Memorandum submitted by Salix Finance
Ltd
SUMMARY
— Salix provides long term interest free
matched funding to implement energy saving capital projects in
the public sector, including central government.
— We were established by The Carbon Trust
in 2004 and are funded through CT by DECC.
— Salix works alongside The Carbon Trust
and The Energy Saving Trust to translate identified projects into
implemented actions which deliver real energy savings.
— While The Carbon Trust and The Energy
Saving Trust provide advice, guidance and support on energy saving
to public and private sectors, Salix focuses specifically on the
provision of finance for public sector to deliver energy saving
projects.
— Salix is currently working with 120 public
sector organisations, including local authorities, universities
and NHS Foundation Trust Hospitals, managing funds approaching
£100million
— Projects supported by Salix to date have
an average payback of 3 ½ years. This suggests annual
energy savings of £27million pa can be achieved from our
current level of funding.
— Based on current projects funded by Salix,
the lifetime CO2 savings that can be expected from our current
level of funding are in excess of 2million tonnes CO2.
— Only one central government department
(Defra) has a Salix fund at present but we believe there is a
significant potential to make more progress in this area in the
future.
— Salix is committed to realising this
potential but its success will depend on the availability of finance
to extend our activities, building departmental awareness of the
benefits and effective support across central government.
— Assuming these issues are successfully
addressed we see no reason why more central government departments
cannot replicate the successes of DEFRA using the Salix funding
model.
1. Background and the role of Salix
1.1 The central government estate is estimated
to use £1.6billion [14]
of energy each year. It has failed to take sufficient action to
reduce its energy use so as to meet its 2010-11 targets [15]
and is not taking full advantage of the opportunities available
to it.
1.2 Government provides funding to a number
of organisations to assist the public sector to reduce its energy
consumption and CO2 emissions. This includes support for
The Carbon Trust, The Energy Saving Trust and Salix Finance.
1.3 Salix Finance is an independent, publicly
funded company, set up in 2004, to accelerate public sector investment
in energy efficiency technologies through ''invest to save'' schemes.
Salix has public funding from DECC channeled through the Carbon
Trust, and is working across the public sector with local authorities,
NHS foundation trusts, higher and further education institutions
and central government. It is a not for profit company limited
by guarantee.
1.4 Salix Finance enables public sector
bodies to improve energy efficiency, attain targets, reduce energy
bills and raise green credentials. It does this by using long
term, ring fenced, interest free conditional grants to make carbon
saving projects happen in the public sector.
1.5 Salix focuses on supporting basic projects.
In general all projects pay for themselves within 50% of their
useful life so real energy bill savings are seen by the organisation.
1.6 After an initial successful pilot programme
with local authorities, Salix received £20 million from government
to extend the programmes throughout the public sector. This sum
has now been supplemented by an additional £30 million in
the current Comprehensive Spending Review period. The funding
that Salix provides to deliver energy efficiency improvement across
the public sector is matched by clients; therefore the various
programmes operated by Salix will have a total value of almost
£100 million.
2. How Salix works
2.1 Funds are paid by Salix to public sector
bodies in stages subject to commitment of 80% of any previous
payments to energy saving projects. This ensures that activity
is maintained and funds do not sit unused in the organisation.
2.2 The fund is used to finance individual
energy saving projects which meet the compliance criteria set
by Salix. The energy savings from the projects are then used to
repay the cost of the project back to the local fund for reinvestment
in other compliant projects.
2.3 The compliance tests are that projects
must be additional, have a five year technical payback and a lifetime
cost of CO2 of less than £100 per tonne[16].
Clients keep the funding for as long as they can identify and
implement energy saving projects. Our expectation is that savings
from energy saving projects will be recycled three or four times
within the organisation.
2.4 Whilst Salix now has 120 public
sector organisations signed up as clients with funds in place
only one of these is a central government department. Defra joined
the programme in 2007 with a fund size of £1.6m and
this been operating successfully since.
2.5 The sort of projects that can be undertaken
and are supported by Salix include the following:
— Insulation—wall, ceiling and pipe
work
— Boiler upgrades and controls
— Lighting upgrades and controls
— Power management software
2.6 All of these can meet the Salix funding
criteria.
2.7 Salix funds have to date supported over
1800 individual energy saving projects. These have an average
payback of 3.5 years, which indicates that for every £1million
spent on compliant projects the energy bill reduction is £285,700 per
year.
2.8 The average efficient lifetime of the
technologies that Salix funds is over 10 years meaning that
there is a real return on the investments for 6.5 years once
the project costs have been repaid.
3. Experience to date
3.1 A Salix Fund provides benefits over
and above the value of the initial funding. Experience has shown
that:
— An application for a fund and the need
to allocate specific matched funding raises the profile of energy
departments within public sector organisations and the priority
of energy saving projects across the estate.
— Whilst the fund size is relatively small
for most public sector bodies the fact that it is recycled means
the real value of the fund is multiplied
— The need to actually commit projects
in order to claim the next instalment keeps energy saving projects
"in the diary"
— The provision of a client relationship
manager from Salix to work with the local fund manager maintains
momentum and provides guidance and support
— Salix also have technical support from
W S Atkins plc which can be accessed by fund holders
— Salix facilitates net working meetings
for clients to exchange knowledge on projects and to explore best
practice.
— A Salix Fund can help deliver government
targets such as SOGE and the Carbon Reduction Comittment.
— The "stick" is as important
as the "carrot" in ensuring activity continues to happen.
Salix retains the ultimate sanction of recalling the funding from
an organisation if it is agreed that nothing else can be done
to reignite activity.
3.2 Even when public sector bodies under
spend their budgets at a whole organisation level spare funding
is rarely transferred to energy department budgets. Therefore
the provision of 50% of the funding is a valuable support to generate
new budget allocation for the energy department.
3.3 We are of the view that the presence
of a Salix fund increases the incentives of the public sector
body to reduce its energy consumption and can significantly assist
in achieving the SOGE targets set in relation to reducing carbon
emissions.
4. Salix and Central Government Departments
4.1 So far, Salix's focus has been on a
range of organisations in the public sector, including larger
local authorities, universities and NHS foundation trust hospitals.
As noted above, only one central government department has set
up a Salix fund. This has partly been a matter of business priorities
for Salix given its current funding allocation, and partly a reflection
of the levels of interest in energy saving projects across central
government. Salix has directed its activities towards those sectors
which have shown the greatest interest. We believe, however, that
significant potential exists within central government to reduce
energy consumption by taking advantage of Salix funding.
4.2 Energy efficiency has a key part to
play in reducing the carbon footprint of the government's estate.
Whilst there is a general awareness within departments of what
they can do to reduce energy consumption there are a number of
barriers that mean that energy efficiency projects are not widely
undertaken.
4.3 In particular, significant further progress
would depend on:
— the availability of additional funding
for Salix to extend its activities;
— building greater and wider departmental
awareness of the benefits of a Salix Fund;
— the will of central government departments
to devote time and resources to identifying and implementing energy
saving projects ;
— confronting the perceived barrier that
recycling ring fenced "invest to save" funds cannot
operate within the guidelines of public sector accounting rules.
Through the setting up of funds across all areas of the public
sector Salix has set a precedent to show that this is not the
case and that such a model can be successfully operated within
central government.
4.4 Assuming that progress can be made in
addressing the issues mentioned above we see no reason why more
central government departments cannot replicate the successes
of Defra using the Salix funding model to reduce their energy
consumption.
April 2009
14 http://www.ukpublicspending.co.uk/uk_year2008_0.html£ukgs302 compiled
by Christopher Chantrill Back
15
Sustainable development in Government Assessment 2008 Back
16
This relates the lifetime CO2 saved from the project to its
total cost. Lifetime CO2 is calculated from the annual energy
savings estimated multiplied by the conversion factor from energy
to CO2 and then multiplied by the persistence factor for
the technology. Persistence factors provide the efficient life
for a technology. They are based on a technologies "useful
life" which is then adjusted to reflect deterioration by
inherent degradation and operational degradation. Back
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