Opportunity knocks?

20th November 2014

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Paul Suff reports on an event to discuss the forthcoming energy savings opportunity scheme

By this time next year, around 7,000 businesses in the UK should have completed an energy audit, and notified the Environment Agency that the assessment is completed and approved by a board-level director. Alternatively, their total energy consumption will be covered by a certified ISO energy management system. These are the ways companies can demonstrate compliance with the new energy savings opportunity scheme (ESOS). It transposes article 8 of the EU Energy Efficiency Directive (2012/27/EU) into domestic regulation.

Under the scheme, which is mandatory, large companies – with at least 250 employees or an annual turnover of more than €50 million and a balance sheet exceeding €43 million – will have to complete an assessment of their energy use every four years. The first ESOS audit must be completed by 5 December 2015.

According to Decc, firms that implement just 6% of the measures identified by the assessments will save a cumulative £1.9 billion between 2015 and 2030. If uptake is greater the savings could be as high as £3 billion. However, ESOS does not require participants to implement any of the energy efficiency recommendations identified by the assessment. So will the scheme lead to greater energy savings among big business or will the assessments be a waste of human energy? What will ESOS mean for firms that are already committed to securing efficiencies? Is there sufficient capability to identify potential savings or will ESOS fail because of a lack of good energy auditors? What can the profession do to ensure ESOS is a success?

To answer these questions, the environmentalist and WSP hosted a roundtable event on ESOS in October at Media City in Manchester.

Positive move?

David Symons, director at WSP, chairs the discussion and his first question to the panel is to ask whether the scheme will have a positive impact on their firms and other businesses. He points out that WSP, as well as providing advice to scheme participants, will also have to comply with ESOS. He says it is unlikely to make much difference to how the company operates, though, as it is already aims to be as energy efficient as possible.

Although Yorkshire Water has done much over the past few years to improve its energy efficiency, transformation and implementation manager Sam Hughes believes the scheme may provide an opportunity to do more. “It sets a framework around energy efficiency and provides practitioners with an opportunity to raise it at board and investor level,” he says. “We’ve got more than 3,000 sites. Some of these are big energy users, while others consume relatively little. We’ve invested a lot in energy efficiency, particularly at sites where consumption is highest. ESOS has provided the push to seek extra resources so we can make an investment case for smaller sites.”

Colin Robertson, group head of sustainability at engineering, IT and facilities management business NG Bailey, also considers the creation of ESOS to be a positive move. “I see it as helping to unlock some of the efficiency potential in organisations that have been slow on the uptake. It could be a boon for energy managers in organisations that are struggling to get traction for efficiency initiatives,” he says.

Stephen Barker, head of energy efficiency and environmental care at Siemens UK, is also broadly supportive of ESOS. However, he feels that the lack of a requirement to implement the findings of an assessment and the weak auditor requirements mean the scheme is a missed opportunity. “It will provide a nudge to get moving for those companies that have been considering doing something. But I fear they will be the minority,” he says. “Nonetheless, we should applaud the requirement for energy-saving measures to be defined in terms of lifecycle costs and not just simple payback, and also for the fact that senior directors are required to sign off the ESOS report.”

Sue Manning, from the health, safety and environment team at Cummins UK, believes that the eventual success of ESOS will depend on the organisation: “I wonder whether it will add any value for those businesses that are already actively engaged in energy efficiency activities?”

Andrew Dutton, head of environment at Liverpool John Lennon airport, agrees. “I think very few companies already on an energy efficiency path will get anything extra out of ESOS,” he says. “For those firms, the ESOS will mean spending money to get someone to confirm what they are already doing. Say a final assessment costs £25,000. That’s the cost of installing 750 LEDs … which has more environmental benefit?” Dutton is also not convinced that legislation will drive companies not already attracted by energy efficiency to embrace it. “If a company’s board isn’t already aware of the potential for energy efficiency to save money, I do not think ESOS is the tool to change that. Indeed, the legislation might act as a barrier, as it entails a cost [for an assessor].”

“I’d agree with that for some organisations,” says Simon Clouston, technical director at WSP. “I think there is definitely an argument that companies with a well developed energy efficiency programme will gain little from ESOS.” He does, however, see others, particularly firms owning a lot of properties, potentially benefiting. “It might raise the level of understanding of energy across the estate of an organisation with an extensive property portfolio. I think some companies will look at the scheme and say: ‘We’ve got to do it, so we might as well make sure it
adds some value’,” he says.

Tick-box exercise?

The majority of the panel considers the likelihood is high that most companies will regard ESOS as a tick-box compliance exercise. “Once it is subject to legislation, there is always the risk that energy efficiency becomes a compliance matter,” says Dutton. “Then it’s more a case of what does the legislation say and what do we need to do to comply? Rather than asking what’s the opportunity and how far can we go to ‘push the envelope’ to improve business and environmental performance.”

“I tend to agree,” says Barker. He estimates that just 5% of organisations in the UK could be classed as being energy efficiency exemplars. “Anything that increases that number should be welcomed,” he says.

In his opinion, the 80/20 Pareto principle is likely to apply as companies prepare for the first ESOS deadline. “I think 80% of companies will regard ESOS as a compliance exercise, while 20% will see the link between good energy practice and business benefits. That’s the problem with this and similar legislation: it should be seen as an opportunity to improve profitability, but most organisations will not focus on that; they will only regard it as something they need to comply with.”

Barker also highlights the risk that some firms will automatically place ESOS with the compliance department without realising that the scheme is geared towards saving money. “We’ve been talking for some time to a company, which spends about £10 million a year on energy, about how to improve efficiency,” he says. “It was only by accident that we discovered that responsibility for ESOS had been handed to the compliance team, which was completely separate from the team looking at energy efficiency.”

“There is definitely the potential for ESOS to be seen just as more ‘red tape’ and therefore a compliance issue,” concedes Robertson. Dutton believes the “simplification” of the carbon reduction commitment (CRC) scheme, under which changed it from promoting good carbon management practice by transferring levies from poor to good performers to being a carbon tax, could undermine ESOS and encourage the view that compliance is preferable to engaging actively with efficiency. “Practitioners in many businesses felt sold down the river by the CRC, so some will just make an allowance in the budget to comply with ESOS and leave it at that,” he warns.

Hughes acknowledges that companies can comply fairly easily by ticking a few boxes, but believes that others will apply the legislation in the spirit in which it is intended and seek to derive some benefit. Clouston thinks the impact of ESOS will vary across three distinct groups of companies. “There’s the group of firms that is well on top of energy efficiency, so ESOS will merely be a compliance exercise because it does not add any additional value. At the other end of the spectrum, there are the companies that are not engaged with the process and ESOS will not alter that. They will also, for different reasons and in a different way, treat the scheme as a compliance issue. Then there’s the group in the middle. They will start to engage with energy efficiency in a way that they haven’t really done before. ESOS will spur activity.”

The other main fear among the panel is that consultants will benefit most from ESOS without it being of any lasting value for scheme participants. “Companies should carefully evaluate the need and benefits before engaging a consultant,” warns Manning.

WSP is offering ESOS services and Clouston says he hopes the consultancy sector as a whole will use the scheme as an additional lever to make the business case for energy efficiency rather than approach ESOS as a short-term, money-making exercise. “Irrespective of whether firms want to use consultants or not, my approach is always to stress the potential to clients, and why they should see ESOS as an opportunity,” he says. “It is our job to articulate what the opportunity is and promote energy efficiency as part of a long-term journey. Basic scheme compliance is only good for consultants in the short term, providing a little bit of revenue. But we’re focused on building long-term relationships.”

Barker believes there is a danger that some consultancies will provide no more than a simple compliance service, but says there is an obligation on service providers to offer much more. “As an [energy efficiency] industry we should be doing more to get across the message that it is good business practice.”

NG Bailey is another business hoping that firms fully embrace the opportunity element of ESOS as it works with clients to reduce energy consumption. “We have to push the argument that energy efficiency is something that will benefit an organisation,” says Robertson. “ESOS gives service providers another opportunity to have that conversation. Whether service providers like NG Bailey benefit from ESOS will depend largely on how participants embrace the scheme, and that comes back to whether they take a compliance-first view or use it to drive down energy use.”

Barker points out that certification bodies are already promoting ISO 50001, the energy management standard, as an alternative to an ESOS audit. He believes many organisations will opt for 50001: “If 50001 is done properly that wouldn’t be a problem, but some might take that route just to tick the compliance box.”

The skills deficit

Many on the panel raise the issue of auditing skills and whether there are enough highly skilled assessors in the UK to ensure that ESOS audits add value. “There are few good energy consultants in this country,” says Hughes. Clouston agrees: “Good auditors are extremely scarce. I try to recruit them, so I know how difficult it is to find good ones.”

He says many have a good understanding of the standard technical solutions for saving energy, but describes as “rare beasts” those who have the ability to combine technical knowledge with thinking on their feet to apply a solution in specific circumstances. Robertson offers a similar view: “Good auditors have to be able not only to identify the opportunities, but also to help secure the funding and deliver the expected savings. It’s not easy to find those people.”

Hughes says that auditors often lack the specialist knowledge and skills his company requires. For Yorkshire Water, he argues that engineers would be better than energy auditors for energy assessments, particularly when examining the firm’s processing operations. “Someone auditing our head office requires a completely different skills set from someone assessing one of our process sites,” he says. “The head office consumes only about 1% of our overall energy spend, so it is more important to audit our processes effectively. That’s about complicated engineering, hydraulics and biological processes. To carry out an effective assessment, auditors probably need to be process engineers; they need to able to interact with staff, so must understand the process.”

Hughes points out that, because Yorkshire Water has invested significantly over the years in energy efficiency, much of the “low-hanging fruit” has gone, so assessors will need to come up with innovative solutions.

“We also need them to work within the framework of our business or we have to do a lot of work ourselves on recommendations because they are not in a suitable format to fit our corporate systems and enable us to bid for resources,” explains Hughes. For these reasons, Yorkshire Water has taken the decision to do its ESOS assessments internally. Cummins UK also plans to use its own in-house expertise wherever possible to comply with ESOS. “We have energy champions in place who know the business, the people and the actions taken over the past few years to reduce energy consumption, so we will build on existing programmes and resources,” says Manning.

Barker acknowledges that it is a challenge to find good auditors, but argues that external expertise can bring a new dimension to the assessment process.

“A combination of internal and external expertise can be very beneficial,” he says. “There are always new ideas that can be brought in from outside if you get the right external auditor – someone with good experience of implementing solutions who knows the pitfalls and actual paybacks, not just the theory.”

Barker adds that outside knowledge can also help deliver cross-sector good practice.

Dutton says assessors need to listen more to clients. “They need to sit down with the client and understand their business and their needs. It’s not just about applying a solution that has worked elsewhere because they think they know best,” he argues.

Clouston agrees, talking of the importance of these “softer” skills. “Yes, they need to listen and understand, and not assume what you did before will work again in another organisation,” he says.

There is also concern that, because there will be a spike in demand for assessors in the run-up to the 5 December deadline next year, service providers will be reluctant to invest heavily in developing good-quality assessors for the long term. “There are now degrees and MScs in sustainable energy management, so there are more energy specialists emerging and the future is not bleak. But I worry that, in the short term, the market will be flooded by irresponsible ESOS providers,” says Hughes.

Professional opportunity?

Symons is keen to know what the panel thinks the environment and energy profession can do over the next few months to make ESOS a success.

“I think, as a profession, we have to be better at selling the benefits of things like energy efficiency in our own organisations,” says Dutton. “We’re usually competing with other functions for resources from the same pot of money. Often, our colleagues are better at selling their project. It tends to be easier to get resources if you show you’ll make rather than save money.”

Barker offers a similar perspective. “Too often, environment and energy practitioners fall back into explaining the technical details of a solution. That won’t win over the board. You need to talk in business terms,” he says. “We need to move from talking about products to talking about the business benefits. A finance director doesn’t want to know about variable speed drives, for example. He or she is interested in what installing them will do for the company.”

“In theory, everyone should benefit from the translation of saving energy to saving money,” says Manning. “But you have to make a good business case for spending money.”

Hughes also agrees that being able to sell a project is important and the ability of practitioners at Yorkshire Water to do that well is one reason the company has a strong energy programme, he says. “But, for us, energy is such a huge cost, directors have bought in to the idea that energy efficiency is good business.”

“ESOS is another chance to raise the profile of our profession, that it provides a great career path for young people,” says Clouston. “ We need to make sure we grasp that opportunity.”


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