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Taking Responsibility

10 September 2010

The pressure is on to reduce carbon emissions and energy use, but it is not a easy as it might first appear. Often those with burden of costs of implementing energy efficiency improvements do not benefit from lower energy bills. This is a key issue, as Jane Fenwick discovered

THERE IS NOW NO DOUBT that energy management has risen to the top of not only the FM agenda but also to the boards of major organisations in private sector. This Energy@Work supplement is testament to the interest and activity across the FM sector with advice, technology and product solutions all jostling for attention. For many FM service suppliers, their energy management services are a key component of their business offering and they have increasingly found an open door to their advice and practical solutions. The arrival of the Feed in Tariff has made small scale sustainable power generation a much better financial proposition. With the Government’s announcement that local authorities can also earn from not just the heat but electricity it generates from ‘green’ sources, a significant new source of public finance has been born.
Government has set the target to reduce its department’s carbon emissions by 10 percent by next May, and to a large extent the Government is now leading the way. It recenlty published its Energy Efficiency Code, a voluntary commitment for central government and FM contractors to work in partnership to identify and deliver energy savings for the mutual benefit of both parties.
Recently, the the Office for Government Commerce (OGC) also produced draft guidance on energy efficiency for FM contractors working for the Government. The consulation on this guidance closes at the end of this month. This ‘Principles of Energy Efficiency in Facilities Management’ guidance provides an overview of the issues and mechanisms which can be used in FM Contracts to drive energy efficiency.
However, it also opens a window on what is currently obstructing better energy efficiency. For example, look at the questions posed in the preamble identifies key issues and questions in the panel right.
Julian Miller of energy management specialists, AEC Environmental Ltd , has identified some issues inherent in public sector contracts that ‘prevent’ better energy efficiency. He writes:
“There is a fundamental problem in particular with PFI and Prime contracts, many of which have been set up in such a way as to discriminate against improving energy efficiency. Whilst this is probably unintentional, some of these contracts run for decades, so without some drastic action the problem isn’t going to go away.
“The core of the problem lies with where ‘energy risk’ (procurement) lies in relation to the control of that energy. If these two are not aligned there is a disconnection in common
interest, where there is a lack of common interest inertia results.
“Under most PFI contracts the building occupier pays the energy bills (thus has energy risk), but the PFI contractor operates the building so controls how that energy is used. In order to improve energy efficiency, the cost would be borne by the PFI contractor but the benefit accrues to the occupier. Guess what? Nothing happens… why would it? One way of overcoming this may be for the occupier to foot the bill for improvements, given a good savings opportunity he would surely be happy to do so.
“But there is another problem lurking in the PFI contracts. The contractor has a range of KPI’s to meet with regards to, amongst other things, the provision of heating and cooling services, with penalties for failure to do so. These KPI’s are set out presumably by lawyers who have no knowledge of how energy in buildings actually works. Thus, for example, constant levels of heating and cooling services are dictated by the contract regardless of demand. A simple example is a KPI of ensuring boiler flow temperature maintained at 82ºC.
“Some bright spark comes along and suggests, quite rightly, that improvements could be made along the lines of controlling to demand and not to a constant. The occupier thinks that this is a good idea, he will save money and, being the bill payer, it will improve his CRC returns and building services will not be compromised. So far so good, but to make anything happen the PFI contractor must make the necessary changes …. remember he controls how the building operates.
His response is a short sharp NO, because controlling to demand will severely compromise his ability to meet the KPI’s and hence he will be penalised for his efforts.
“The irony in many cases is that the PFI contractor will agree with the prognosis that by taking a specific action savings will result, and that the systems ability to deliver adequate heating or cooling services will not be effected, but they can’t because of their contractual obligations and won’t because to add insult to injury there is no financial benefit for them to do so, just additional cost (of implementation). It is not unreasonable to suggest that a significant amount of savings would result if this anomaly were satisfactorily resolved.
“The crux of the matter is that the interests of the various parties are not aligned, they may all wish to ‘do the right thing’ but can’t as a result of the restrictions placed upon them by the contract. To resolve this placing energy risk (procurement) with energy use (control) would certainly be a start, that way investment and benefit sit on the same side of the fence. Some use of common sense in determining a buildings’ ‘requirements’ would also help. Do lawyers speak to building engineers? I doubt it.
“It is fair to say that many PFI’s and prime contracts were set up before the current focus on energy and the environment and certainly before the CRC, but there are a lot of them out there set up in such a way that even if the spirit was willing the ability is very weak. The moral of the story is that without risk there is no reward. If contracts that effect energy management in any way are to work to improve energy efficiency, reward must therefore be aligned with risk.”
Survey results
PFM’s survey of its readers for this Energy@Work supplement reflects some of these issues. Nearly 70 percent of respondents were facilities managers, but nearly 60 percent do not have responsibility for the procurement of energy in their organisation. It is largely the Procurement Director or the Finance Director who also have a procurement role. They purchase the energy and their ‘bottom lines’ are most likely to benefit from the energy savings.
Some 59 percent of our survey respondents manage up to five buildings, with a further 35 percent managing up to 20. These facilities comprised a mix of uses including industrial/process plant (24 percent, datacentres (41 percent), public facilities (24 percent) and leisure facilities (14 percent) that will have a higher energy consumption than standard office environments.
Some 94 percent of respondents’ organisations have adopted strategies to reduce energy consumption and it is facilities managers who are responsible for deliverig the energy reduction targets (78 percent) or energy managers (19 percent) See graph top left.
There appears to be good support from senior management for energy management (89 percent). However, 11 percent of these respondents appear to be soldiering on without the support of their managers and 80 percent are also without financial support.
A majority of respondents (65 percent) are working closely with their FM suppliers to achieve these targets. Staff support is also a key component with awareness campaigns (78 percent), education (43 percent) and management edict (22 percent) being the main routes to behavioural change.
The Government is asking these questions in its consultation on Principles of Energy Efficiency in Facilities Management.
1. This guidance has been developed on the assumption that FM contractors have sufficient control over building systems to make a significant contribution to the delivery of energy savings.
Do you support the view that FM contractors often have the control over the energy consuming systems to play a key role in the delivery of energy efficiency?
2. The objective of this guidance is to promote the use of an output specification to allow FM contractors to innovate to deliver value for money for the public sector, rather than specifying inputs in the contract.
Do you think that this approach will allow FM contractors the flexibility and incentives to deliver energy savings?
3. The guidance seeks to incentivise the FM contractor to deliver energy savings through reporting, audits of energy profiles and equipment, minimum performance standards and a gain share mechanism.
Do you think that these are the right mechanisms to drive energy savings in FM contracts?
Are there any other mechanisms which should be considered?

4. This guidance sets out how a gain share mechanism might be used to share financial savings with FM contractors.
Do you think that a gain share mechanism will provide sufficient incentives to investin human resources to deliver financial savings?
Do you think that the gain share mechanism is an appropriate way of incentivising FM contractors to invest in capital assets to deliver financial savings?
Are there any other contractual mechanisms which have been shown to be effective in delivering energy efficiency?

5. The guidance sets out proposals for developing a Baseline Energy Consumption, against which performance can be monitored. The guidance suggests correcting for
weather, public sector led initiatives, headcount, working arrangements, staff behaviour and public holidays.
Do you agree that the interference factors listed in this guidance are the right factors to be corrected?
Are you able to provide any methodology or mechanisms which can be used to correct Baseline Energy Consumption for interference factors?
Do you agree that a contractors’ performance be isolated from ‘interference factors to be able to reward contractors for their efforts? “

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