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Energy on the Agenda

18 March 2011

In the 25 years since PFM was launched there have been considerable hanges in the attitude to energy and its management. Richard Derry, charts the key developments that have led to energy now being so high up the corporate agenda.

SINCE PFM WAS FIRST PUBLISHED IN 1986, the UK has seen a sea change in the general attitude to energy, with a greater appreciation of its global significance and a stronger commitment to managing it more effectively. Energy was unlikely to even be considered at board level 25 years ago and maintenance was focused on keeping plant working with no real emphasis on efficiency. During this same period we have seen building managers evolve into the highly sophisticated and specialised role of FM and are now seeing FMs take on a more significant role in energy management.
From an energy point of view, 1986 was quite a significant year. It was declared Energy Efficiency Year by the Government and the 1986 Energy World exhibition in Milton Keynes attracted interest from all over the globe. This was also the year that the UK gas industry was privatised.
However, it was the oil crises of the 1970s that set the scene for the energy scenario that existed by the early to mid-1980s. In 1973, for example, global oil prices were soaring and a work to rule by coal miners depleted coal reserves , causing coal prices to rise as well.
These events had a major impact on electricity generation and for the first three months of 1974 the Government imposed a three day working week in an attempt to reduce energy consumption. The 1970s also saw severalgovernment-led campaigns designed to educate people about energy and encourage them to minimise their use of it.
A second oil crisis followed in 1979, when oil prices rose to what was then a staggering 30p per litre and triggered a wide-ranging move away from oil as the primary fuel for heating.
Gas became the preferred option. Coal enjoyed a resurgence in popularity and people began looking seriously at straw and other biomass fuels as well.
Another highly influential event in the 1970s was the introduction of VAT in 1973. While this didn’t affect VAT-rated businesses unduly, many professions were not VAT-rated and suddenly found their maintenance bills increase significantly. However, if the maintenance was linked to an energy management contract, the maintenance services were zero-rated for VAT.
Thus the concept of energy management as part of a maintenance contract gathered pace and became a cost-effective option for many companies.
During the mid to late 1970s, contract energy management (CEM) also started to emerge, with contractors guaranteeing energy consumption for end users and assuming the financial risk of any over-consumption. These CEM contracts were mostly aimed at industrial and some larger commercial users and tended to be linked to very long-term contracts – as much as 25 years. This gave CEM a somewhat negative image and it wasn’t until the late 1970s that more innovative companies came to the market offering contracts as short as five years.
Energy then generally focused on heating and it is only relatively recently that attention has broadened to encompass the electrical consumption for other services such as ventilation, air conditioning and lighting.
As well as improving their thermal performance, buildings have become increasingly sophisticated since the early 1980s, requiring a more technical approach to maintenance. Prior to this most building maintenance was sketchy, much of it carried out by building services contractors as an addon to their core installation work. The best examples of maintenance in those days came from public sector organisations such as the NHS, the Central Electricity Generating Board (CEGB) and the Property Services Agency (PSA). This higher-level maintenance gradually spread to commercial buildings. Managing agents also found they could reduce costs and improve service delivery by employing multiskilled maintenance staff rather than managing scores of specialist sub-contractors.
In parallel, there was increased awareness of the relationship between energy efficiency and effective maintenance. As a result, the more enlightened companies began to see maintenance as a way of improving efficiency and reducing energy costs, as well as ensuring the plant didn’t break down. For example, routine maintenance the efficiency of a boiler could be increased from 65 percent to nearer 90 percent. Nevertheless, very few of these contracts included energy performance as a KPI and this is still the case.
Purchasing power
In the early 1990s, the deregulation of the energy markets took the focus away from efficiency for a while. Following the privatisation of gas markets in 1986 and electricity markets in 1990, it became possible to reduce energy bills through procurement, rather than by managing consumption. In recent times the more sophisticated purchasing of utilities has meant there is very little cost variance across the suppliers. Consequently, controlling energy consumption is again the most important factor.
This situation underlines the fact that even in the 1990s the main driving force behind energy efficiency was to reduce costs, with most organisations paying little regard to the environmental impact of energy consumption. Thus, as a company offering energy management services, our focus as this time was on the cost savings that could be achieved through efficient monitoring and targeting, combined with maintenance regimes that optimised energy performance.
By the beginning of the 2000s, the use of fossil fuels was being linked to carbon dioxide emissions and terms such as ‘global warming’ and ‘climate change’ were entering common parlance. The 2000 Building Regulations introduced the idea of Low or Zero Carbon (LZC) technologies in Approved Document L (Conservation of Energy) and these regulations and subsequent updates have proved effective in ensuring new buildings were designed to higher energy performance standards.
In 2001 the Government introduced the Climate Change Levy (CCL), in an attempt to encourage energy efficiency through financial penalties. In reality, the CCL did little to encourage investment in energy efficiency. Subsequently, Energy Performance Certificates, Display Energy Certificates and the more recent Carbon Reduction Commitment Energy Efficiency Scheme (CRC EES) have all sought to drive energy and carbon emissions higher up the agenda, with varying success. In 2008 the formation of the Department of Energy and Climate Change clearly signalled the Government’s awareness of the links between the two.
Importantly, these latter initiatives have also focused more attention on existing building stock, as this is where the war against emissions will be won and the Government’s emissions targets met.
As a result, there has been another change in emphasis – from energy to carbon – with many incentives to introduce low carbon technologies for heating and electricity generation. And the introduction of Feed In Tariffs and the Renewable Heat Incentive change the return on investment calculations so that investment in such technologies becomes easier to justify from a commercial point of view.
Interestingly, there is also a move to wider use of district energy systems, where a central energy centre serves a number of buildings with hot and chilled water and electrical power.
Large district energy schemes – such as those that we manage in Birmingham and Southampton - have been in existence for many years. Our latest scheme is the Olympic Park and Stratford energy centres in London.
District energy schemes provide the perfect vehicle for exploiting the benefits of newer energy technologies, because once the infrastructure is in place any technology can be used to generate the heat and power. These schemes also provide ‘demand side ‘generation of electricity through the CHP plant, now also part of the Coalition Government’s energy strategy
This trend has great significance for FMs, as responsibility for the operation and maintenance of central plant switches from individual buildings to the operator of the energy centre. Nor are these opportunities limited to new build situations as existing systems can also be easily linked to district energy schemes where the infrastructure exists.
So, we now have a situation where, slowly but surely, just about every organisation is being forced to look at its energy consumption. It doesn’t really matter if the motive is financial, environmental or being ‘seen to be green’ as long as the end result is improved energy efficiency. Government is demanding a 25 percent reduction in energy consumption across its estate .This will be achieved by good energy management and initiatives such as the REFIT program.
FMs have become increasingly involved in energy management and are often expected to have some expertise in driving down energy consumption while also ensuring compliance with legislation.
However, too few organisations are setting energy performance/carbon KPIs for their maintenance providers. In our experience, the majority of enquiries either make no reference at all to energy, or only make a vague reference to it. Yet, the maintenance service provider is ideally placed to monitor energy consumption and deliver the solutions necessary to improve it. The last 25 years may have laid the groundwork for a lower carbon future but it is only through the efforts of FMs and their service providers that our emissions targets will be met.
1986 Energy Efficiency Year Energy World exhibition Gas market privatised
1990 Electricity market privatised
2000 Building Regulations promote low carbon technologies
2001 Climate Change Levy
2006 Building Regulations impose more rigorous energy requirements
2007 EPCs and DECs introduced
2008 Formation of the Department of Energy and Climate Change (DECC)
2010 Carbon Reduction Commitment Energy Efficiency Scheme
Code for Sustainable Homes
Feed-in Tariffs introduced
Revised Building Regulations place greater emphasis on operation and maintenance of plant
2011 Renewable Heat Incentive introduced

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