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Energy performance contracts: the seldom-used tool that can unlock greater efficiency

Lee Stokes, Head of Sustainability Solutions & Innovation, Mitie Energy

The 2016 Paris Agreement was a watershed moment for international action on climate change. With 195 signatories, the accord has forced governments into action, with many looking to enshrine ‘net zero’ targets into law. The UK is no exception to these efforts, with the government seeking out independent advice from the Committee on Climate Change (CCC) soon after its ratification.

Among the CCC’s recommendations was an urgent call to improve the energy and carbon efficiency of existing UK real estate. This has shined a light on the built environment’s attitude to carbon reduction and raised questions around the best ways to improve energy and carbon performance of current infrastructure. Energy Performance Contracts (EPCs) – which are an undervalued and seldom-used tool in the UK – offer one solution to this problem, particularly those based on operational performance rather than capital replacement.

Traditionally, EPCs have been offered by equipment suppliers. Customers will be required to purchase an upgrade on the understanding that specified energy savings will be delivered, offsetting the initial expenditure while also helping to meet certain sustainability targets. Proponents of this model argue that it minimises risk and gives organisations, particularly SMEs, easier access to asset upgrades. While true, this offering can also lead to less than transparent practices and, because EPCs are usually agreed over a long-term basis, difficulties for customers who work out of leased or non-permanent offices. It also frequently ends up being cost prohibitive for smaller organisations without the cash flow to purchase first.

This is where a new approach for EPCs is emerging – one that eliminates the need for large upfront investment and is instead based on continued improvement of existing stock. Mitie, for example, focuses on energy optimisation by assessing a facility and then making consistent, incremental changes to poorly functioning assets, providing they are controllable in some way. This frees the customer of any financial burden, not to mention the hassle of installation and removal, but still allows them to make the upgrades necessary for greater energy efficiency. Using this model, a financial services client has saved £77m so far, with 100 gigawatt hours recouped over the last 12 months alone.

Perhaps what’s most beneficial about this model is its applicability to virtually any industry or commercial environment. In certain instances, like manufacturing, there will be machinery that simply cannot be replaced without considerable disruption to the core business. With the new approach, however, equipment can still be modified to accrue energy savings without any of the down-time found in traditional EPC set-ups.

It’s clear that energy is now a key part of modern facilities management delivery. From a property perspective, at least, much of the burden to meet ambitious climate targets will sit squarely on the shoulders of support service professionals. The UK’s high volume of legacy infrastructure makes for a considerable challenge, but if the industry is serious about a meaningful contribution it will have to rethink its approach to EPCs and how these can be delivered effectively without exposing clients to unnecessary financial risk. Doing so will draw clients further into the ‘net zero’ conversation and help accelerate progress on climate change.

If you would like to learn more about our approach to energy efficiency, you can download our brochure here: www.mitie.com/energy

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