Energy price rises – time to accelerate public sector decarbonisation plans?
Given the energy price increases and supplier failures dominating the headlines over the past year, it will come as no surprise that the words “crisis” and “energy” are being linked more and more. With the war between Russia and Ukraine escalating, there are also calls to reduce our dependence on Russian gas and oil, all but ensuring energy prices will continue to remain high. Urgent action is required, which if linked to a well prepared and thorough decarbonisation plan, can ensure short term cost increases are mitigated while also laying the foundations for a net zero “fossil fuel free future”.
With many cites, regions and combined authorities already declaring climate emergencies and actively seeking ways to accelerate decarbonisation – plans to reduce emissions across the public estate will be an important step to kick start and accelerate the process. Government in their Net Zero Strategy: Build Back Greener paper released in the lead up to COP26, set an interim target of reducing emissions by 75% by 2037 for the public sector, necessitating an even greater need to manage budgets and future investments to facilitate this goal on route to a net zero future.
Energy Systems Catapult in their Modern Energy Partners (MEP) programme have been working across a range of campus style public sector sites and places, creating an essential set of tools that make it easy to map out decarbonisation plans and identify what investments are needed first. The guidance, based on learning from a number of key pathfinder sites across the Ministry of Defense (MOD), Ministry of Justice (MOJ) and National Health Service (NHS), provides valuable tips on what to consider, how to go about collecting information, and what analysis to conduct.
Market volatility and price increases
With volatility fast becoming the norm in the energy industry, there will be far reaching consequences. The surge in gas prices over the winter, which triggered large increases in the price of electricity across wholesale markets, has caught many suppliers out – with 26 energy suppliers collapsing in 2021 alone.
While some relief may arrive over the long term, as alternative supply routes and bottlenecks work their way through the market, there remains the potential for a very bumpy ride for both the remaining suppliers and their customers. As countries reliant on Russian gas seek alternative arrangements and diversify their supply, prices are likely to remain high and remain in flux for some time to come.
Both the gas spot market (for short term balancing contracts) and forward market (for long term hedging contracts) reflected increasing prices through 2021, a situation mirrored in the electricity markets given over one third of electricity is still reliant on gas, partially when demand is at its peak.
For domestic customers, Ofgem’s recent 54% increase of the default energy price cap reflects these market dynamics and underlying cost increases. With more increases in the price cap very likely later in year when Ofgem next reviews the energy price cap, energy costs are very likely to have doubled by the end of 2022.
For public sector estates, commercial arrangements for energy are not afforded protection via a price cap, meaning that as contracts are up for renewal, large increases are inevitable and will be impossible to avoid.
Urgent need for decarbonisation strategy
Consequently, there is an increasing urgency for all public estates to develop a decarbonisation strategy, taking into account both the short term (what actions can I take to reduce the impacts from rising energy costs) as well as the long term (how can I effectively manage my asset renewals and investments to support net zero). The push “to save costs” should not been seen as being in conflict with the pull to “achieve net zero”, but rather aligned, given the common goal of reducing fossil fuel usage and increasing energy efficiency at the lowest cost.
Having a well-developed decarbonisation plan ensures alignment – identifying quick wins and no regret actions that once implemented can provide immediate benefits, followed by longer-term capital investments that prepare your estate for the transition to net zero. A good plan will highlight optimal asset replacement timelines and opportunities to integrate new technology with old, ensuring optimal use of capex budgets.
With the likely continuing increase in energy prices, the economics of investing earlier are improving day by day, with shorter payback periods for many investments. Acting sooner rather than later also accelerates any benefits, including reduced exposure to volatile energy costs; helping provide a more predicable future cash flow related to energy.
Having a pipeline of identified projects as part of your decarbonisation plan can also help in preparing a solid evidence based business case for intervention, detailing expected cost and emissions impact. This can be very advantageous when applying for and securing additional funding linked to decarbonisation, which often requires quick action given short application windows and changeable section criteria.
Accelerating the production of decarbonisation plans
The MEP guidance provides a standardised approach for preparing decarbonisation plans across a portfolio of sites at speed. By taking a whole systems design approach it also helps ensure the optional pathway for each site is identified – taking into consideration future heat, power and transport loads, together with any potential for energy efficiency, building upgrades or self-generation.
The guidance provides useful benchmarks and tools to aid option analysis of large transformational projects incorporating building upgrades, smart energy management systems, onsite renewable generation integration and heat system transformations based on practical insights from across a range of sites.
Figure 3: Modern Energy Partners guidance.
Modern Energy Partners
A ground-breaking innovation programme tasked with exploring how to decarbonise the public sector estate, delivered in collaboration with selected government departments and the NHS.