Decentralised energy: unlocking the benefits of an integrated energy & sustainability strategy

Mark Stokes

A Mitie business

Our business

Utilyx is a specialist consultancy that provides businesses with service-led

solutions that help reduce their energy costs and manage their energy needs

betterWe manage

enough energy

to power 10.5%

of the UK

Became part

of the Mitie

group in 2012

Top 3 energy

consultancy for

market share

We were 1st

In our sector

to be FCA

accredited

in 2006

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Resilience Resilience

AffordabilityAffordability

Decarbonisation

Decarbonisation

Our national energy challenge

Knowns• 25% existing capacity to close by 2015/16• £110bn investment in gen/trans systems alone• 2020 target: 15% renewable energy• 2050 target 80% reduction in carbon• Electricity Market Reform interventions

Unknowns• Impact of capacity squeeze on prices• Technology winners and losers• Capital availability• Affordability• Future demand• International v UK policy

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Demanding environmental targets

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…these targets will require £200bn of new investment. So far, we’re seeing investment levels

fall well short of what’s requiredSource: Green Investment Bank

From challenge into opportunity

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The Danish way

Denmark’s progress over the past two decades

Large CHP (Combined Heat & Power)Small CHP (Combined Heat & Power)Wind

Centralised system of the mid 1980’s More decentralised system of today

Source: US Department of Energy

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What is decentralised energy?

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The national importance of heat

Heat is our largest energy use ....and is responsible for around a third of UK greenhouse gas emissions

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CHP v conventional generation

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• Low overall system losses• Minimise non-commodity charges• Improved security of supply• Minimise non-commodity charges• Tailored energy resilience levels to suit• Grid becomes more the back up• Heat utilisation benefits to industry• Community based schemes – district heat• Renewable/low carbon options• Address jobs, competitive advantage & the

circular economy

Benefits of decentralised energy

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£10

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£18

£20

2002 2012 2020M

illio

ns

Indicative Electricity Costs(based on a 135GWh portfolio)

Margin & Imbalance

Elexon, HDC

BSUOS

Transmission &Distribution Losses

TUOS

DUOS

FIT

RO

CCL

Energy

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Value and material impact

Reduced energy and fuel consumption Avoided future costs – carbon taxes etc.

Long term value lock in – up to 25 years

Strong sustainability metrics

Security of supply and enhanced resilience

Efficient recovery and utilisation of heat

Engaging local communities in the reduction of fuel poverty

Reduced exposure to future price volatility

Asset refresh without capital outlay

Output based performance

Economic value

Triple bottom line

Environmental Value

Social Value

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Compelling global risks

Likelihood to occur in the next 10 years

Imp

act

if t

he r

isk

where

to

occ

ur

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Putting a value on nature

“We use it because it is valuable, we

lose it because it is

free” Pavan Sukhdev

The Economics of Ecosystems and

Biodiversity (TEEB)

• Volatile commodity and energy prices – constraint on profitability in next decade

• Business requirement to Thrive and not just Sustain

• Investors link sustainability to a lower cost of capital

• Economic impact • Natural Capital is an increasingly material issue

for organisations• Adoption by Investors, Corporates, UN, Banks,

governments• Energy Efficiency & Decentralised Energy create

net positive impact for organisations

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The true value of our energy assets

Royal Free HospitalPlymouth Energy Centre Addenbrooke’s Hospital

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• Diverts 40,000 t.p.a waste wood from landfill• Environmental Profit & Loss Report• 15.8gCO2e/KWh = 93.7% < DEFRA baseline• Generating 26,000MWh of electricity & heat p.a• Reducing CO2 by 16,000 tpa / 320,000 t lifetime• Water conservation: harvesting & purifying• Circular economy for NHS• Creating over 20+ jobs-assisting 750 more• Driving competitive advantage for Plymouth

Valuing Natural Capital:

Over £800k net benefit to society every year

Plymouth energy centre

Diverting 40,000 tons of waste wood from landfill each year

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Energy Savings contract - 15 years

• High efficiency low carbon CHP - 36,000 MWh p.a.

• 4,624 tonnes of CO2 savings p.a.• Part of NHS overall carbon reduction

target• Surplus heat becomes displaced gas• District Heating scheme for 1500

Camden homes• Positive impact on fuel poverty in the

community

Royal Free Hospital

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• 10% of household income on energy to keep warm. Fuel poverty affects 2.7million households, forecast to rise above 8.6 million by 2016.

• PPP between NHS, Trust, Local Authority and private business, designed to reduce fuel poverty.

• Deliver DH scheme through the streets of Camden to 1500 homes, using waste heat from the RFH CHP.

• Community Energy Saving Programme (CESP) co-funded

Displacing 2900 tonnes of CO2

London Borough of Camden

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EP&L cost savings c £65m over project lifetime

• CHP/Biomass generating 50,000 MWhe

and 43,000 MWhth heat per annum• 23,000 tCO2e saving a year, reducing

carbon emissions by 47% • Lifetime GHG savings > 500,000 tCO2e• Energy conversion from local medical

waste & locally arising waste wood• EE measures reduce consumption by

10%• Energy savings of circa £30m over 25

years• Green Investment Bank - £18m funding

Addenbrooke’s Hospital

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At the heart of Policy

• Energy security of supply• Stimulating investment in aging energy

infrastructure• Avoiding market failure• Guiding a sustainable low carbon

transition plan• Fuel poverty• Competitiveness of UK economy• Deciding who will pay for it!

Decentralised energy’s material impact Cardenden Heat & Power scheme

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• Societal needs often greatest in public sector - but funding/innovation is lacking• Private sector expertise must step up and play a pivotal role• Development capital options becoming available

• GIB Green Loan• DECC – HNDU, Energy Efficiency Fund etc• EEEF• ERDF• Industry entering Public\Private agreements to utilise heat 2011 Low

Carbon Communities challenge £10m across 22 communities but couldn’t deliver replication…

• Replication at a scale – reduce transaction costs and timescales• Procurement approach must be sharpened to focus on benefits

Stimulating decentralised developments

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• Development working capital

• Availability of capital

• Investor uncertainty of regulatory policy

• Board level sponsor

• Internal payback requirements

• Local competition for fuel in the future

• Debt markets appetite for risk

• Standardised contract suite

• Biomass

• Externalities not measured on P&L

Challenges

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• Local authority schemes stalling

• Internal core capital or externally sourced

• Government incentives - RO/CfD

• Conversation to engagement

• Short term v long term security

• Disconnect between national / local

• ESCo de-facto guarantor

• Reduce transaction costs/time

• Fuel: a commodity or a waste

• Applying GRI / ESG / EP&L

• Financial modelling assumptions

• Technology & Feedstock

• Government Policy/Incentives/carbon

• Off take – power/heat/cooling/CO2

• Planning/permits/JRs

• Accounting/Balance Sheet/Tax, ECA’s

• Creditworthiness of counterparties

• Funding strategy

• Environmental Social & Governance

• Demand side energy efficiency

• Inflation/RPI

Due diligence – managing complexity

• Risk & Sensitivity analysis

• Interface management

• Savings structure/baseline

• Pricing mechanism – standing/unitary charges

• Legal & financial close

• Reporting KPI’s

• Comp on Term & liability provisions

• TUPE

• Infrastructure interface/metering

• Lease to occupy

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Don’t underestimate the requirement to ‘conduct’ your team of expertsThey tend not to manage in concert!

Exam question: Decentralised energy: How can we unlock the benefits of an

integrated energy & sustainability strategy

•Overall Business sustainability – energy is sector and departmentally agnostic

•Delivers Triple bottom line net positive impacts - People, Profit, Planet

•Future proofs Business in an increasingly volatile world

•Supports the very ‘essence’ of the Business - defining enduring legacy & purpose

•Achieving improved business competitive advantage through the creation of shared

value to society

Summary

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Thank you@markelstead

@Utilyx

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