A Winning Carbon Strategy An Alternative Approach to the Provision and Funding of Low Carbon Energy & Utility Infra

1. A Winning Carbon Strategy An Alternative Approach to the Provision and Funding of Low Carbon Energy & Utility Infrastructure Kerry Thompson • Co-founder and Executive Director Inventa Partners Ltd.

2. Agenda • Introductions • Drivers for Change • Key Issues in commercial, retail and residential development • Alternative Approach to Energy & Utility Services

3. Inventa Partners Specialise in developing and delivering strategies for the funding of sustainable energy, electricity, waste, water and telecommunications infrastructure. The Challenges The Process

4. Experience

5. Key Issues in commercial, retail and residential development Drivers for Change

6. Policy context • International • Kyoto (1997) • Post Kyoto? (provisions expired in 2012) • National • 60% cut in CO2 emissions by 2050 • CRC, CCL’s, Tax breaks (capital allowances etc.) • By 2020, around 80% of our fuels are likely to come from overseas • (DTI – Energy Review 2007) • Regional/Local • Supplementary Planning Guideline’s (SPG’s) • Local authorities – UDP & Community Energy strategies • Setting demanding targets for sustainable energy use in all new developments • Lead by example - adopting a target for zero net CO2 emissions from municipal buildings • Move to local, decentralised energy supplies (CHP supplying a significant amount of heat and electricity needs) • Investigating ESCo delivery options

7. Key Property sector drivers • Hard drivers • Planning • Building regs • CfSH, CFsB, BREEAM, Passivhaus etc • Softer drivers • CRC • Corporate Social Responsibility • Carbon reporting • Financial • Cost/benefit analysis • RoI/IRR • Benefits? • Asset value • Rent review • Running costs • Energy performance • Carbon performance freeimage.co.uk

8. Property regulatory drivers • By 2016, all new homes built in England will have to be zero carbon (CfSH) • And all other buildings by 2019 (CfSB) • Progressive changes to Building Regulations • in 2010, all new homes to show a 25% improvement in energy performance compared to Building Regulations, Part L 2006; • by 2013, a 44% improvement ‘Zero carbon’ (BERR):- • over a year, the net carbon emissions from all energy use in the home would be zero (heating, lighting, hot water, and all appliances); • achieved by improving the energy performance of the home and increasing the use of renewable and low carbon sources of energy, either installed in the individual home or supplied to an entire development.

9. The Provision of Utility Infrastructure... ... is the single biggest obstacle to property development in the UK However...

10. ...utility Infrastructure is also an Asset • Electricity • Heat • Cooling • Water • (potable, waste, non-potable, SUDS, rainwater harvesting…..) • Data (fibre optic infrastructure) The question is who benefits and how do you value it?

11. Heat – one of our major energy problems • Heat accounts for 49% of the UK’s energy needs - emitting nearly 71 million tonnes of carbon • But there is currently no heat strategy in the UK - (HESS Consultation Feb – May ‘09) • By 2030 just 4% of our energy (electricity) will be met from nuclear power • 20% of all the UK’s CO2 emissions come from the fossil fuel burnt in creating wasted heat from the generation of electricity Which means a fifth of our national CO2 emissions come from something that serves no useful purpose to us at all

12. The Challenge for Estates Owners & Managers QUESTION How do you facilitate the delivery of environmentally sustainable utility infrastructure and services whilst encouraging development - all against a backdrop of declining public sector funding? ANSWER • Reduce the capital impact on developers. • Identify a way to involve all stakeholders without acting as a brake on development. • Exploit the deregulation in the utility markets whilst ensuring consumers are fully protected. • Access the significant capital reserves held by the energy, utility and infrastructure companies. • Use the utility sector to identify the most commercially viable technologies • Use the stakeholder collaboration process to create the strategies to implement the technologies

13. Multi Utility Sustainable Infrastructure Strategy (MUSIS) Alternative Approach to Energy & Utility Services

14. The Traditional Approach ££ ££

15. The New Approach

16. The New Approach ££ ££

17. Embedded or Decentralised Energy Services • The European Joint Research Centre distinguishes ESCO’s from traditional Energy Service Providers by referring to their delivery as:- • “ESCO’s guarantee the energy savings and/or the provision of the same level of energy service at a lower cost by implementing an energy efficiency project.” • A recent EU study determined that Combined Heat and Power (CHP) is the single biggest energy solution for reducing CO2 emissions from energy generation.

18. Alternative Energy Services Energy Services Company / Mutli-Utility Services Company (ESCo/MUSCo) • How do ESCo’s make schemes more viable • Pay for proportion of enabling works (scheme looses capital costs) • Gain income stream (share receipts from sale of energy) • Or both • ESCO’s buy-in to schemes (co-invest and risk share) • ESCo provisions can enable greater flexibility (phasing, timescale, mix of use etc) • De-risks infrastructure issues associated with phasing, voids etc • Commercial viability • Developing robust Business & Financial models is key • Financial models detailing quantum of investment and forecast returns (IRR % etc.) • Options on what route to take – Capital or revenue (business/commercial preferences) – as financial models make assumptions.

19. ESCo/MUSCo Operations model ESCo/MUSCo Generation /Provision Infrastructure Resi Electricity Services Encumbent ‘YE’ Retail Heat Services Encumbent ‘BG’ Water Services Encumbent ‘YW’ Comm-ercial Gas Services Encumbent ‘BG’ Billing Management A special purpose energy services company acting alongside the developer or landlord to plan, design, construct, finance and operate the plant and infrastructure required to deliver low carbon energy and sustainable utility services

20. Statutory Utilities Gas Telecoms Potable water Power Drainage

21. ESCo/MUSCo Sustainable Community Infrastructure Vacuum waste Fibre optic network Gas IDNO/Private wire Potable water Telecoms Non-potable water Power District heat mains Drainage

22. CHP engines Peak - load boilers Biomass boilers Thermal storage devices Cooling plant Electrical substations An environmental resource a low carbon energy centre Water treatment potable & non-potable services Data services equipment Principle elements of plant Source: Hoare Lea

23. Energy Delivery Source: Hoare Lea

24. Import/ Export Agreement with encumbent x x Primary 33kV/11kV substation x x x x EC-2 Substation x x x x EC-1 Substation x x x x x x x x x x x x x x G G G G CHP CHP CHP CHP Heat and Cooling IDNO/ Private Wire IDNO/ Private Wire Embedded electricity generation - operating alongside the Grid

25. Water Services – Potable & Non-potable Potable water service and a fully reticulated “Green” Water Service (supplying up to 100% of the non-potable demand) Potable Supply Potable Supply

26. “Open Access” Fibre To The Home (Data) Network • Access for all service providers (ISPs) to an area-wide ducted fibre optic network • A MUSCo will often offer to finance and install the optical distribution network • The telecomm’s industry wholesale business model applies – i.e. the MUSCo charges service providers (ISP) for access to and use of the infrastructure network. Image courtesy of Inventa Partners

27. Example of the approach at Newham Urban Newham Heat – 3.6m LTGHN Canning Town and Custom House Beckton Heat -£1.9m Water – 50% CV Electricity - > 50% CV Data – 100% CV T&L Heat - £10m/100% CV Water – 70-100% CV Electricity - >50% CV Data – 100% CV Heat – £10m/100% CV Water - >50-100% CV Electricity - >50% CV Data – 100% CV Royal Docks

28. So Who Benefits?

29. Summary • Develop a Multi-Utility Sustainable Infrastructure Strategy (MUSIS) • Better placed to exploit the deregulated utility markets • The key is a commercial not a technical approach • Significant asset values to be realised • Increases the opportunities for exploiting energy from waste scenarios (specifically heat and power) through the creation of positive financial models • Sits comfortably alongside other fund raising and investment initiatives such as Tax Increment Financing (TiF)