Features | Policy

The Government’s new mandatory Carbon Reduction Commitment scheme could save businesses £1 billion by 2020. Douglas McLeish, Corporate Markets Director at npower discusses why businesses need to start planning now and why an effective energy management programme is essential.

It is less than a year to go until the Carbon Reduction Commitment (CRC) goes live in April 2010.

Large retail chains, industrial businesses, banks, universities, call centres and public sector bodies will all be among the organisations covered in the scheme, which aims to reduce the UK’s emissions by 1.2 million tonnes of carbon per year by 2020.

The CRC has been on the horizon for a while. In May 2007 the Government announced its intention to implement this new scheme in the Energy White Paper, making the initiative compulsory for businesses and organisations with annual electricity consumption through half hourly meters of at least 6000 MWh. With the clock now ticking down to the April 2010 go live date, many are taking a more urgent interest in the scheme and what it will mean for their organisations.

New research from npower reveals a positive business attitude to the CRC. In the sixth edition of the npower Business Energy Index (nBEI 6), 75% of businesses said they are ready to participate in the CRC. However, the CBI recently claimed that many businesses are still unaware and unprepared for the scheme suggesting that education is still required in some areas of the business community.

The CRC is a mandatory emissions trading scheme, targeting emissions currently not included in the EU ETS or Climate Change Agreements. All energy other than transport fuels will be covered, such as electricity, gas, fuel and oil. Under CRC, participants have to purchase allowances equivalent to their emissions each year.

The scheme is divided into set time periods known as phases. The first phase is the introductory phase and runs for three years until April 2013. Subsequent phases each last for seven years. Emissions reduction is achieved by means of a cap on the total number of allowances available to the group of participants, but this will only be applied in subsequent phases - there is no cap during the introductory phase.

Until April 2013, the price of the allowances will be fixed at £12 per tonne of carbon. Thereafter, allowances will be allocated through auctions.

Participants will have to forecast energy consumption at the start of each trading year and buy enough allowances to cover the emissions included in the CRC from their business. At the end of each trading year, they will report on the emissions produced and surrender a corresponding number of allowances.

CRC participants who find they have a shortfall in the number of allowances will be able to buy the deficit on the secondary market or through the government’s ‘safety valve’ (but at a higher price) during specific windows. Those organisations that have surplus allowances will be able to sell them.

It is important that organisations do not treat the CRC as just another layer of administration, particularly at a time when many are perhaps more focused on managing finances to get through the economic downturn. The Government has been keen to structure the scheme to provide an incentive for businesses. By encouraging energy efficiency, it is estimated the CRC will lead to savings of circa £1 billion.

What’s more, under the CRC each year a league table will be published with each participant’s carbon performance being ranked from best to worst. With the scheme revenue neutral to the Government, all permit monies will be returned to the participants subject to a bonus or penalty based on their ranking in the league table. In the first year the bonus or penalty will be between +/-10%, rising to +/- 50% in year five. This league table will provide financial reward, but also reputational benefits as the best performers will have a clear point of difference compared to their peers.

In the first year of operation, the CRC league tables will be compiled on the basis of what are known as ‘Early Actions’. These are stated measures which are considered under the legislation to provide a sound basis for carbon reduction i.e. installation of smart metering and /or compliance with the Carbon Trust Standard which is a voluntary and independent certification scheme designed to help businesses monitor their emissions using a common methodology.

UK Climate Policy for Business

Providing a clear understanding of the potential benefits to businesses of operating in the CRC, including financial and reputational, was the rationale behind npower’s recently launched white paper entitled - UK Climate Policy for Business. The paper was commissioned from the London School of Economics and highlighted how businesses that reduce emissions and make the issue a board level priority could reap the rewards of a low carbon Britain.

The White Paper stressed that firms will have to learn new skills to ensure they are operating within the guidelines of the CRC scheme, but that those that do this early will be best placed to take advantage of the opportunities that might arise. It stated that carbon policy is specifically designed to reward firms that work hard to reduce emissions, cut costs and adopt low-carbon processes.

Starting with a management plan

By elevating the CRC, alongside emissions and energy management, to board level, businesses will be best placed to implement organisational changes to maximise the opportunities offered by the scheme. Companies that achieve a reduction in their carbon emissions through effective energy management will not have to purchase as many allowances each year through the CRC’s cap and trade mechanism.

To reduce emissions, the best policy will be to develop an energy management strategy, based on long term commitment. Many businesses are now tracking their energy usage with the installation of smart meters. It has become important to use the data derived from smart meters to monitor, track and target their usage to make informed, cost-effective and sustainable decisions.

npower has developed m3 – measure, monitor, minimise – a suite of energy management products that provide support and guidance on developing and delivering an ongoing reduction of energy consumption. This includes encompass, an analytical software which makes sense of the data provided by half-hourly and smart meters.

By analysing this data in detail, encompass can pinpoint where savings can be made, arming businesses with information that could deliver actual reductions in consumption and CO₂ emissions and to better manage utility running costs. The data derived is loaded and stored to allow a complete review and analysis in graphical and tabular formats across a company’s entire portfolio of sites traversing all its utilities.

Furthermore, encompass can compare and benchmark performance against typical standards for similar businesses, government targets and past energy usage, as well as assess the seasonal pattern of consumption, compare open and closed periods, and perform sophisticated energy analysis.

In trials across six businesses, encompass identified total energy savings of over £183,000 and CO₂ emission reductions of 19.2%, achieving a payback period of less than one year, suggesting it has a valuable role to play in helping businesses meet their financial and emission reduction targets.

Companies that embrace the challenges of CRC quickly and wholeheartedly, committing to becoming a more sustainable business, will not only satisfy their obligations but will benefit financially and reputationally.

Ten steps that businesses can take

1.  Look at your company’s overall energy usage, including parent companies and subsidiaries, to identify whether your business will be affected by the CRC
2. Speak to your energy supplier to identify what help is available to reduce your energy consumption.
3. Make someone responsible for monitoring your company’s energy consumption; analysing consumption and providing regular reports to your company’s board of directors.
4. Ensure that energy management is on your board’s agenda.
5. Develop an energy management plan to reduce your energy consumption by 10-20% - companies affected by the CRC will be rewarded for this.
6. Develop short, medium and long term goals for your company’s energy consumption.
7. Decide how much energy you think you can save by each action in your plan.
8. Ask your energy supplier or the Carbon Trust to conduct an energy audit for you.
9. Set a budget for opex and capex to support your energy reduction plan.
10. Start ASAP!

About npower

• npower is one of the top energy suppliers to the UK business market, serving over 230,000 small to medium sized enterprise sites and around 15,000 industrial and commercial customers, with over 100,000 sites.
• npower is dedicated to helping UK businesses use energy more efficiently and therefore spend less money on their bills. We aim to have a positive impact on the communities we serve and reduce our customers’ carbon footprint whilst always improving our service to our customers.
• npower specialises in risk management solutions, including market-leading flexible energy purchasing, energy efficiency, and broader energy management functions, tailored to every size of business.
• npower helps companies monitor and manage energy consumption to bring commercial and environmental benefits. To help achieve this, npower business has developed a monitoring and targeting (M&T) tool – encompass. A web-based system, encompass gives businesses accurate and timely information on their energy consumption, providing them with the data they need to implement cost and CO₂ reduction policies. The system automatically collects data from half-hourly and smart meters, providing a detailed report on a business’s energy consumption behaviour, and the related cost and environmental impacts of this. With this data, benchmarks can be set and consumption tracked, alongside mapping on carbon use and cost.
• For major energy users, npower offers multi-utility management consultancy to enable organisations to improve efficiencies right across the procurement/consumption chain.
• npower customers include BT, Wembley Stadium plc, AstraZeneca and Sainsbury’s.