The government aims to enable businesses and industry to improve energy efficiency by at least 20% by 2030, in order to enable the sector to contribute to low-carbon economic growth.
As a result, effective energy and carbon reporting could play an increasingly prominent role to help monitor and improve performance and the government has recently released plans to streamline the process, heeding calls that the current process is too complex.
The latest government energy trends data show that from 2012-17 average industrial electricity prices rose by 5% in real terms and gas prices rose 9.1% in real terms from 2016-17. These increasing costs, along with emissions reduction targets and an increasingly flexible energy system, mean that monitoring and subsequently reducing energy usage presents opportunities for businesses to make savings and increase revenue.
The current framework
A mandatory carbon emissions reduction scheme, called the CRC Energy Efficiency Scheme has applied to large energy-intensive organisations in the public and private sectors in the UK since 2007, with the aim of incentivising energy efficiency and emissions reductions. Under the CRC organisations are required to monitor their energy use and report their energy supplies annually. The system calculates companies’ CO2 emissions and participants must purchase and surrender an allowance for each tonne of CO2 emitted. Allowances can either be bought at annual fixed-price sales or traded on the secondary market. Many businesses felt the scheme was too complex and in October 2017 the government opened a consultation to gain views on the introduction of a framework to be introduced from 2019 to replace the CRC.
A mandatory scheme for energy efficiency assessment also applies to large UK organisations (defined as employing 250 or more people, or with an annual turnover of more than £38.9mn and an annual balance sheet total in excess of £33.4mn) called the Energy Savings Opportunity Scheme (ESOS). Organisations that qualify must carry out assessments of the energy used by their buildings, industrial processes and transport every four years. The information is then used to identify cost-effective energy saving measures. Established in 2014, ESOS is now moving into Phase 2. The second assessment must be carried out before 5 December 2019. Non-compliance may lead to possible enforcement action, such as a fine, which has already been taken against a number of non-Phase 1 compliant organisations.
Streamlining the process
On 18 July it was announced that from April 2019 large companies will be required to publicly report their energy use, emissions and efficiency measures under a new Streamlined Energy and Carbon Reporting (SECR) scheme to simplify reporting requirements and improve energy efficiency uptake. Under the new rules, unquoted businesses will have to report their energy use and emissions relating to gas, electricity and transport, and an intensity metric, through their company’s annual reports.
Quoted companies will continue to report global emissions and an intensity metric, but in addition will report their total energy use. As with ESOS, the rules will apply to any UK-based company with more than 250 employees or hit a specific turnover or balance sheet threshold.
By simplifying administration processes, the government has estimated that SECR will save businesses £20mn compared with the CRC. However, it also estimated an increase in total costs of around £2bn from 2019-35, mainly as a result of an expected increase in uptake of energy efficiency measures. Also included in the analysis were the costs of closure of the CRC and a resulting increase and rebalance of Climate Change Levy (CCL) rates, which is expected to lead to energy and emissions savings but incur additional costs in terms of admin, capital and operational costs.
Overall, from 2019-35, the government estimated a net benefit of around £1.5bn from switching from CRC to SECR. It was argued that SECR would raise awareness within businesses of energy efficiency and enable investors to increase their ability to hold firms to account. Energy and Clean Growth Minister Claire Perry said consultation respondents gave a clear message that “mandatory reporting is important, that it should align with best practice in the UK and internationally, build on the existing mandatory reporting of greenhouse gas emissions by UK quoted companies and the ESOS and ensure we are not imposing unnecessary administrative burdens on UK business.”
A market shift required
With the change the government will hope to see a shift in the energy efficiency market. Its own research from May found that in order to meet the fifth carbon budget, this sector would have to grow at a rate of 20% per year, compared to an estimate of 10% per year from 2017-26. In June the Energy Efficiency Verification Specialists (EEVS) released a report on non-domestic energy efficiency in the UK. The figures showed that 60% of the non-domestic consumers surveyed commissioned energy efficiency projects in Q1 2018, which the consultancy said was part of a “notable step down in the volume of procurement over the last year”. In 2016 procurement did not drop below 65% for any quarter and reached a high of 80% in Q4.
Opportunities to make improvements
Despite an under performing market, incentives are available to businesses to improve energy efficiency and therefore potentially take advantage of cost savings through reduced bills and potentially sell excess energy to the grid.
Developments over the past couple of months have included a government announcement of a delivery date of March 2021 for its Industrial Heat Recovery Support scheme, which aims to support technologies that recover waste heat produced by industrial processes. It also announced a Construction Sector Deal worth £420mn with an ambition to halve the energy use of all new buildings by 2030, and declared winners of an innovation competition aimed at helping businesses control their energy through the use of tailored smart meters. A consultation has also been launched – open until 26 September – which seeks views on a package of government measures to support business in improving their energy use, which could include strengthening of building standards over time and facilitating the growth of the energy efficiency market.
In conclusion, businesses should maintain awareness of changing legislation requirements on reporting requirements to avoid charges and take advantage of opportunities for savings.