Contract energy management can bring renewable energy to the community
Between micro-installations and large-scale renewables are community-scale projects — with huge potential to help exploit renewable energy. Gambi Chiang explains how contract energy management can help develop this sector.
We have all heard stories of failure of small-scale renewables — the biomass boiler that is left to run as the backup while the gas boiler takes priority, the CHP plant for which only a fraction of the heat is used, or the badly sited small-scale wind turbine. We also all know that we have a commitment to increase the share of renewables in electricity generation from the present 6% to 15%.
With such a huge gap it is right that much of the focus from the Government and public on large-scale renewables. However, if we want security of supply and diversity, we need to take advantage of all the opportunities — not just the large-scale ones.
Between the micro-installations and the large scale, community-scale projects have excellent potential to fill the renewables gap — and to do it effectively and efficiently.
We are not a nation that takes easily to community scale. In the UK only 12% of heating is provided by district heating; in Denmark it is 43% (see chart). In Denmark, CHP installations provide 53% of the country’s national power production; the UK is only 7%.
This is a shame because renewables work so much better at community scale, where the load profile can be combined and create a constant energy demand. In addition, operating costs can be shared, and management and maintenance centralised. But where will the capital investment come from?
Under the current economic climate, with companies trying to reduce the debt on their balance sheets and banks so loathe to lend, the private sector will avoid any non-essential capital expenditure. Since the Government’s comprehensive spending review the public sector is even tighter.
There is where the energy-supply contracting model comes in — a business model that brings low-carbon energy without upfront cost.
With energy-supply contracting, the efficient supply of useful energy such as heat, steam or compressed air is contracted and measured in MWh delivered.
There are several parties in this arrangement (see schematic)
• The energy supply company (ESCo) is responsible for design, finance, build, operate and maintain the new energy plant. It guarantees the supply of useful energy at an agreed quality level.
• The building owner signs up for a 10 to 15 year supply contract with the monthly fee according to a contract rate, which is charged on a consumption basis.
• The finance company may be a third party or may be the ESCo itself
• The fuel supply company may just sell fuel to the ESCo, or may itself be the ESCo.
With this model, building owners pay no upfront cost, and have very much reduced risk. The risks are transferred to the ESCo, which will have experience of installing and managing new renewable technologies since it is their core business.
Furthermore, ESCos will be keen to install renewables. They understand how to reap the maximum benefits from the various incentive schemes, whether they be the Climate Change Levy the Renewable Obligation Certificates, Feed-in Tariffs, the Renewable Heat Incentive, CESP (Community Energy Saving Program) or CERT , or even a European Fund under the delightful name, JESSICA, which supports sustainable and low-carbon urban development projects.
The larger-scale energy plant can allow the flexibility of switching fuel, or using multiple fuels. For example, a natural-gas turbine can be built with the provision to use synthetic gas in the future.
We are now seeing more mixed-use community-scale developments, with a mixture of offices, dwellings, retail and leisure providing ideal opportunities to exploit diversification — so long as one company can supply all the different uses.
BSRIA conducted research into the UK energy-services market last year. We forecast that the market for energy-supply contracting market will grow from £319 million to £2.2 billion in 10 years’ time. ESCOs include companies that have been in the market for decades, like Dalkia and Cofely, council-owned district-heating companies and several major utility companies. Traditional facilities and maintenance companies are also entering the market, and, from our research, these companies are in the best position to offer the desirable attributes to become a successful ESCo — attributes which include customer relationships, and knowledge of the energy-efficiency market.
In summary, we have demand-side drivers in multi use developments and the avoidance of risk and shortage of capital for building operators, On the supply side, ESCOs can buy fuel at lower prices and capitalise on grants. These factors together will support rapid growth in the sector and a major driver for the growth of community-scale renewables.
Gambi Chiang is a principal consultant with BSRIA and the author of ‘Energy services UK’, a BSRIA market report.