Monday 28 October 2019

Guest Blog: Stuart Reid – The road to decarbonisation – what steps should businesses be taking now?

Stuart Reid, Managing Director (Projects), AMP Clean Energy

Since the government announced it is legislating to hit net zero carbon emissions by 2050, ‘decarbonisation’ has become one of the words of the moment. Businesses have widely acknowledged the role they will play in helping the UK hit this target, with many announcing ambitious plans for their own decarbonisaton strategies.

However, barriers still remain. A recent report showed that the ongoing uncertainty around Brexit has resulted in many businesses delaying or cancelling energy projects – such as on-site generation – with investment being deployed elsewhere.

In addition, the potential impact of the proposed Targeted Charging Review (TCR) has made many industrial energy users question the benefits and financial case for on-site generation.

With this in mind, what are the cost-effective on-site generation ‘sweet spots’ for investment – which will deliver the best results in terms of reducing both cost and carbon – bearing in mind the potential impact of TCR?

For us, the clear path of least regrets is heat. Unlike electricity, heat isn’t impacted by TCR, and – as recent announcements have shown – any future regulatory announcements will largely be ‘on side’ with heat.

In our recent white paper – ‘Simplifying the Business Journey to Decarbonisation’ – we analysed several different on-site technologies that businesses could consider, including biomass heat, heat pumps and heat recovery, as well as solar PV, energy from waste and gas CHP. The best option will depend on the size and type of business – so a case-by-case analysis is vital. However, a smart heat-led scheme is an investment that can pay dividends.

Which brings us to the other word of the moment – ‘funding’. How can businesses justify the upfront capital needed to invest in a low-carbon heat-led scheme when competition for investment in areas that have a quicker payback period are taking priority?

The government has recognised that supporting businesses to decarbonise – particularly heavy industry and energy intensive users – should be a priority. In the 2018 Autumn Budget, it announced the Industrial Energy Transformation Fund (IETF), and on 10 October this year, it launched its consultation of the final design of the IETF, with a closing date of 21 November.

The Fund is worth £315m and is intended to provide funding for energy efficiency and ‘deep decarbonisation’ projects to be delivered by 2024. The first phase will launch in spring 2020, with applications that summer. Businesses will need to pitch projects into a competitive bid for funds, although the government is also considering setting aside some money for loans. The government is seeking views on this as part of the current consultation.

While any support for businesses to decarbonise is great, the potentially competitive nature of applying for funding naturally means there are no guarantees of success and there are only a limited range of businesses that will be eligible to apply for the deep decarbonisation element of the fund. For businesses keen to start their journey to decarbonisation sooner – but who are facing resistance when it comes to investment – there are options available if self-funding is not a priority.

Long-term energy supply agreements, known as ESCOs, can be used to fund, develop, and sometimes operate, low carbon and renewable installations. They typically operate for a 10 to 20 year period, and during this time, businesses only pay for the heat or electricity they use through a secure energy supply agreement, so they can access all the benefits of on-site generation without needing to find the upfront capital.

So, while TCR will have an impact on electricity charging, investing in a heat-led scheme provides an option that will not only help a business on its journey to decarbonisation, it will also not experience the same ramifications from TCR.

On the path to net zero, the opportunity for large energy users is clear. Funding options are available now for them plot their own route to decarbonisation by implementing practical, cost-effective, heat-led solutions, right now. They just need to assess which is the best option for their own unique needs.