APPENDIX 7
Letter to the Committee from the Director
of the Energy Services Association
I have been following with interest the committee's
current inquiry into greening government. In particular, I have
been interested in the debates that have arisen over two essential
points:
— first, the extent to which the Government
should demonstrate its commitment to sustainable development by
taking a lead, for example, in green procurement and how far it
should be prepared to go in this especially in terms of possibly
paying a premium for goods and services which contribute to wider
environmental objectives; and
— second, whether the proper role of
the "Green Ministers" should be confined to such areas
as departmental housekeeping, or whether, if environmental considerations
are really to move to the heart of decision-making, their remit
should embrace responsibility for ensuring co-ordinated and consistent
action across departments, especially where there are inter-departmental
interests involved in particular policy issues.
Both of these questions are directly relevant
to the interests of members of the Energy Services Association
(ESA), and I hope that the following brief comments from our perspective
will be helpful to the Committee in its deliberations.
First, though, I should say a few words about
the Association. The ESA was created in 1996 as a result of dialogue
between industry and the then Department of the Environment (DOE),
to promote the concept of energy services and to represent effectively
the interests of companies in the energy services industry. The
energy services approach asserts that customers are interested
not in energy for its own sake, but in the services that it provides
(for example, heating, lighting and motive power). The approach
therefore concentrates on the customer's needs, and naturally
leads to the use of specifications that focus on the outputs required
rather than the means of delivery.
The optimum way of meeting these needs lies
in the provision of an integrated range of services. This can
provide many benefits, including energy efficiency, higher savings,
better environmental performance, lower risks and additional outside
investment. The energy services package typically includes energy
management services; energy efficient processes (such as combined
heat and power); competitive purchasing of energy supplies; and
environmental and other utility services.
It is widely acknowledged that these benefits
can be realised in many sectors. Indeed the energy services concept
is already well-established in commerce and industry, where an
increasingly competitive market is leading to suppliers wishing
to differentiate themselves by offering value-added services in
addition to the basic energy supply contract. A significant development
is increased deployment of combined heat and power (CHP) as part
of wider energy services contracts—something that is contributing
significantly to the attainment of the Government's targets for
the installation of new CHP capacity.
In part, the creation of the ESA resulted from
the then Government's desire to spread the energy services approach
to its own estate, and one of the first products of the Association's
collaboration with Government was the publication in 1997 of "A
working guide to energy services for the public sector".
Some significant initiatives are already underway within Government
and among its various agencies. For example, health care providers
are an important sector for delivery of energy services, and comprehensive
energy services contracts can form an integral part of the development
of new hospital facilities. This approach allows a greater proportion
of core resources to be devoted to patient care.
Similarly, local government and the housing
sector provide significant opportunities for the energy services
approach. For example, the Government has recently announced phased
release of accumulated capital receipts, and has established improved
energy efficiency within the public housing stock as one of the
key objectives of the investment thus enabled. The Government
is also keen to promote the development of public/private partnerships
at the local level, for which energy services are ideally suited
and has recently agreed to pioneering energy services arrangements
based on CHP for the London Borough of Tower Hamlets and Manchester
City Council.
Overall, the public sector spends over £2
billion per annum on energy, it has long been estimated that around
25 per cent could be saved through established energy efficiency
measures. The central government estate accounts for around 15
per cent of this spending. However, the industry's experience
in trying to take forward such projects has shown that there are
substantial cultural and technical barriers, which combine to
put a brake on widespread take-up within the central Government
estate and by others in the public sector. Among the most important
of these are:
— Low priority and lack of awareness:
Energy is often seen as an overhead that cannot be controlled
while time and resources for energy efficiency measures have to
compete against higher priorities of delivering policy and executive
responsibilities. While organisations will often be interested
in energy efficiency, managers often will not be able to give
it top priority against competing needs to deliver policy and
executive responsibilities. Similarly, divided responsibilities
for aspects of environmental management within Departments fragments
and hinders take up of such initiatives.
— Fiscal and regulatory barriers:
Initiatives can be blocked by the way in which government accounting
rules treat some forms of private sector investment as public
spending. This can result in private sector investment being counted
against PSBR. The higher cost of initial investment that energy
services often involve can itself act as a barrier. Support for
longer term contracts will be vital in overcoming this. Equally,
speeding up the introduction of resource accounting within Government
departments would make significant capital investment easier since
the costs could be amortised over a period of years.
— Opportunity cost: While there
is a substantial energy services market in the public sector,
companies have found that completing deals is quicker, and the
return on investment greater, in the private sector; unless means
can be found of speeding the procurement process in Government
and the wider public sector, the disproportionate costs will deter
energy services companies from putting in the effort to develop
the market.
There are three broad principles which the ESA
considers should provide a clear rationale for vigorous development
of a more pro-active approach to energy services in the public
sector:
— leading by example and by sending
clear signals to the market place;
— improving environmental performance
and contributing to meeting national and international environmental
policy objectives;
— enhancing innovation and the overall
value for money.
There are a number of areas where it is likely
that progress can be made through increased co-operation between
industry and the Department, to maximise the contribution of energy
services to key aspects of the Government's programme. These include
the Government's recognition of the value of greening its operations,
as embodied in its "Greening Government Programme."
For example, the DETR procurement policy now requires all contractors
to use recycled paper when producing documents for the Department.
This approach to environmental management issues could be employed
more widely within and across Departments, including for the energy
needs of the Government estate. Clear central guidance on the
wider policy implications of energy purchasing decisions and the
commitment of Departmental "Green" Ministers will be
required if the inertia created by devolved responsibility for
such matters is to be effectively overcome. We hope that this
can be developed within the ambit of the Government's recent model
policy statement for greening government operations.
Through the Green Ministers network, DETR is
developing, in consultation with other Government departments,
a model strategy for use across the civil estate. The ESA would
recommend that this include incorporation of environmental criteria
into all energy procurement specifications and establishing targets
for green energy supply to all government departments and linking
these to broader energy services. The Government should challenge
the market to deliver "green" energy services and itself
act as the "informed" purchaser. By giving full weight
to environmental factors in its own purchasing decisions, the
Government would be giving a clear and high profile signal to
both the private sector and the wider public, boosting substantially
the vital effort to mobilise the "green consumer". Moreover,
a strong government lead would enhance the credibility of procurement
guidelines issued to the wider public sector, for example NHS
Trusts and local authorities.
From this very brief analysis, it will be clear
that from our perspective the answers to the questions posited
at the beginning of this letter should be that:
Government should be lead by example through
its own procurement policies and should, in line with the notion
of "best value" (as opposed to the narrower notion of
"cost-effectiveness" which have the potential, as energy
services do, to contribute to key environmental policy objectives
and obligations; and
The role of "Green" Ministers
should embrace responsibility for ensuring that the potential
of environmentally beneficial opportunities are pursued in a co-ordinated
manner across Government and that, where they will be affected
by policy and regulation operated by more than one Department,
there is a coherent and consistent approach to the development
of an integrated framework of relevant policy.
I hope these views are helpful to the Committee
in its deliberations on this important subject. We will be happy
to supply further information if the Members of the Committee
would find it useful.
21 May 1998
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