CRC: Pie in the sky?

Industrial companies across the UK have until 30 Sept to register for the Carbon Reduction Commitment Energy Efficiency Scheme (CRC). There are significant fines for late registration to the scheme, which is intended to create a direct link between a company’s carbon emissions, finances and corporate reputation.

The CRC is expected to cover around 5,000 public and private sector organisations - those with at least one half-hourly settled meter and a power consumption of 6,000MWh or more a year in 2008 - as full participants. Another 15,000 organisations, with consumption below 6,000MWh, will be required to take part in some elements of the scheme.

The best performers will feature in the highest positions in the scheme’s published league table. They stand to benefit financially, while those that don’t prepare for the scheme risk being named and shamed as polluters as well as receiving fines and other financial penalties.

This carrot-and-stick approach has so far, however, generated little enthusiasm for the scheme. Figures released by the Environment Agency on 21 June put the number of organisations that had registered for the CRC at just 447.

Even with an expected, last-minute rush to sign up, this suggests that many companies will be hit by fines of £5,000, plus £500 a day for late registration.

Likewise, only 2,622 organisations to date have completed their information declarations to the Environment Agency, according to Dave Lewis, head of business energy services at npower.

“This represents approximately 10% of the total number of organisations estimated to have to submit this information by September’s deadline. So, there are many that still need to do so to avoid the fines within the scheme,” Lewis explained.

Meanwhile, recent surveys have shown that around half of all companies have no plans to take advantage of CRC’s early-action incentives to encourage energy efficiency measures, such as installing smart meters.

Feedback from equipment suppliers indicates that the CRC has yet to spark a rush to invest in new energy-saving equipment in the process sector.

“We are still picking up some small orders for variable speed drives where they are replacing either inefficient products or mechanical restrictors,” said Mark Chrimes, product manager at Siemens Industry Automation & Drive Technologies. “However, these are projects that we have been working on for some time.

Financial incentive

Emissions trading is intended to offer a financial incentive to drive energy efficiency and carbon savings within the CRC. Initially, all carbon allowances will be sold at a fixed price of £12 per tonne of CO2, though from April 2013 they will be auctioned by the government.

Companies will receive a bonus payment - from the funds raised through the sale of allowances - or a financial penalty, depending on the extent to which they have reduced their emissions compared with other organisations within the scheme.

However, Chrimes believes that, at £12/tonne, the carbon charge within the scheme “is not high enough to force users into making the changes required to reduce their carbon footprint.”

For his part, Lewis at npower warns that participants could face unexpected costs further down the line as a result of miscalculation: “Businesses that buy too few allowances could need to top-up their purchases under the scheme’s ’safety valve’ mechanism or on the open market, at a higher price.”

Or, as Schneider Electric’s senior energy consultant David Snow explains, companies must assess how much energy, from all fuel sources, they think they will consume in the forthcoming year. They then have to purchase allowances based on this estimate. If this usage is underestimated, additional allowances will need to be purchased and this could be at a higher cost than the initial price.

“The best way to avoid this happening is to utilise services and technologies that can help you establish current usage and predict how that might change in the future,” said Snow. “This includes energy audits, which not only provide valuable historic and predictive data, but will highlight specific areas of a building or a certain piece of equipment that could benefit from energy efficient solutions.”
Examples range from implementing simple technologies, such as energy efficient lamps, through to fully automated systems, said Snow.

Don’t forget the ETL
To benefit from the rewards offered by the CRC scheme, organisations must continue to make energy savings and increase their energy efficiency, said Chrimes.

“After obvious measures such as turning down the heating slightly or ensuring lights are switched off, attention needs to be paid to processes on site to ensure they are as efficient as possible. In particular, the parts within a plant that can affect the efficiency of the site, so these should be thoroughly audited.

“However, as with any area that may require investment, it is important for companies to have a clear route to the finance needed for potential upgrades.”

The Energy Technology List (ETL) is an element of the Enhanced Capital Allowance (ECA) scheme, which is part of the government’s programme to manage climate change. The latter encourages investment in energy-saving equipment, including enhanced tax relief for investment in equipment that meets published energy-saving criteria.

Specifically, 100% of first-year ECAs allow the full cost of an investment in designated energy-saving plant and machinery to be written off against the taxable profits of the period in which the investment is made.

An example of parts which bring energy-saving benefits to a site once installed are variable speed drives and these feature on the list, said Chrimes. These drives, he noted, not only offer energy-saving benefits, but can also increase efficiency on site.

“The CRC offers rewards to those companies who continue to reduce their energy consumption and when basic measures for doing this have been exhausted, upgrading the plant is the natural next step,” according to Chrimes.

“It is therefore vital that manufacturers can do this with as little cost as possible, meaning the ETL is invaluable,” the Siemens manager concluded.

Confused picture

A recent survey of major energy users (MEUs) - the npower Business Energy Index - found that nearly half of those questioned have found the guidance on the CRC from the government to be inadequate. These companies, said npower, are still unsure regarding key elements of the scheme, like purchasing allowances and how to forecast CO2 emissions.

However, amongst MEUs, the significance attached to energy management and reducing energy consumption is at its highest level since npower began its annual index in 2005, according to the company’s Dave Lewis.

“The importance MEUs now attach to energy management and reducing energy consumption could also go some way to explaining why 24% of MEUs say they have reduced their energy consumption by 20% in the last year,” said Lewis. “This feedback shows MEUs are increasing the importance they place on reducing energy consumption and increasing energy efficiency.

“The npower Business Energy Index shows that MEUs are making moves in the right direction with energy efficiency, but, ultimately, they still need to ensure all the paperwork is completed to succeed in the CRC.”