As the deadline for registration in the UK Government’s Carbon Reduction Energy Efficiency Scheme approaches Dave Lewis, head of business energy services at npower, argues it is essential for pharma businesses to have an energy and carbon management strategy
To all but the most committed energy manager, the UK Government’s CRC scheme can appear confusing, bureaucratic and unwieldy, leaving many unsure about how best to manage it so as not to fall foul of the scheme’s financial and reputational penalties. What will perhaps come as reassuring news is that you are certainly not alone. The seventh edition of the annual study into businesses’ opinion on energy use and carbon emissions, the npower Business Energy Index (nBEI7), also reveals large numbers are still in the dark about the scheme.
In the latest index, 44% of participants believe the level of guidance on the CRC has not been adequate, while 49% said they do not understand what is required of them to buy carbon allowances, and 44% are also unclear on forecasting their CO2 emissions, two of the scheme’s principal actions.
Sadly, confusion over the scheme won’t be considered a reasonable excuse for those missing the CRC’s deadlines – the first and most pressing being the 30 September registration deadline.
For those still completing registration then this must, of course, be the priority to avoid fines for late submission. Registration focuses on providing consumption data for all half-hourly metered (HHM) consumption during 2008, so if you have one or more HHM you’ll be affected in some way. Given the complexity of many industrial estates and the number and variety of premises included, this may be no small task.
Conversely, if you’re reading this feeling relieved at completing registration, you need to plan for the next stage of CRC and beyond. Those organisations that consumed 6,000MWh of electricity through one or more HHM during 2008 will qualify in full for phase 1 of the scheme.
It is once companies have qualified that the work really begins. The CRC will capture emissions from all fuel types, such as gas and oil, not just electricity. Participants will have to forecast their total energy consumption at the start of each trading year and the equivalent emissions. They then need to buy sufficient allowances to cover their emissions for the year ahead at a cost of £12 per tonne of CO2 initially.
Full participants will also need to report their emissions from 1 April 2010, so it may be possible that some organisations have already fallen behind in this process. The first purchase of allowances takes place in April 2011 for the total emissions in the year 1 April 2011 to 31 March 2012. This cycle is then repeated each year. In time, the value of the carbon allowances is free to move with supply and demand, plus the total number of allowances in the scheme will be capped each year.
energy monitoring
Accurate forecasting of emissions and energy usage is vital if businesses are to purchase for the year ahead accurately. For instance, forecasting too few emissions will mean a company has not bought enough allowances and will therefore have to purchase more on the open market, potentially at a higher cost per allowance. Purchasing too many allowances means cash is tied up in the CRC until allowances are recycled, which could be as much as 10 months after the purchase date.
Companies may find that specialist tools are a good option to help them to achieve this. Encompass professional is a monitoring tool from npower that analyses energy use in detail and combines historic data on consumption levels and energy usage with 20-year weather patterns to calculate future energy use. This information is used to devise strategies to reduce consumption, costs and carbon, improving management and cashflow.
Using the tool, organisations will be better placed to manage their purchase of carbon allowances through the ability to predict their carbon emissions. This will reduce the financial risk of needing to buy additional allowances on the open market.
At the end of the trading year, participants will submit details of their actual energy consumption and emissions, and surrender the allowances they have purchased. All of the information collected from the participants is then used to compare performance in terms of how well organisations have reduced their emissions, which is published in a league table revealing best and worst performers. To start with, league table position will also be partly based on an early action metric, taking into account measures to improve energy efficiency.
The league table is important for two reasons. First, monies received for the purchasing of allowances is recycled to participants, based on league table position. Those at the top receive their purchase plus up to +10% and those at the bottom a penalty of up to –10%. By year five of the scheme, this will increase to plus or minus 50% – a potentially attractive incentive to perform well.
Second, there is the impact on reputation of league table position. The public relations impact of a low league table position could be as important as the financial implications, especially in a world that is increasingly aware of organisations’ environmental credentials.
A recent report by PriceWaterhouseCoopers calculated a worst case scenario where companies could see a 20% increase to their outgoings by 2015 if they perform poorly under the CRC. It underlines the potentially significant impact of the scheme on an organisation’s bottom line.
Despite this, data released by the UK Environment Agency at the end of July showed less than 20% of the approximately 5,000 full participants had registered for the scheme, despite the registration window being open since April.
While this picture will change as the 30 September deadline draws closer, the fact that so many companies are needing the full six-month window to complete their submission suggests full preparation and collation of data may be taking longer than expected. It also suggests that many could be on the backfoot when it comes to the next stage of the scheme in April 2011, when participants will be required to submit data on energy consumption for the year ahead. Those that have not been tracking and recording energy use since April this year are already behind.
It is the potential financial and reputational risks that we believe will lead businesses to look at solutions to manage the CRC. And with many still unclear on their obligations and lacking a strategy and in-house expertise, many may opt to turn to specialists for help.
Npower is increasingly supporting organisations in managing CRC. Its ‘CRC Assist’ service, not only supports organisations in managing CRC obligations, but also in developing a longer-term strategy. The service is designed to help businesses understand the CRC scheme; assist them with the development of an energy management strategy; and manage their participation in the scheme including registration, compilation of the year-end ‘footprint reports’, plus forecasting and guidance on the purchasing of emissions allowances.
There are very good reasons for working in this way. Quite aside from the peace of mind it provides, using services such as CRC Assist should prove to be time- and cost-effective. It avoids the need to recruit and train new staff for the task, or to establish a suite of processes and procedures for compliance with CRC, thus freeing up valuable internal resources.
It could also prove to be more productive in the long-term as the CRC strategy would be based not only on compliance, but on long-term goals to deliver energy savings and carbon reductions focused on performing well under the scheme, from a financial and reputational perspective, that are linked to a company’s broader business objectives.
CRC strategy
The importance of this ongoing strategy cannot be underestimated. While all eyes might have been on registration, the fact that the real focus of the CRC is delivering emissions reduction through ongoing energy efficiency cannot be forgotten. This will require a long-term view on where energy efficiency measures can be implemented; the capital investment needed to deliver these actions; the expected outcome in terms of energy, and therefore carbon and allowance savings.
For many establishments this will require a step change in how they manage current and future energy consumption, but the CRC now provides the rewards for doing so.
Businesses that can do this will succeed under the CRC, while also enjoying significant cost savings from reduced energy consumption.
