Weathering the storm

Saving the planet was never supposed to be easy, and the government's plans to meet their obligations under the Kyoto Agreement have undergone tortuous paths. But the wait and debate are now over. The climate change levy is now in force, as are the voluntary agreements from various industries to implement energy-conservation measures in exchange for levy discounts.

Most companies estimate that the CCL will add 10 -15 per cent to their energy bills. For process companies, therefore, the need to invest in energy saving is more pressing now than at any point since the early 1990s. To support this, the Treasury and Department of the Environment devised the Enhanced Capital Allowance scheme, which creates tax breaks for companies buying energy-saving equipment.

The ECA, which is based on a model running in the Netherlands, allows companies to write off the entire cost of their spending on energy-saving equipment against the taxable profits of the period they made the investment. All businesses can claim the allowance, regardless of their size and location, or the industrial sector in which they operate. This will be the equivalent of a 7-15 per cent price cut in many cases.

Energy can be saved in a variety of ways, so the ECA covers several different types of equipment. Combined heat and power units, boilers, motors, variable-speed drives, lighting, refrigeration, pipe insulation materials and thermal screens are all included, subdivided into the various different types of equipment which come under their headings.

Equipment only qualifies for ECA relief if it meets a set of criteria which have been set by the government, ensuring that the equipment's specification are above those deemed to be 'standard'. These criteria will be reviewed annually. They also promote new technologies, says the DETR, particularly those which have entered the market but have not yet gained market confidence. By the same argument, ECA certification will help energy-efficient technologies to increase their share of the market.

The ECA website, www.eca.gov.uk, allows buyers to access the list of equipment which has been certified for the allowance. Users can select the type of equipment from a pull-down menu, entering the date whether they are considering the purchase of equipment or when they bought it, and the system will return a list of eligible products in the category, together with the contact details for the manufacturers.

The process industry's suppliers are naturally keen to communicate their message. Many companies, for example, are offering their customers a consultancy service to advise them on which equipment could be updated to both save energy and attract tax relief. Others are gearing up for the expected rise in demand for their products.Drives are the largest power consumers in many process plants, and thus a major source of possible savings. Siemens, one of the largest players in this market, has been offering a guarantee that, even if the ECA were not implemented, any customer buying a variable speed drive or motor would recover the allowance.

ABB has also moved quickly. The company is offering to visit customers' sites and draw up an engineering report, which will include advice on training staff in energy-saving techniques as well as recommending new drive technology and motor management techniques. The company has also introduced a deferred-payment scheme so that companies can reduce the immediate financial impact of the investment.

Another major, Westinghouse, is also offering energy audits, and is promoting niche systems such as the Minicon Plus drive, whose waterproof and dustproof design targets it at industries which need regular 'washdown' of equipment, such as food processing.

In the refrigeration sector, Coolmation is highlighting the use of free coolers in saving electricity and money. For example, it says, a 150kW chiller with a power consumption of 35kW/hr, running for five days a week, 48 weeks of the year, can save £4500 in year if it uses free cooling, paying for itself within 14 months. The free coolers chill the water before it reaches the chiller, reducing the amount of work needed from chiller compressors.

Baltimore Aircoil's evaporative condensers have also been awarded ECA certificates. These devices consume less power than conventional air-cooled condensing systems, as they operate at lower condensing temperatures and hence need less compressor energy input.

Industry is understandably concerned about the CCL and its consequences, but the mechanisms and equipment are there to reduce its impact and cut energy bills. 'There is a clear path for heavy industry and commerce,' says Phil Hall, Teco Westinghouse's European sales manager. 'They can pay higher taxes and continue to use excess energy, or they can adopt energy efficiency policies, save money and become more efficient.'

Sidebar 1: Trading on experience to reduce emissions

While new equipment is clearly one way for industry to save energy, other options are also available. BP, for example, is to assist its customers in making the most from emissions trading.

The emissions trading scheme is intended to partner the CCL in reducing greenhouse gas emissions. Companies will be allocated 'emissions credits' based on their energy usage profile. If they reduce emissions, credits will be rendered 'surplus' and can be traded.

'BP recognised that its customers would need to acquire new expertise to respond to essential emissions reduction targets set by the government, and to accommodate the costs and competitive implications of the CCL,' says Alistair Dutton, innovations manager. 'The company has a substantial experience-base in energy-environmental management and emissions trading through piloting our own successful internal emissions trading scheme and our involvement with the UK emissions trading group. We want to offer our experience to our customers to show how energy-environmental management is as good for business as it is for our environment.'

Companies adopting BP's energy strategy should free up emission credits which can then be traded with other UK companies, Dutton claims. This will generate new finance which can, in turn, be used for further environmental investment and emissions reduction.

Sidebar 2: EEF calls for Levy review

The Engineering Employers' Federation is calling on the government to review the Climate Change Levy as soon after the general election as possible. 'For those companies now facing a downturn in their business because of a slowdown in US and European economies, the timing could hardly be worse,' says EEF director-general Martin Temple. The government needs to correct the 'anomolies' in the levy which threaten competitiveness in some industrial sectors, he adds.

Earlier this year, the EEF commissioned a survey from Ernst & Young to estimate the financial impact of the CCL. It found that some 2300 companies, employing over 1.3million people, will find their net costs increased by a total of £100million as a result of the levy, even after the reduction in National Insurance contributions which were intended to render the levy 'fiscally neutral.' The impact on individual businesses varies from £4000 to £400,000. These companies are not eligible for reductions in the levy under the current criteria, the EEF says.

The EEF is proposing an extension of the series of negotiated voluntary agreements to increase energy efficiency towards set targets, in return for major reductions in the levy. 'EEF calculations have shown that even if only half of the 2300 companies signed up to energy efficiency targets, it could reduce industrial CO2 emissions by over 1.5million tonnes, a substantial environmental benefit,' says Temple.