • London Energy Project CRC Toolkit • Supported by Capital Ambition • Distributed by Regional Efficiency and Improvement Partnerships • Created to help prepare Local Authorities for the arrival of the CRC Energy Efficiency Scheme • To help organisations understand the CRC • To highlight and explain the key issues • To provide practical advice and examples • Shared learning and efficiency, highlight best practice • Reviewed and validated by Department of Energy & Climate Change

3. Introducing the toolkit • Guide – Preparing for the Carbon Reduction Commitment • Guidance - accounting and finance issues • Schools Leaflet • Excel Reporting Tool – qualification, CRC Footprint and Annual Reports • Excel Modelling Tool - Performance League Table & Recycling • Excel – Example recycling payment calculator • Communication materials • Executive Summary • PowerPoint slides – elected members, senior managers & schools

4. Process or outcome?

5. Doing Something ineffective efficiently Doing something effective inefficiently Getting Ready Authorities must be effective and efficient for success within the scheme and to deliver positive outcomes

6. London Borough of Somewhere

7. Example league table and recycling payments

8. Finance Operations • Creating a new overhead in the region of £1 (+) million for 2011. • Dealing with a cashflow gap each year of six months • Being unclear how much of that fund will be recovered annually (i.e. profit/loss) • Developing a model to illustrate possible financial scenarios over the first three years trading (fixed carbon cost) and into market trading beyond the initial phase • How will any deficit be recharged internally? i.e. top sliced and absorbed as a corporate overhead or apportioned to each directorate • How will any profit be handled? absorbed corporately, or ringfenced for reinvestment for carbon projects to improve the league table position • How will scheme administration be financed and resourced? • How will joint ventures, shared services and other landlord tenant relationships be managed and accounted for?

9. Finance Operations • How will the DSG be handled as the council has responsibility for CRC for all its schools? • In the absence of a legal obligation, what mechanism can the council use to recharge each school? • Additional burdens measure for schools scheme administration. Where authorities do not buy energy for schools, gathering data, apportioning recycling payments, etc. will be time consuming. • Schools emissions are increasing and this is likely to have a detrimental impact on the council’s league table position. • Should a separate trading account be established for the DSG administered by the LA?

10. Corporate and Schools

11. 80/20 Corporate Buildings - 45% Schools - 55% Energy Manager 180Sites 20% effort 80% Emissions 20% Emissions

12. Opportunities • Increase best value procurement and corporate contract take-up • Cleanse and unify asset, energy and financial management databases • Procure energy for schools, you will have data and more control • Business process reengineering • Automate energy administration and payment process

13. Market Volatility

14. Off the Chart?

15. Best Practice Criteria – what benefits does this bring? Benefits of flexible procurement: • not solely reliant on the supplier’s view of the market • all costs that make up the delivered price of the energy are fully transparent • purchasing on the wholesale market allows the costs e.g. price risk premium • flexible purchasing also allows for the adoption of a risk management strategy. Benefits of aggregation: • larger portfolios are more attractive to suppliers leading to lower margins which can reduce costs by as much as 3% • aggregation provides the minimum volumes that are required to trade on the wholesale market and increase risk management options • smaller organisations can gain the benefits arising from larger volumes Benefits of risk management: • Smoothing out volatility and reducing exposure to market peaks – provides greater budget certainty – past performance has delivered approx 5% cost reductions • Back-testing over last 3 years of public sector flexible contracts e.g. NHS PASA, OGCbs, London Underground

16. New Pan-Government Energy Buying Guide available from OGC http://www.ogc.gov.uk/energy_download_centre.asp

17. Who needs to know? DEPARTMENT ROLE IN CRC Obligatory Director level contact required for the CRC therefore knowledge of the CRC is essential Understand risk across all departments Board of Directors Creating, managing and implementing energy and carbon abatement strategy Assessing qualification, collating data, providing footprint and annual reports Energy Management Good carbon auction strategy required. This needs close collaboration between the two departments. Budget for allowance purchase, possible imposition of a bonus penalty as recycling payment is made Understand the funding gap between allowance purchase and recycling receipt as well as the possibility of variance in the amount recycled Finance Understand what data is required and when Implement energy management projects as and when required by the energy manager and other depts. Facilities Management Understand the data requirements and the opportunities and challenges presented by the CRC Issues include: obtaining the data from suppliers as contracts start or end. Corporate Procurement

18. Insert Council penalties Use Finance Impacts Estimation Tool • Registering a month late - £15,000 • Reporting either CRC Footprint or Annual Report a month late - £34,029 • Submitting incorrect or inaccurate report data (±10% error) - £116,120 to £232,240 • Failing to maintain adequate records - £145,145 • Fines are cumulative – one offence can easily lead to another

19. Council qualifying consumption Insert a list of HH meters and their emissions to demonstrate qualification Potential to identify missed sites

20. Total footprint (2008) Insert a list of all meters and other emissions to demonstrate footprint total You may wish to identify 90% deminimis You may wish to name exclusions as a double check that they do not fall within your CRC organisation Potential to identify missed sites

21. Potential CRC Footprint You can use the CRC Data Tool to support this calculation

22. How much? • Likely CRC Footprint of ? tonnes • At £12 per tonne = £? • Plus one-off registration fee - £950 • Plus annual fee - £1,300 • Plus administration costs

23. CRC timeline First year of scheme: 2010/11 Second year of scheme: 2011/12 Third year of scheme: 2012/13 Jul 2012 Report on and surrender allowances for 2011/12 Jul 2011 Report and surrender allowances for 2010/11 April 2010 April 2011 April 2012 Oct 2012 Oct 2011 etc Spot Trading • 2nd Sale takes place • Participants pay for forecasted 2012/13 allowances • 2012/13 allowances released to participants • Government holds 1 year of scheme revenue • 2nd Recycling payment • Revenue from April 2012 sale recycled back from Government to participants • Government holds £0 of scheme revenue • 1st Sale takes place • Participants pay for forecasted 2011/12 allowances • Council costs • 2011/12 allowances released to participants • Government holds 1 year of scheme revenue • 1st Recycling payment • All revenue from April 2011 sale (i.e. 1 year’s worth of revenue) recycled back from Government to participants • Council – max £? • min £? • Government holds £0 of CRC revenue Council allowances based on 2008 CRC Footprint

24. Early actions • Voluntary Automated Meter Reading (AMR) • Council currently has ? voluntary AMR • Must be in place by 31 March 2011 • Constitutes ½ of Early Action metric i.e. 50% in Year 1 and 10% thereafter • Pro-active use delivers energy saving c.5% - £?p.a. • Cost per annum £? • Invaluable for CRC compliance • Carbon Trust Standard or verified equivilant • Council currently has / doesn’t have accreditation for X% emissions - expires date • Need to recertify? • Best results require 100% emissions coverage, inc Schools (difficult) • Cost £? plus consultancy fees and admin (if required)

25. Administration • CRC requires administration and management • Understand regulations and requirements • Data collection • Report submission • Data management • Carbon and energy management • Estimate ? man days preparation, ? man days per annum • Many other Local Authorities see CRC management as a full-time equivalent (more if schools are to be managed effectively) • Government estimate £28,500 per annum cost minimum

26. 9 Point preparation plan • Inform senior executives and elected members about the CRC and its likely impact on the council. • Liaise with finance teams to ensure allowance purchase, recycling and abatement costs are budgeted for appropriately. • Agree the term and discount to be applied to net present value calculation in the council’s marginal abatement costs model. • Create an asset register of buildings and facilities cross referenced to metered and unmetered supply points. • Inform ? Leisure about the need to collate data and declare their non-participation. • Inform ? schools about the need to collate data and declare their non-participation. • Confirm exact position of supply contracts for associated otganisations • Obtain firm quotations for AMR to cover all large gas supplies and electricity meters above and including Profile Class 3. – Buying Solutions Framework • Decide on whether the council wants to re/accredit for the Carbon Trust Standard. • Develop a Carbon Abatement Strategy.

27. Opportunities • Ensure building management staff are engaged and given appropriate information • Pull together sustainability, energy management, procurement, facilities management and finance staff • Bring together with corporate priorities, efficiencies, environment enhancement, reduce carbon • Don’t make CRC just about process and compliance, use it to reduce energy costs, invest in cost effective technologies, change culture, lead by example • Don’t think the energy manager will “do it” unless you are not concerned about league table and recycling payments.

28. Carbon Footprint Labelling • Get data once and share • DEC, N185 (et al) • Think about outcomes • BSF Specification • EPC • Natural daylight factor 5% • (BRE Guide 245) • Mitigation Plan for ICT impacts • Prioritise

29. Daylight

30. Daylight • Students with the most natural light in their classrooms progressed faster in reading tests than those with the least natural light. By what percentage did they progress faster? • 17% • 26% • 31%  Ref: Daylight in Schools, Herschong Mahone Group, California 1999 Health and Behaviour in Children in Classrooms with and without Windows, R Kuller and C Lindsten, Journal of Environmental Psychology 1992

31. Key messages • There is a need to budget for allowance purchase and possible penalty or bonus • There will be cashflow implication for all CRC participants • Need to establish accounting methods for third parties e.g. schools – payment, recycling and apportionment of penalty or bonus • Need to budget for energy efficiency & carbon reduction measures • Must view as a corporate issue, not just an energy manager or sustainability policy officer responsibility