The Energy Bill - The Green Deal, Disruption & Opportunity: What threats and opportunities does the coalition government's Energy Bill, particularly The Green Deal, hold for your organisation

Monday, November 01, 2010

18:00 - 21:15

The 2010 Energy Bill, due to go before parliament before the end of the year, is likely to be the most important sustainability policy to come out of this government and may change the UK energy landscape. Those in the Sustainability and Energy Functions of energy-intensive companies, and the home retail sector, are watching this policy very closely. It is expected to create £10bn markets around home and SME retrofits, create a greater need for ESCO’s, and deliver certainty on carbon prices and the successor to ROC’s.

We have an excellent panel for this event, including the following:

- Patrick Erwin, Head, Energy Bill Team, DECC
- Gary Parke, Founder, Breathe (an ESCO)
- Matthew Sexton, Director of CSR, B&Q UK

Patrick is heading up the drafting team and is probably the most informed person we could hear from on the shape of the bill. Gary has 20 years experience in ESCO’s in the US and the UK, and will talk about the growing case for the ESCO model and discuss issues around Energy Performance Guarantees, innovative off-balance sheet funding solutions and the human resourcing challenges. Matt will talk about how B&Q are building major services into the Green Deal markets.

We will shortly be posting a survey specifically related to the Energy Bill, with our three speakers inputting many of the questions. Once you have been accepted, we will ask you to fill in the survey, so that we can go through the results at the event. You will be able to see how your company’s strategy on this compares with other FTSE350 companies.

Speakers

Gary Parke Breathe Energy Ltd

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Matt Sexton B&Q

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Patrick Erwin Department of Energy and Clim...

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Round Tables

Built Environment

Can current lease arrangements keep up with low carbon policy? Whatever your perspective – landlord, tenant, designer or supply chain – how can leases accommodate challenges provided by the Carbon Reduction Commitment, the Feed in Tariffs and other policy developments?

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The table had a wide range of organisations present and the discussion inevitably focused in on the Green Deal announcements and the details supplied by Patrick Erwin, head of the Energy Bill Team at Decc. Questions ranged from clarification of the “Golden Rule” of charges being less than the savings to what technologies are covered and timescales to how to incentivise landlords of both Domestic and non Domestic buildings to become engaged and take action.

The move to implement the Green Deal in 2012 without any trials indicated courage on DECC’s behalf and underlined the need for communication, communication, communication in terms of the principles and then the details as they are finalised. Reaching out to the diverse range of organisations, especially SMEs, that need to hear about the Green Deal and take action will be an immense task. Aside from the valuable role of Trade Associations and specialist trade media the role of banks and procurement functions within organisations offered real potential.

Banks are keen to promote their supporting role of SMEs (note recent Lloyds press adverts) and offer a communication channel that would be beneficial to both. The Office of Government Commerce and Retailers could also take a lad here incorporating details on the Green Deal within their SME programmes.

In terms of non domestic buildings difficulties were cited over the long nature of leases – typically 5-7 years although signs were evident of these shortening to 3-4 albeit giving less stability in the marketplace. This simply means that it will take a long time for changes to be made to the building stock given this length of refurbishment cycle. It was confirmed that there are many details over the structure of leases that will need to be resolved before significant changes in the fabric will be retrofitted. Incentives to make changes ahead of the accepted refurbishment cycle will need to be considered. The fact that energy costs are typically only 2-3% of operating costs of most tenants left the table concerned as to why many would push for installations under the Green Deal. Corporates with a brand reputation and pockets large enough for iconic buildings with green credentials were placed in a separate category!

Opinions varied as to whether SMEs might be more motivated to seek to take advantage of the Green Deal as the personal angle might be enough to overcome the inertia and disruption associated with energy efficiency installations.

In terms of domestic housing the discussion ranged across the issues facing companies trying to interest householders into taking up Green Deal offers. These ranged from inertia, disinterest and an active desire to avoid disruption at home for the benefit of monetary savings. Was energy efficiency good enough to compete with other types of expenditure where benefits were more visible – new soft furnishings or where personal gratification was higher such as eating out, a mini holiday etc. How to present the Green Deal as a must do and provide sufficient help to convert good intentions to actual action. How to achieve this without massive hikes in energy prices and avoid an unmanageable level of demand is a real communications and operational challenge.

Unsurprisingly social housing came out as offering a real opportunity for leadership in taking up the Green Deal, being early adopters, swift at gaining commercial experience of smooth installations and at scale. A sector to watch as they are already able to communicate at a neighbourhoods level and engage diverse communities.
Conversely private landlords of domestic buildings were seen to need more incentives before taking action to take up the Green Deal and its opportunities. Given the increasingly high pressure for demand for private rented accommodation this was not currently thought to be an early adoption sector.

Above all the unifying call from the table was for the Green Deal to make it really easy to engage with the different market segments, make it really attractive to participate and make it really easy to do.

It is a topic that warrants re-visiting through Green Monday!

Actions
• Contact DECC’s Energy Bill Team with views and comments on practical implications for the Green Deal – real examples from your own organisation’s experience helpful in illustrating opportunities and obstacles .
• Banks to consider how they could support key Trade Associations in communicating the Green deal and financial benefits to SME customers.
• Procurement functions particularly those within Government and Retailers to consider rolling in the Green Deal to their SME programmes.
• Actively engage Communication and Marketing expertise within your organisation with the challenge of how to make the Green Deal desirable and easy to act upon. Develop some scenarios!
• Watch and track the social housing sector.

Supply Chain

Customers. How can customers / consumers be engaged to improve Sustainability?

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The total supply chain extends through to customers and the end consumer, but this tends not to receive as much attention as other areas such as manufacturing and logistics.

The group looked firstly at the business customer engagement. It was clear from the experience of the participants that most large retail and business customers are increasingly focused on the Sustainability aspects of their supply chains. This means that it is not difficult to get dialogue around elements such as packaging reduction, alternative materials and sources, and efficient logistics.

However, this engagement can be frequently undermined by the behaviour of buyers in the customer organisation who continue to focus solely on choosing the lowest price offer and who do not “walk the talk”. To respond to this means that supplying organisations have to show a real tangible value of the Sustainability aspects of their proposals in order to get buy-in. So this means:
- focusing on the total supply cost advantages
- doing the research to demonstrate the interest from the ultimate consumer in the Sustainability attributes that will result in increased sales.

Which brought us to the consumer end. There was a general agreement that consumers have a wide range of levels of understanding of, and interest in, Sustainability. Many are increasingly interested in more information about aspects such as packaging and sustainable sourcing, but are confused by the plethora of labels and logos that are supposed to show evidence of this. There have been clear successes in educating the consumer, reinforced by marketing efforts by manufacturers and retailers, such as energy ratings on domestic appliances and Fair Trade. Another good example is the move to low temperature washing gels led by P&G and Unilever. These have worked because they are focused and are now widespread - but the idea of a single Sustainability label such as that proposed by Walmart goal is regarded as worthy but unlikely to be achieved.

The general view was that consumers are expecting that the major manufacturers and retailers are taking the necessary steps. This is about trust and this can be quickly undermined by incidents where the Sustainability of the supply chain isn’t perceived as being well managed – e.g. excessive packaging, sweatshops, contaminated milk powder, deforestation by palm oil plantations etc.
So if you are engaging the consumer in your Sustainability efforts you need:
- a clear understanding of all the Sustainability aspects of your supply chain
- a programme to address the weaknesses and opportunities
- a full supply chain assurance system in place, and
- consumer messaging that is clear, unambiguous, and linked to your actual achievements

Stakeholder Engagement

Getting through to Employees

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A full table with a diverse mix of industries and expertise- A productive session with lots of great themes for everyone to take away:

Subject matters:
When engaging with employees avoid talking around carbon and global issues- people don’t connect. Positive language drives change and makes people feel great about changing behaviours- Keep feeding back those positive messages

Community Setting:
Don’t lecture, just chat and get the right people in the room- that’s from top to bottom

Target the enablers:
Get influencers within the company engaged and they can spread the word for you, this includes the sceptics, they could become your best ally for driving behaviour change

Targeted Campaigns:
Focusing on one behaviour for a short amount of time (2 weeks or less). If you can get someone to change their behaviour for a week they are likely to try it again.

Competition:
This never goes away and is a great way to get people motivated. However, it’s important to engage at a team level as it drives good morale and is more influential (peer pressure and group dynamics being a great technique to drive behaviour change)

Senior Manger Buy In:
Still proving to be the business case that has to go first to convince them to change and without their buy in long-term change will be difficult to instigate. How you communicate your story is key- Lead them to a collective positive sustainable vision(not from the outset) as often this is seen as “woolly”. When communicating 1.start with a fact- they can’t say it’s untrue. 2. Address the issue 3. Why is it important 4. Collective positive vision.

Ivory Towers:
If at all possible senior managers should be on the ground proving that sustainable issues are important through the business, which allows new operational policies to be put in place more easily. However this can mean a significant change to management structures so impact feedback can be a different route in to motivate staff to change. Walmart did just this saving £145m through staff recycling.

Rewards for good behaviour:
Lots of creative tools to get people to be motivated to change behaviour; Ideas include ideas on walls with monthly prizes to forced computer shut downs with drinks at the end of the week to show the saving made.

Further tools needed to help with:
• Getting the middle apathetic employees engaged
• Get the senior management engaged

Carbon Strategies

Discussing strategy in uncertain times – navigating financial and policy constraints

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The chair introduced the discussion by summarising the various factors that are currently creating uncertainty around carbon management strategies. Namely; the comprehensive spending review, the general constraint on finance, the forthcoming Energy Bill, recent changes to the CRC, forthcoming change to the Carbon Trust and the Green Investment bank, uncertainty around feed in tariffs and renewable heat incentives, the implementation of the green deal, etc. It was proposed that this uncertainty was reflected in the recent Green Monday carbon management survey where it was found, amongst other items, that only 18% of respondents have a long term view of the capital required, only 24% have the information needed and only 14% have analysed whether they have the skill set to implement the strategy.

It was suggested this may indicate a lack of interest or decisions at board level. It was generally considered that often the money that could be saved from internal activity is too small, or the payback periods are too long, for finance to be released. In addition legislation is changing so quickly that businesses may adopt a wait and see approach as forthcoming policy may help address some of the financial and/or other issues. It was also suggested that using the term “carbon management” overcomplicates what is in reality energy management that has been occurring for many years. Finally, people agreed that addressing climate change is also an opportunity for many businesses. If this is the case it is important to ensure your own house in order before marketing products or services to others.

In summary the table considered 3 elements to focus on to create and sustain your carbon management plan:
• Good marketing: Keep communication clear & simple, both internally and externally
• Money: Ensure the financial aspect of any plan is sound and explore all routes to finance
• Opportunity: whilst focusing internally is important there are also potential business opportunities being created

Finance & Corporate Sustainability

UK and Europe renewable energy financing

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National culture, the policy environment, the financial size of projects (aggregating smaller projects is often required to receive bank financing), and the availability of renewable resources were four factors seen as important in the successful financing of renewable projects in the UK and Europe.

Policy makes the investment environment right (or not) for capital to come in to the market. Feed-In-tariffs have provided more long-term assurance, which has led to venture capital companies wanting to invest

From an ESCOs point of view, renewable projects are great, yet they tend to need to be aggregated in packages to get financing. £10-50 million is the minimum that banks are interested in financing. It is even better if one has over £100 million worth of projects aggregated, as then ‘doors’ start to open up.

Some of the banks that provide finance include the Co-operative, Triodos and Crédit Agricole. ESCOs also talk to massive property owners, as they have a financial interest too. In the UK, land is generally owned / managed by pension trusts, and they (such as Scottish Widows and Legal & General) have an interest in financing renewable. Pension Funds are traditionally cautious institutional investors, and for them this is often a ‘small spend’, and one has to get time with them to talk about it.

In the Netherlands, Belgium, Germany and Northern Europe the renewable technologies are much more culturally accepted. Community schemes (greater than 100 homes) are common. There is trust in the market that if someone builds a community scheme as part of a new development, someone will buy it, people will use it, and it will work. Many of the European countries (for instance, the Scandinavian countries) have very community orientated cultures. There was a feeling that UK house builders do not see this as a worthwhile activity. In the UK, fears over NIMBY’ism and the concern of it taking ‘seven years’ to gain planning approval are barriers.

It is expected that in a few years time it will be much easier to finance smaller projects. For example, in Germany getting a loan for PV on a house is as easy as getting a loan for a car.

Another financing option discussed was ‘Utility Financing’ (e.g. E.On, RWE, BG). Again it was felt that this works better with aggregated smaller projects. Different utilities were seen as being interested to different extents, they are at different ‘stages of the curve’. If a company can handle projects for them, when they are smaller than the utility can afford to focus upon, then they may be interested in financing. Many finance models are possible, including debt financing.

The Green Deal is going to offer £6,500 per home for energy-efficiency improvements. It was reported that in the Sutton “Pay as You Save” trial homes the average spend was £10-12,000. This sort of cost can be reduced if a street, a group of houses, or a community, go for funding at the same time.

One of the delegates reported that their biomass boiler currently costs around £16,000. It means that the payback period is very long (if finance is the only reason for buying one), it raises issues of who will fix it if it breaks down, and there is the ongoing issue of sourcing sufficient quality pellets. For CHP / Biomass systems to work there has to be a guaranteed source of fuel.

The group had a wide-ranging discussion on funding for innovative ‘green’ SMEs, or for SMEs wishing to invest in ‘clean’ or ‘green’ technology. There was a general feeling that these organisations have been squeezed by the recession, the removal of the ability of banks to loan ‘at the local branch’ and the loss of regional business facilitators. Even though there is venture capital funding available it is easy for the large fund managers to overlook SME and mid cap businesses.

In conclusion, the group came up with the following recommendations for companies in this situation:

1. If you are looking to invest in green or clean technologies and require funding, skip the bank. Work with integrators, companies that have worked out the finance and can install the equipment, and then share the cost savings with you.
2. Talk to the Carbon Trust for interest free loans, enhanced capital allowances, or if you are developing a clean or green technology they may be able to support with a venture capital investment.
3. If you are a tenant go to the landlord. If you are the landlord then do as above.
4. If you have a clean or green product (or product ideas) identify an appropriate niche in the market and use it to generate the cash flow yourself, rather than rely on funding from the banks. Monies from customers are far more valuable than money from the bank.
5. Work with members of your supply chain – form partnerships – to do the above, or to reduce the development costs of taking products to the market

I.E. attempt to use as little ‘Finance’ as possible.

Communications

How can energy providers get consumers on board with The Green Deal

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Our group focused on debating the roles and responsibilities of government, energy providers, consumers and communicators to ensure the success of a programme like the Green Deal. Is it access to better, clearer information from energy providers on the benefits of energy efficient and renewable products, which consumers seem to be lacking? Or is the critical issue of trust too big for energy providers to overcome for consumers? And can effective sustainability communications help solve these issues? The key outcomes were:

• Energy providers need to talk about these new products and services in language consumers can understand—the technical and scientific jargon is not working
• It’s crucial that consumers are able to feel that their energy providers have ‘done their homework’ on higher-end low-carbon products, especially solar panels, for these purchases to be incentivised
• Government has a role to play in making the incentives from the programme accessible to consumers, especially tariffs
• Regulatory bodies will also clearly have a role to play to help prevent any greenwash which will come from energy providers trying to change their communications before they actually change their products and services

CSR Reporting Best Practices

Avoiding Greenwash through Robust CSR and Sustainability Reporting

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A lively debate ensued after starting the meeting off with a resume of the previous month’s conclusions – namely simplicity, tight scope and standardisation were the key points to a good CSR report.

The discussion once again ranged around who the report was for – and we were told research has shown the largest readers are employees – and consultants! The size of the reports is now becoming a climate damage event in itself – some of 250 pages! It is clear that the 2ownership” of these reports often lies somewhere between the CEO and the Marketing / PR teams – and there was a real sadness to the agreement that they have become, in the main “good news sheets” There was very strong agreement that a CSR report should be about TRUST and this means Transparency

Excellent inputs that the reports should be electronic not paper – save the climate! and that the content should be dynamic – ie readers get the details necessary for their role – this would involve reader details being entered at log on stage.

In the end the table agreed – a good CSR will avoid being part of the Greenwash if it has clear targets, some concrete benchmarks – and consistent feedback on achievements and failures in future years – ie its part of planning and managing the business.

Technology

Benchmarking Performance, Energy use and output

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1. Benchmarking Energy Performance and Use
• Benchmarking tools are dependent on the size of organisation (whether CRC is applicable or not) and what is being measured
• Consensus on the need for getting the baseline right, then apply relevant KPIs for the sector
• Important role of education and behaviour. Need for engaging communities in behavioural change. There’s a difference between energy efficient homes and energy efficient users
• Setting up internal competition within organisations was one strategy mentioned. Network Rail set up smart meters in different depots and a league table, encouraging improvements.
• Issue of how to separately quantify savings from behavioural vs. physical measures. Introducing such measures separately and measuring them was one proposed approach.
• Others thought you have to combine technology with user behaviour, they cannot be separated. The Health and Safety sector changed how people relate to technology. The environmental sector should do the same.
• Maintenance is a key issue.
• Discussion about how an Esco would relate to customers in the context of Green Deal, and win their ‘hearts and minds’. There is a multitude of players involved, but thought should be given to who goes to the homes, the main point of contact. Consumers don’t usually trust utility companies, but they may trust B&Q. There is a trust issue on the commercial interests of utilities companies.
• Discussion on well-known BREEAM failures and gaps on benchmarking tools. The gap between design and actual.
• The wider public’s lack of knowledge on rating. People do not understand how it works. Cases of EPCs not being available for when a home purchase decision is made. Benchmarking and rating tools too many and too complicated. Necessary to have a good, consolidated platform and one simple measure.
• But it is also not people’s priority. Benchmarking alone will not make or break a decision.
• Issue of desirability of the project – energy efficiency is not as desirable as a new kitchen
• Need something in place to maintain the change

2. Monitoring Renewables Output
• Concern with lifecycle carbon
• Need accreditation and a trusted, independent body
• There is a draft standard on validating claims for the advertising sector.

Sustainability through ICT

Tech investment opportunities : What would greener investment due diligence look like

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• The table discussed the consistent refusal of North American Cloud Services Providers to make their massive data centers Carbon Neutral through offsetting in spite of making large profits e.g. Microsoft's Dublin Data Centre but also applicable to others.
• In the case of Microsoft this is in spite of taking advantage of Ireland's low corporate tax rate (12.5%).
• The irony is that the same companies are very keen on 'green' when it comes to Sales such as Smart Grids.
• We discussed whether this reflects the culture of North America compared to Europe and increasingly China.

Energy Effeciency

Changes to the CRC

Sustainable Transport

Rail transport and sustainability. How should the rail sector contribute to sustainable economic growth and GHG reduction? 

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The rail sector is often touted as the solution to the UK’s sustainable transport needs. To what extent is that true, and how should the rail sector contribute to sustainable economic growth and GHG reduction?

> The UK rail franchise model does not help – long term investment needs payback or train operators will not invest
As with any outsourcing contract, investment towards end of franchise period tends to tail off
Recent attempts to lengthen franchises not working
Long term leasing deals are extending use of diesel sets
Significant investment is needed to enhance attractiveness of rail travel to business travellers eg free wifi on trains and stations
Franchise handover needs to reflect long-term value of investment in sustainable travel

> Connections rail-rail and rail-bus can be poor, with most of the blame placed on competing rail and bus franchises
• Better information is needed to help passengers make joined-up journey choices which would improve perceived value of rail
• A national scheme is needed – individual operators do not have enough incentive to publicise the connections

> Air travel does not compete on level terms with rail – perceptions are inconsistent but more needs to be done by rail service providers to attract long distance travellers
• Unfair tax differences – travellers would have to pay a lot more for carbon pricing of air travel in future. For now the price mechanism is against long distance rail
• Perceived differences in comfort levels are less relevant out of peak times. Capacity problems need to be eased with continuing investment in longer and more frequent trains aided by new signally technology
• Travel to and waiting time at airport is rarely accounted for but is significant and gives similar total journey time for London-Manchester

• Travellers are generally unaware of the whole costs of their decision to use a particular mode of transport
1. Need to understand door-to-door times and true costs as well as environmental impacts
2. Independent scheme/ website is required

> Corporate enforcement of travel habits is needed to overcome tendency to drive and fly rather than consider train
Corporate commitment would set precedent that would establish genuine sustainability brand
Cisco bans any travel for internal meetings
Some companies will not pay for air or road travel where rail is a viable alternative

> Planned increase in railway capacity may still not be good enough
• Many local rail and tram schemes have been dropped, while major intercity upgrades are slowed by need for substantial private investment
• Planning needs to be integrated at national, regional and local level between community development and transport networks including commuter rail
• Few multi-modal integration projects are planned or underway – eg Stockport cycles station

> Freight by rail is impractical for all but the heaviest and least urgent loads
• Rail freight can be the right economic decision eg access to quarries for Olympic Park construction
• Security is an issue eg for museum/ art gallery movements
• Rail freight is much stronger in US and takes higher proportion of freight load from road (but edges out passenger services in some areas)

ACTIONS
Government to re-examine rail franchise terms to improve investment in long-term sustainability
Corporates to set example of enforcing selection of low carbon rail where appropriate
Entrepreneurial development of better information promoting integrated transport

Corporate Strategies

Case study: WalMart

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Outline of the discussion:
• Leaders in sustainable retailing
• Walmart key metrics and goals
• General commentary

The Chairman opened with a request for the attendees to list leaders in sustainable retailing - companies mentioned were: M&S, Co-op, John Lewis (Waitrose), Tesco, Sainsbury’s, B&Q

We discussed why Walmart should be used as case study? For a number of reasons:
• It’s the biggest company in the world with turnover of $408 billion in 2010.
• Walmart has over 100,000 suppliers and the company employs 2.1 million people in approx 8,500 stores. The company only operates in 15 Countries.

The key point is that Walmart is ‘material’ in terms of it direct impacts and its indirect impacts, moreover it is a company that is making claims about sustainable development under 3 key themes:

1. to create zero waste
2. to be supplied by 100% renewable energy
3. to sell products that sustain people and the environment

Some of the attendees suggested that these themes are lacking in terms of true leadership in the field of sustainability and are rather narrow in focus. In addition, the group was sceptical due to the lack of specifics – not being time based, being too vague – for example creating zero waste – is that for Walmart operations or is that for the outputs? These things make people doubt Walmart’s true commitment to sustainability. However some suggested that Walmart had executed some positive initiatives regarding the sustainable sourcing of their meat and fish and having more detailed sustainability plans to back up their main themes.

Walmart is part of a growing cluster of companies who used to ‘do bad,’ but now are making efforts to turn the corner (Nike, McDonalds etc.). Others suggested that companies were transforming to achieve competitive advantage, not really because it’s the ‘right thing to do’.

People agreed that Walmart was interested in selling volume (their slogan is: Save money. Live better) and a concept of mass consumption can jar with sustainable development. Also looking at Walmart’s customer base it was agreed that selling the concept of sustainability is challenging. The group generally accepted that ‘choice editing’ was a good thing.

A telling comment was that we need to create a society where it’s cheap to do the right thing and expensive to do the wrong/ unsustainable thing.

Lastly we discussed the value of Awards as Walmart every year bestow on one supplier a sustainability award. Henkel has won this award for 2 years running (2009, 2010)
Some comments on Awards per se:
• CEOs like them
• They incentivise better practices
• They need to be impartial and independently audited
• Suppliers are in favour but there needs to be improved levels of collaboration between retailer and supplier to achieve meaningful results.

Venue Detail

Bank of America Merrill Lynch: King Edward Hall

King Edward Hall | 2 King Edward Street | London | EC1A 1HQ

Directions

Bank of America's offices are a very short walk from St Paul's tube station (Central Line). Exit the station at Cheapside/Newgate Street. Go past the BT centre, with it on your right-hand side and take the first available right down Edward Street. Continue down this road for 80m and the entrance to the venue is on your left-hand side.

Do not go to the main reception desk at their offices when you arrive. You are looking for an entrance that leads you directly into the King Edward Hall.