CRC Scheme: still in the operational managers’ court

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Saving more than the CRC discount — Kerry Hamilton.

In April of this year, organisations registered with the CRC Energy Efficiency Scheme (or CRC Scheme) had the opportunity to buy allowances a year ahead at a reduced rate. There seemed to be very little appetite to do so. Kerry Hamilton of energyTEAM considers the reasons.

The CRC Scheme should be familiar enough to us all by now. It is designed to improve energy efficiency and cut emissions in large public and private-sector organisations, which are between them responsible for around 10% of the UK’s greenhouse gas emissions. Participants include supermarkets, factories, quarries, water companies, banks, local authorities and all central-government departments.

Increasingly, as we climb out of austerity and recession, the scheme will also cover growing businesses, and any firm at or near the threshold really needs to be measuring its consumption with an eye to CRC. Organisations that can see the CRC Scheme on their horizon can learn from the experiences — and choices — of those that are already working with it.

It is probably well enough known that qualification for the scheme is based on electricity usage. Organisations that consume over 6000 MWh a year through settled half-hourly meters must register using the CRC Registry, which is administered by the Environment Agency. Many firms that ‘escaped’ Phase 1 of the scheme have been surprised to find that they now fall within the remit of Phase 2 of the scheme simply because they have grown slightly or acquired another site.

The CRC Compliance year runs from April to March, and qualifying firms must order, pay for and surrender allowances to cover their annual CRC emissions — and do so by September of the following year

For the organisations involved in Phase 1 of the scheme, the allowances they must order in June and July and pay for in September 2014, will cost £12 per tonne and are related to their energy usage in the year 2013/14. That is a cost for this financial year 2014/15.

Firms in Phase 2, who are only just submitting their first annual reports, for the year 2014/15, will find the price significantly higher for Phase 2. They will need to order allowances for this consumption in next summer’s compliance sale, for surrender in Autumn 2015. The cost will be £16.40 per tonne, a price that will apply for all scheme participants, Phases 1 and 2. The message from Government is clear: save or pay.

But is the message about reducing consumption really getting through or is the CRC still being treated mainly as an accounting exercise?

The truth lies somewhere in the middle, as I have seen from talking to Phase 1 firms as they approach another payment deadline. The Government has now dangled an extra carrot of discounted allowances for advanced purchases for 2014/2015 consumption of £15.60 per tonne, if those allowances were bought in April instead of next summer, when the price will be £16.40 per tonne. However, in practice, that 80p per tonne discount is not proving very popular.

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Effective energy savings are what really matter.

For one thing, the discounted price was only announced in March, and as purchases had to be completed by the end of April, few firms had time to conduct proper analysis of the best way to invest 80p over a period of more than a year. For Phase 1 firms, buying in advance in the forecast sale would also mean having a double payment year, and few bottom lines can absorb that at the moment. Our clients, for instance, include a property company already looking at a bill for £175 000 and an NHS Trust that has to find over £300 000 as Phase 1 participants. Neither is in a position to virtually double that bill in a single financial year by taking advantage of advance purchase, even if it could save them nearly £5000 in £100 000.

So, whilst I can see that the concept of reduced prices for advanced purchase might be seen as an incentive to forecast more accurately and therefore manage consumption better, 80p is probably not incentive enough. All that really matters, at the end of the day, is effective energy-saving measures. Creating a secondary market in the differently priced CRC allowances is potentially little more than a distraction that will only help to make a few more City millionaires.

What does this mean at the coal face?

Leaving the arithmetical gymnastics behind, we come back to the original purpose of the scheme which is to make reducing consumption significantly financially advantageous.

The companies that I visit are increasingly focusing on developing a clear picture of their carbon footprint and introducing the processes and procedures that have an immediate impact on energy usage. Where capital investment is needed, a good energy audit will reveal the returns that can be realised and enable managers to make informed decisions, as well as helping to prioritise the changes they make.

The disciplines of an ISO 50001 energy management standard are increasingly appreciated by organisations in the CRC Scheme, and I work closely with a number of them to introduce the low-cost and no-cost changes that deliver the savings that matter to their business, not the City.

Kerry Hamilton looks after energyTEAM's clients that require support with their carbon-reduction initiatives including carbon footprinting and ISO 50001 energy management standard — as well as clients that are part of the CRC Energy Efficiency Scheme.

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