Feed-In Tariffs: New opportunities for business

Monday, September 06, 2010

18:00 - 21:15

    How it was used in Germany - reflections for businesses from the architect of the German FiT scheme
    Returns on different scenarios for your properties: renting your roof to installing your own PV
    What are your options as a tenant: how can installation benefit your business
    Funding & Installation: who does what who finances the work
    Creating a consumer proposition: How the big brands are looking to front mass market offerings
    What can go wrong: the risks of the scheme
    FiT, the RHI and the wider implications for funding renewables

Until recently, there has been no financial motive for UK businesses to support small-scale renewable energy production. The Feed in Tariff (FIT) scheme that came into effect on the 1st April has the potential to create a new market dynamic by providing a financial incentive for businesses to install renewable electricity-generating technologies, and selling the produced energy back onto the grid. This can also mean new revenue streams.

The rationale behind the policy is to increase the level of electricity from renewables in the UK to reach a target of 30% by 2020 and, in the short-term, help to ensure security of supply for 2013.

This highly-topical Green Monday’s event will address the key issues to help businesses of all shapes and sizes unlock the commercial value of FIT, secure upfront capital and how to overcome some of the implementation hurdles.

BT will explain how they are leveraging the scheme to create new revenue streams for their organisations. Richard Tarboton of BT will discuss how decommissioned telecommunications sites resulting from network consolidation are being transformed and how they leveraged funding to support the roll-out of renewable energy projects.

Brendan Fogarty of SEGRO will explain the three options they are exploring for their properties: renting out the roofs to a third party investor, investing themselves and gifting the energy as an incentive or investing to charge tenants at a reduced rate.

As many UK businesses are still finding their feet in this space, Mr Hans Josef-Fell, who was the driving force behind the German Feed-in-Tariff scheme, will share his extensive experience of the German system, and will be at hand to answer your questions.

Speakers

Brendan Fogarty SEGRO

See bio

Hans-Josef Fell Bundestag

See bio

Richard Tarboton BT

See bio
Round Tables

Built Environment

Microgeneration and the built environment – Green saviour or green bling

Write UP

• One table rep raised the point for the House Building Industry that investing in Green Tech on a property by property basis, was full of uncertainty. House builders are unable to convince buyers of the financial viability of Renewables attached to there property. Even though they are required to invest in the technology to achieve planning. Therefore becoming a dis-incentive.

• Another point raised was the capability and the competence of the maintenance supply chain to maintain these new clean technologies. Resulting in loss of renewable energy output and system efficiency. Which makes investors wary.

• Having access to a robust and competent supply chain was also highlighted as a risk area. With people higlighting that there was inadequate knowledge and certification of who is competent in what specialist field. A bit too much trial and error which can be costly in time and money.

• Last subject was on sharing knowledge about what Clean Technologies worked and delivered there desired and required output.
Small and medium size Wind Turbines were sighted as technology that promised a lot but have not delivered.

Supply Chain

Sustainable logistics. What is it and how can collaboration be incentivised?

Write UP

Like other aspects of sustainable supply chains, sustainable logistics is about using the minimum resources and minimising environmental and social impact.

So the key principles are Store Less, Store Efficiently, Move Less, Move Less Far, and Move Efficiently.

The table agreed that achieving these principles was quite a challenge as supply chains have developed to maximise service levels at lowest cost. The just-in-time philosophy particularly has led to storing less but also resulted in moving goods further using centralised warehouses. A topical example was buying local food at your local supermarket in Cornwall – the news had just reported that Cornish pasties and cream were being transported 340 miles to a distribution centre near Bristol and back to the local stores. It was agreed that this logistics system was probably the lowest cost at the moment – but only because the cost of fuel and the provision of infrastructure does not account for the true cost to the environment. If oil becomes $200/ barrel the optimum could look quite different.

The good news is that the major logistics users are addressing their impacts, e.g. using slower transport, streamlined trailers, switching to rail and water where possible. However, though improved, the total utilisation of trucks on European roads is still less than 60%, with some 35% of trucks still travelling empty on return legs.

This is the result of individual companies focusing on their own needs for logistics while what is needed is increased adoption of systems to enable different companies to share loads together with more consolidation centres. This is certainly happening in cities like Amsterdam with their City Hub project, and it is likely that a combination of congestion pricing and other legislation will cause this approach to be adopted more widely. This will mean that even retailers will have to accept that they need to share loads with their competitors.

Finally it was agreed that for Logistics to become more sustainable different KPIs would need to be used – not just cost but metrics like % load utilisation, carbon footprint per kg of product, miles travelled, etc.

Stakeholder Engagement

Enabling Customers

Write UP

Getting your own house in order is vital when it comes to sustainability, however the biggest impact your business can have may actually be from how you enable your customers to be part of your sustainability journey. Following an interesting discussion here are some of the main points made in the session with a few other thoughts added to the end. Thanks for everyone’s contribution and look forward to seeing you at the next Green Monday event.

1. WHY DO IT?
Need to understand your market place and bring your customers with you
• There is a real need to understand your customers – by bringing them on your journey they will hopefully develop as you as a company develop (British Gas example that in 20 years may not actually be selling gas so there is a real need to educate and support customers as the sustainability discussion develops)

Increase your impact
• By engaging your customers you can have a much larger impact that what you can achieve on your own

Breaking the boundaries and showing others how it is done
• Sustainability requires leadership and incremental changes are not going to solve the issues we face
• Enabling your customers is a clear way to demonstrate leadership on sustainability

2. HOW TO GO ABOUT IT?
Engage your customers in the process
• Fiat example of making it engaging for consumers by involving them. Eco-drive is an initiative that encourages people to drive more efficiently and being able to track it using a piece of technology – competition between countries and between individuals

Incentivise and reward
Develop strategies that encourage sustainability choices or behaviour through incentives and rewards for customers. For example:
• Green Streets and Green Communities funding from British Gas for eco-behaviour
• Mobile phone operators and recycling phones or Recycle Bank
• Utility companies incentivising paperless billing
• M&S / Oxfam clothes recycling programme

Engage and inspire through education
• Education was seen as a key building block in the engagement story
• Throughout the discussion there was mention of the need for education and bringing your customers with you on the journey
• However, it needs to be more than just providing information

Get the right financial message internally
• This is the message that needs to be used to sell this approach internally – until there is a clear business rationale for the finance team often much of this is difficult to do.
• This is why incentives such as Feed In Tariffs are so powerful in creating the right financial frameworks to get the right financial story

3. MAKING IT WORK – SOME ADDITIONAL THOUGHTS
• Make sure you’re taking clear action (or commitment to action) yourself – without clear evidence that you are already doing something yourself, why should any of your customers change?
• Make it positive and tangible – making sustainability engaging and fun will win over even those customers that don’t really fully buy-in to the sustainability argument
• Make it easy – we are creatures of habit and reluctant to make changes so it needs to be made easy for us
• Make it worthwhile – reward and incentivise to encourage the sustainability behaviour you’re looking for
• Make the brand connection – do it through your brand, not your corporate vehicle – after all this is what your customers connect with
• Start from where people are – connect with people’s aspirations by providing symbolic and effective action that touches their everyday life
• Show people they are part of something bigger – some people are willing to change, but they need to see others acting around them to feel what they are doing is worthwhile
• Be disruptive – customers receive countless messages about sustainability, what can you do to move beyond just another message about recycling?
• Don’t just provide information – providing information for customers is important, but done on its own often struggles to get cut through
• Help people to act together – people want reassurances that they are acting in collaboration and not in isolation
• Use the channels that work for your customers – market and communicate with your customers through the same channels that you would for any new product

Carbon Strategies

The increasing importance of the Voluntary carbon market as timelines for achieving a global deal lengthen

Write UP

The table began by discussing the progress of the global climate talks and when we expect a global deal to be reached. Unanimously the group thought it was difficult to predict and felt it was becoming less important as UK domestic policy begins to have an impact. Most considered a deal seems to be a very long way off and were quite pessimistic about the potential to reach an agreement.

As the science behind climate change remains robust, and action on carbon emissions more pressing than ever, it was proposed that quality emission reduction projects funded through the voluntary carbon market are becoming increasingly important to maintain reductions at the lowest cost to society. Given a CDP survey last year indicated the largest 100 companies had achieved reductions of just 1.9% in the preceding year - meaning over 98% of emissions continue to reach the atmosphere. And the US Energy Information Administration in August this year predicted Global energy related emissions will rise from around 30 billion tonnes of carbon this year to 42 billion in 2035. It is easy to argue businesses should be going further, faster to stop us from losing the Climate Change battle.

Whilst leading businesses are rightly focusing on internal reductions and putting together carbon management plans, without taking responsibility for all emissions and implementing a carbon offset programme the bulk of emissions remain unaddressed. Making reaching our collective reduction targets challenging if not impossible...

It was apparent that some of the group had little knowledge of the voluntary carbon market and as such we discussed the following: The market exists because forward thinking companies decide to take responsibility for the entirety of their carbon emissions and offset as well as reducing what they can internally. This leadership has created a flow of finance from these businesses to less developed communities around the world. This money is funding projects like smoke and GHG reducing improved cook stoves such as those pioneered by ClimateCare in Ghana, Cambodia and Uganda or small scale hydroelectric power projects in Zambia - bringing electricity & light to poor rural communities for the first time. Each offering a low-carbon development path to radically improve the health, wellbeing, education and employment prospects for the local population.

Having just listened to the plenary discussion on Feed In Tariffs, a parallel was drawn between the funding created by this system and the voluntary carbon market. Essentially the voluntary market provides an incentive to implement low carbon technologies by using the most compelling lever available - money. The carbon finance raised from leading corporations taking responsibility and offsetting their emissions is given to projects to enable them to occur, much like the way FITs work.

Quality voluntary carbon offsets are created through an exceptionally rigorous process, following project methodologies created by leading engineering consultants, approved by a project Standards body - such as the gold standard (http://cdmgoldstandard.org/), implemented and then monitored by independent third parties accredited by the United Nations (called Designated Operational Entities). Once credits are created by the standards bodies they are listed on publically available registries such as the VCS registry (http://www.vcsregistry.com/index.asp).

Whilst there are businesses and charities that will take money to plant trees without following such rigorous project processes, or carrying out the due diligence demanded of any quality carbon offset, this is the exception rather than the rule. Reducing deforestation throughout the world needs to be a priority in addressing climate change - not to mention the benefits of maintaining the essential biodiversity and ecosystem services these forests provide. However, forestry projects that wish to also claim emission reductions need to be undertaken in a robust and additional way (for example through the emerging VCS standards) and adhere to best practice standards developed by the Climate, Community, & Biodiversity Alliance (CCBA http://climate-standards.org/) or other excellent forestry champions.

As you'll see we had an interesting discussion

Finance & Corporate Sustainability

Feed-In Tariffs: How to finance your plans most effectively

Write UP

Group Answer:
First you must identify the challenges correctly before evaluating the solutions and alternative business models.

Challenges:
1. Return on investment: new sector, no benchmarks, what return can I receive on this investment and how do I validate that in advance without learning the hard way?
2. Balance sheet considerations: is this the best asset to put on my balance sheet given that it may not be consistent with my internal rate of return expectations?
3. Unfamiliar technologies for most renewable energy candidates
a. Corporates – non-core to their business activities, payback too slow
b. Governments – unable to distinguish “good advice” from “salesmanship”
c.Investors – how to manage the installations effectively in light of tight margins and lack of “in house” engineering and or maintenance expertise and appetite
4. Equity and debt - unwillingness of banks to lend to inexperienced operators or untested technologies. Unattractive returns from pure equity investment
5. Employee incentive schemes: challenge of incorporating the financial incentives posed by the FIT regime into employee incentive schemes
6. “Cowboys”: proliferation of opportunistic “here today, gone tomorrow” business models with a lack long terms interests. Balance between suppliers, in the case of “rent a roof” models, and customers, in the case of energy consumers, is unstable if the developer plans to create SPV type packages to sell on to other investors.
7. Energy supply and demand spikes: how to provide the energy needed in one region when the sun or wind cannot deliver in that region. Developing models to distribute this energy will be critical
8. Grid operators: the grid is designed to support a legacy, centralised energy infrastructure and has limited ability to distribute locally generated energy from one area of surplus to another area in deficit. In addition the current export price will increase reliance on FITs.
9. Future and longevity of the feed in tariff regime: are there any implied credit concerns associated with the Feed in tariff regime and how to mitigate this risk. Do we simply trust the government not to revoke the legislation?
10. Operation and maintenance: to do it oneself, own the equipment, gather the benefits but take on the risks? Or outsource to a trusted provider? To what degree should one outsource these arrangements?

Communications

What makes a green story a great story

Write UP

The conversation started with the need for a strong call to action. The green space is becoming increasingly crowded and contains many conflicting messages. The table felt that in order to ensure cut-through and a clear message, a call to action provides that extra and vital level of consumer engagement. As many large companies are finding out, simply shouting about something will rarely cut it with today’s journalists.

We also discussed this from a consumer’s point of view, on which the table’s opinion was split. It was felt that for many consumers, a challenging call to action was too much and they simply wouldn’t get it. For others however, the idea of communicating on a single green issue seemed as much of a turn-off, instead preferring multi-issue communications.

As a table of predominantly CSR professionals, there was a strong feeling that a green story can only be great if buoyed by a firm foundation of responsible business practice.

The discussion moved to the importance of making each story personal to its audience. Issues are all too often grouped under the sustainability umbrella and communicators often forget the great disparity between green stories. An audience which is interested in micro-generation and feed-in-tariffs does not necessarily care about species extinction and therefore simply communicating ‘sustainability’ will alienate many.

Consumer understanding was questioned in relation to business and the environment. It was felt that whilst the public understands the basic green agenda, few realise the extent of which some businesses are working towards a sustainable future. The table was split between whether it is important to try and communicate this ‘bigger picture’ or if it was more effective to simply show consumers how they can limit their own impacts.

We briefly touched on the avoidance of Greenwash in relation to Shell’s recent Let’s Go campaign. One person made the point that for big business, it is very difficult to be ‘brilliant’ and some others agreed that Shell was playing an important role in raising awareness of the green agenda with consumers. Others on the table felt that whilst Shell’s communications may be okay for business–to-business communications, their dialogue with consumers had less integrity.

The closing thought was that green communicators have to bring something new to the table. If a green story is not adding something to the conversation, it cannot be a great story.

CSR Reporting Best Practices

Under Pinning CSR – Is an Environmental management system a key ingredient?

Write UP

The topic generated a good discussion with members of the table. It is clear that there are fundamental differences of approach to the whole scope of a CSR report – who is it for, what are the topics, what should be detailed, and of course, why is the Corporation producing in the first place.

The lack of any real standardised approach to reporting and reports was identified as a key issue, as this was seen to limit the opportunity to compare and contrast the output of organisations – even those who operate in the same sectors. This is a continuing issue that has been raised at table for 18 months – a goal to be achieved?

Following this, there are then fundamental differences of opinion as to the importance of an Environmental Management system at all – one Organisation has taken a top level decision not to have a formalised, certified system such as ISO 14001 – on the basis that it can become a tick in the box exercise rather than a real commitment to environmental change and improvement. In another case, the organisation felt that the policy was very much aimed at its own employees, rather than the outside world.

Great debates then took place around the topic of a formal system, and the difficulties of imposing / reviewing policies of suppliers. Organisations are begging to have their systems, where formal, verified by external bodies, with a genuine desire to prove to the audience that the commitments are real, tangible and transparent. However, the issue of Standardisation came to the fore once again.

Outcome. Yes, the table believes that CSR reports need underpinning. But standardisation and an agreed weighting of scope, perhaps by the needs of different sectors, are some of the initiatives required to bring this about.

Technology

How Feed-In Tariffs work for different technologies

Write UP

The table discussions were mainly interested in how PV operates under FITS as these seem to offer the most straightforward returns with minimal planning impact. There was significant interest in different models of ownership and operation. Roof rental type arrangements seem to offer a low investment opportunity for property owners and the main issues are around access and maintenance of the equipment and setting up contracts to ensure ongoing electricity generation. It was also discussed that roof repairs and maintenance should be completed before PV is installed as the remove and replacement costs to allow maintenance later can be 30 – 40% of the initial installation costs.

There was a deal of interest in understanding how the UK FITs compare to overseas versions and whether they offer a good investment opportunity. The level of security is considered good but there is some concern with oversees schemes reneging on the tariffs before they have run their course. The level of return is considered good at present and if new solar technologies emerge and achieve significantly lower costs then the attractiveness of the FITs may improve in the future. It was also thought that the market in the UK is growing very quickly and FITs are getting a good response in the media. There is some concern with the UK skill set, particularly for larger installations and there is an expectation that European companies (which have the benefit of more experience) will be better placed to take advantage of the interest.

Main areas where the table thought more information / research would be useful:
• What agreements are there for owners to “rent” their roof space to investors?
• What impact would such agreements have on building sales?
• How can building owners evaluate their options for own and operate against roof rental?
• How emerging solar technologies might affect the FIT market

Sustainability through ICT

Green Benchmarking : Identifying and introducing best practice through comparison

Write UP

The table considered the role of Benchmarking in 'greening IT' . Under the 3 major areas of :
- Why benchmark
- What and how to benchmark
- The major issues and obstacles to benchmarking

Why benchmark
------------------------

No two organisations are identical in terms of their IT usage and vendors products are non-identical too. Couple this to the fact that people, functions and vendors are prone to not understand their IT energy/CO2 profiles and/or overestimate their efficiency and it becomes clear that the major reason to benchmark is to enable objective comparisons between products, IT systems and the functions that support them.

What and how to benchmark
------------------------------------------

Benchmarking can be considered in layers. At the lowest layer are the components in products such as servers, desktops and comunications equipment. For example processors are not all equally power-efficient
and nor are server power supplies. Moving up a layer, servers, storage and communications equipment is not all equally efficient. Once that equipment is assembled into an infrastructure and business software is
layered on top more differences emerge between organisations. It is important to benchmark at the different layers and to recognise that complexity rises as we ascend the layers.

What are the obstacles to effective benchmarking
-----------------------------------------------------------------------

- At the component and product levels there is very little in the way of manufacturer-neutral benchmarking standards. Just as importantly there is little desire or action on the part of manufacturers to create them. Therefore enterprises have to conduct their own exercises.
- Whilst there are some commercial IT benchmarking services they are perceived to be cost-prohibitive for all but the largest enterprises so there also a skills shortage.
- Managers are sometimes reluctant to engage with benchmarking as they believe they may be shown in a poor light if their area comes low in the results.
- There are methodological complexities that increase as one goes up the layers and which can be exploited by managers that come low in the results.

In spite of the above the table concluded that none of the obstacles are insurmountable and benchmarking is a valuable exercise in IT CO2 measurement/reduction and should increase in the future.

Energy Effeciency

How to know you are fully prepared for the CRC

Write UP

Renewable energy tends to be seen as “sexier” than energy efficiency, as the former offers top line growth which tends to be more attractive to management

Renewable energy can be used to bring energy efficiency into play, by ring-fencing the income and investing in energy efficiency

Much discussions of the different ways of funding energy efficiency initiatives, when you are competing against internal resources which may have a higher ROI. There was agreement that EIS funds, which have a low cost of capital, may be an emerging solution for the future.

The biggest challenge for energy efficiency us finding people who have the time and experience to understand it – experience is a bigger challenge than finance

The CRC will be a big driver of energy efficiency, but it was noted that the ranking element can have a perverse effect on behaviour. For example, a company with low carbon datacenters, which takes on the management of more datacenters, will see its overall emissions rise and its ranking fall.

It was agreed that companies should pursue the right strategy, and lobby for changes in the CRC, rather than allow it to dictate the wrong behavior.

The emerging model for sustainability strategies was agreed to be as follows;
1) Avoid carbon
2) Energy Efficiency
3) Renewable energy

Sustainable Transport

Transport logistics and sustainability. How should logistics operators contribute to GHG reduction?

Write UP

According to the Freight Transport Association, ‘Freight and logistics movements are responsible for around 30%*of transport emissions – but without them the economy and essential services would grind to a halt’ (Stewart Oades, FTA President January 2010).

*Note: HGVs are responsible for around 20% of UK domestic transport GHG emissions and vans for around 11% (source: DfT Freight Modal Choice Study April 2010)

What can be done to minimise transport carbon?

1. Greater use of canals – they are an under used resource and are ideal for transporting non-perishable goods or waste products / recycling
a. M&S ‘Plan A’ proposed a greater use of canals – is this happening?
b. Tesco use the Liverpool to Manchester Canal for transporting wine for subsequent bottling
c. Canals are used for transporting construction materials for the Olympic Stadia

2. More use of shipping for non-perishable goods – this would reduce aviation emissions
a. There is a concern about sulphur emitted from shipping and there needs to be a solution to this from the health perspective (although sulphur has a cooling effect on the climate). Shipping has an inappropriately clean image in comparison with aviation and it must become less polluting
b. Aviation fuel is tax free, what is the position in relation to shipping fuel?
c. BA has opened a plant in Dagenham in July to produce jet biofuel from waste biomass (this will fuel part of its fleet from 2014)

3. More investment in R&D in relation to shipping
a. Technological advancement is faster in shipping than in aviation (long lead time) so there are opportunities but is there investment and motivation?
b. More use of wind power for shipping – return of sails? Combination of sails and fuel would be less carbon intensive
c. Where appropriate, ships going more slowly would save money and reduce emissions

4. For transporting goods, retailers could combine with competitors for cost and resource efficiency purposes
a. Is this politically too challenging?
b. Greater use of retail consolidation centres
c. Greater use of smaller EVs to transport from consolidation centres/warehouses to stores
d. Possibility of using power from people’s homes for these EVs – possibly in return for free delivery etc

5. Use of rail for transporting HGV containers – this is done in France and Germany. The whole container is put on a freight train and collected at the required destination to reduce road transport

ACTIONS
• Revitalisation of canal networks - freight and logistics operators to use the canal networks where appropriate for national distribution
• More investment and motivation for shipping R&D – including less environmentally damaging fuels
• Greater use of shipping for non perishable freight
• Greater use of rail for freight (including containers)
• Retailers working together to reduce impacts – using fuel efficient vehicles and networks for distribution

Corporate Strategies

Case study: Procter and Gamble

Write UP

Outline of the discussion:
• Leaders in sustainability in FMCG and generally
• General Overview on Procter & Gamble
• 3 themes
o Global vs. Local
o Closed vs. Open
o Top down vs. Bottom up
• General discussion

The Chairman opened with a request for the group to list FMCG leaders in sustainability - companies mentioned were: Unilever, Cadbury, M&S, Kingfisher (B&Q), Dr. Oetker, Nike, (P&G not mentioned). General leaders mentioned in the field of sustainability: ARUP, HSBC, JPMorgan, NovaNordisk (pharma business)

The Chairman gave brief outline of how the company used to be highly secretive and used to outspend competitors on R&D but how a cultural change has enabled the company to be more open and innovative. P&G is not used actively to promote its brands – the brands themselves are seen as the ‘heroes’.

On the Global vs. Local theme – it is interesting to note how P&G allows to two campaigns to run in parallel – ‘Designed to Matter’ globally and in the UK: ‘Future Friendly’

A representative from the group pointed out that their company is moving more to a global approach regarding sustainability taking into account country and regional differences, where appropriate.

Re the Closed vs. Open debate there were a variety of views as to what should be shared and what should remain intellectual property in order to retain competitive advantage. P&G has adopted open innovation systems and processes to increase its innovation rate but it could be argued that this results in more open, transparent and sustainable company.

Points were made that solutions don’t necessarily need to be technical in nature (could be changing culture) and the a local and decentralised organisations can come up with some ground breaking solutions.

We talked about the dynamics of collaborative vs. competitive organisations. Standards can help drive down costs. Similarly boundaries like legislation can help get more clarity between competing organisations and then collaboration can start. (Nike are seen to be good collaborators)

Re the Top down vs. Bottom up debate. P&G used to be very much a hierarchical organisation with a top down approach. Many agreed that we need to approach the challenges around sustainability from both sides. The mid tier execs are the ‘sticky’ ones in the middle that must be engaged.

In conclusion: Many in the group felt that the leading companies are often overloaded with requests (meetings, information, contacts etc.) - in some cases, this is causing them to close up. ‘Green products’ are still perceived as more expensive, which over time needs to change in order for mass consumption habit change.

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.