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Etsu/K/Bd/00187/Rep Establishing a Local ESTABLISHING A LOCAL AUTHORITY MARKET FOR GREEN POWER ETSU/K/BD/00187/REP Contractor ESD Ltd Prepared by A Turnbull N Evans The work described in this report was carried out under contract as part of the New and Renewable Energy Programme, managed by the Energy Technology Support Unit (ETSU) on behalf of the Department of Trade and Industry. The views and judgements expressed in this report are those of the contractor and do not necessarily reflect those of ETSU or the Department of Trade and Industry First Published 1999 © Crown Copyright 1999 EXECUTIVE SUMMARY The aim of this project is to establish how to maximise the potential local authority (LA) market for green power by examining the procurement and supply issues, and identifying ways to overcome the potential barriers faced both by LAs (as purchasers) and potential green electricity suppliers. To do this, it is important to understand how LAs normally procure goods and services and how power suppliers normally supply electricity. Once these two processes are understood, it is much easier to understand the issues for a LA wishing to procure green energy and for a power supplier wishing to provide green electricity, instead of buying or supplying conventional electricity. The first stage of the project was to assess the procurement processes of the LAs. This review of LA energy procurement processes resulted in a report covering the following: • background to LA structure and how this may influence procurement practices; • the liberalised market opportunities for renewable energy; • current purchasing arrangements, particularly the important role of the Standing Order; • data requirements for LAs preparing tenders; • options for, and barriers to, purchasing green energy; • conclusions, covering how the current procurement practices can be adapted to promote the procurement of green energy. The key result from this was that current procurement practices are robust and do not require radical change. However, the role of the Standing Order, which generally restricts LAs from purchasing anything other than at the lowest cost, will seriously inhibit the procurement of (potentially) premium priced green energy. [Some LAs have however, purchased green power at a competitive price]. This review was an important starting point for the assessment of the LA purchase practices and highlighted a number of key barriers that needed to be addressed by the project. The second stage of the project was to review a number of LAs engaged in green electricity procurement. The review produced some interesting, although not entirely unpredictable, results: • the main barrier to purchasing green is the (perceived) premium price; • the Standing Order prohibits (apart from in exceptional cases) the procurement of goods and services which were not tendered at the lowest price; • LAs in consortia have difficulty in acting independently on behalf of individual sites within their authority area; • the adoption and implementation of key energy and environmental policies is crucial for green procurement to happen; • full support of Council Members is also very important; • there is a strong perception that there is insufficient green generating capacity to meet all LAs requirements; • this therefore leads to problems of green definition and the need for independent auditing of green supplies; • there is a need for central government involvement if the self imposed CO2 targets are to be met. i Part of this second phase was to develop a series of case studies of LAs who: • had successfully purchased green electricity; • were currently undergoing green electricity procurement; and, • were unsuccessful in purchasing green electricity. The purpose of these case studies is to provide valuable information and guidance to other LAs who are interested in procuring green energy. The case studies cover the approach taken by the LAs and how barriers were identified and overcome. It must be noted, however, that the individual circumstances for each of the successful green purchasers had a very important effect on the procurement process. The third phase of the project was to evaluate the supply of green electricity by the eighteen major electricity suppliers across the UK. This included evaluating the green tariffs or products the suppliers were offering specifically to LAs, that is the above and below 100 kW sites, with and without half hourly metering facilities. The three main supply barriers identified during the survey were: • the lack of a dedicated green energy account manager for LAs in the supply company; • the relatively poor marketing of green tariff to LAs; and, • the inability to confidently verify that their green product was truly green (where applicable). [This problem should be addressed by the REAS to be launched in 1999]. The main supply issues that need to be addressed are as follows. • Are there sufficient green electricity suppliers? • Do the suppliers have sufficient green generating capacity? • Do the suppliers and the LAs fully understand the nature of green electricity generation? • How easy is it for new entrants (green suppliers) to enter the electricity supply industry? • Do green suppliers have a licence that allows them to supply green energy nation wide? • Are the LAs fully informed of whom to approach for green supply? • Do the LAs understand the different green supply mechanisms or tariff structures that maybe available to them? • How do LAs obtain a green electricity supply? • Are LAs aware of other (green) energy services that a supplier may be able to offer them? The results of the three phases are brought together in a set of guidelines. The aim of the guidelines is to assist LAs to purchase green energy and to assist green energy suppliers to target LAs as customers. The guidelines highlight a number of issues that have been identified as possible barriers to the successful procurement of green energy by LAs. The guidelines offer solutions to the barriers for both the LA and the green power supplier. In addition, there is a brief synopsis of the five case studies of LAs who have been engaged in green power procurement. Three of the LA case studies have been successful purchasers of green electricity; Bristol City Council, Gloucestershire County Council and Plymouth City Council. Another LA is currently undergoing a green tender procedure; West Wiltshire District Council. The fifth case study is Carmarthenshire and Ceredigion County Councils, who are an example of a joint Council approach that were unsuccessful in purchasing green energy, despite a wide tender process specifying green electricity. ii ESTABLISHING A LOCAL AUTHORITY MARKET FOR GREEN POWER CONTENTS PAGE EXECUTIVE SUMMARY i GLOSSARY 2 SECTION 1 AIMS AND OBJECTIVES OF THE PROJECT 3 SECTION 2 REVIEW OF THE LOCAL AUTHORITY PROCUREMENT 4 PROCESS 2.1 Key Procurement Issues 4 2.2 The Local Authority Energy Procurement Process 5 SECTION 3 REVIEW OF LOCAL AUTHORITIES ENGAGED IN GREEN 6 PROCUREMENT PROCESS 3.1 Review Structure 6 3.2 First Tier Approach 6 3.3 First Tier Approach Results: Quantitative and Qualitative 9 Assessment of the Broad Questionnaire 3.3.1 LAs Currently Purchasing Green power 11 3.3.2 LAs Currently Undergoing the Green Procurement Process 12 3.3.3 LAs Who Were Unsuccessful in Purchasing Green Power 12 3.3.4 LAs Planning to Purchase Green Power 12 3.3.5 LAs Not Planning to Purchase Green Power 15 3.3.6 Questions Which Received No Score 16 3.4 Second Tier Approach 18 3.5 Second tier Approach Results: The Case Studies 18 SECTION 4 REVIEW OF GREEN POWER SUPPLIERS 19 4.1 Introduction 19 4.2 General Information Obtained from the Survey 19 4.3 Green Power Suppliers 20 4.4 Summary of Supplier Tariffs 31 4.5 Green Energy Supply Issues 33 4.6 Guidelines to Help Establish a LA Market for Green Power 38 4.6.1 Issues Identified by the Project 40 4.6.2 Guidelines for Local Authorities 41 4.6.3 Guidelines for Green Energy Supplies 42 4.6.4 Local Authority Case Studies 43 SECTION 5 PROJECT RESULTS 45 SECTION 6 CONCLUSIONS AND RECOMMENDATIONS 48 APPENDIX A First Tier Questionnaire used with 22 Local Authorities APPENDIX B The Lighthouse Project APPENDIX C Second Tier Questionnaires used with the Five Case Study LAs APPENDIX D The Green Supplier Questionnaire 1 GLOSSARY Best Value The Best Value Programme addresses the way that LAs purchase goods and services. It supersedes the compulsory competitive tendering (CCT) methodology. Best Value introduces a strong environmental imperative to the way purchases are made, but currently it has not been clearly defined in terms of the sustainability issues surrounding purchases. The Local Government Bill, published on 30th November 1998, sets out the general duty of Best Value as follows: “a best value authority must make arrangements to secure continuous improvement in the way in which its functions are exercised, having regard to a combination of economy, efficiency and effectiveness.” Best Value is further described in the Government's White Paper (Modern Local Government: In Touch with the People, published on 30th July 1998): “A modern council or authority which puts people first will seek to provide services which bear comparison with the best. Not just with the best that other authorities provide, but with the best that is on offer from both the public and private sectors. Continuous improvements in both the quality and cost of services will therefore be the hallmark of a modern council, and the test of Best Value”. It is likely to be the single biggest driver to the development of the purchase of green power in the LA sector. The guidance that accompanies the programme must be clear and unambiguous. It is important to understand the basis of Best Value to ensure that any input to the development of the green power market is successful. Energy Services Company (ESCO) The term energy service company (ESCO) is used to describe organisations which provide a range of services which help consumers to use energy efficiently.
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