EET/S3/09/6/A ECONOMY, ENERGY AND TOURISM COMMITTEE AGENDA 6th Meeting, 2009 (Session 3) Wednesday 25 February 2009 The Committee will meet at 9.30 am in Committee Room 6. 1. Determining and delivering Scotland's energy future (in private): The Committee will agree lines of questioning. 2. Determining and delivering Scotland's energy future Inquiry: The Committee will take evidence on changing consumer behaviour and reducing energy demand in the industrial and public sectors from— Dr Jill Anable, Senior Lecturer in Transport, The Centre for Transport Research; Phil Matthews, Senior Policy Advisor, Sustainable Development Commission Scotland; Mrs Jennifer Macleod, West Alness Residents Association; Jon Cape, Managing Director, Renew Services Ltd; Madeleine Hallward, Head of Public Affairs, Energy Retail Association; and then from— Niall Stuart, Press and Government Affairs Manager, Scottish Council for Development and Industry; Brendan Dick, Director, BT Scotland; Michael Alexander, Head of Corporate Relations Scotland, Diageo; Ken Richardson, Chemical Industry Association; and then from— EET/S3/09/6/A Angela Cullen, Director of Public Reporting (Central Government), Mark Roberts, Portfolio Manager (Central Government), and Susan Lovatt, Project Manager (Central Government), Audit Scotland. 3. Joint seminar with the Scottish Trades Union Congress: The Committee will discuss the recent seminar with the STUC and any follow-up actions, including the next 'hearing' on the state of the Scottish economy. 4. Decision on taking business in private: The Committee will decide whether its consideration of the lines of questioning on the Climate Change (Scotland) Bill at its meeting on 4 March should be taken in private. Stephen Imrie Clerk to the Economy, Energy and Tourism Committee Room T3.40 The Scottish Parliament Edinburgh Tel: 0131 348 5207 Email: [email protected] EET/S3/09/6/A The papers for this meeting are as follows— Agenda item 1 Note by the clerk - Private paper EET/S3/09/6/1 (P) Agenda item 2 Note by the clerk EET/S3/09/6/2 Audit Scotland Report and Summary "Improving energy EET/S3/09/6/3 efficiency" Agenda item 3 Note by the clerk EET/S3/09/6/4 Proceedings of the 2nd EET Committee and STUC Seminar EET/S3/09/6/5 (Feb 09) EET/S3/09/6/2 Economy, Energy and Tourism Committee 6th Meeting, 2009 (Session 3), Wednesday, 25 February, 2009 Changing consumer behaviour and reducing energy demand in the industrial and public sectors – written evidence Background 1. The Committee has received an additional written evidence submission in relation to its energy inquiry from Renew Services Ltd. The submission is attached as the annexe to this paper. 2. Also attached in annexe are the original energy inquiry submissions made by the Energy Retail Association, the Scottish Council for Development and Industry (SCDI) and Diageo. Recommendation 3. Members are asked to take the submission into account in their deliberations when questioning today’s witnesses. Stephen Imrie Clerk to the Committee February 2009 1 EET/S3/09/6/2 Supplementary evidence Renew Services Ltd Renew co-operative energy services Scottish Government draft renewable framework Response from Renew and submission of evidence Introduction. Renew (Renew Services Ltd) is a co-operative energy services company established in Scotland and operating UK wide. Its purpose is to develop, fund and manage sustainable energy projects in the interests of the communities and customers which it serves as an energy services company accountable to those communities. We work with new build and existing properties, public and private sectors, housing and other energy users. We operate with four service components (the first of these operates on a full esco basis, with development work underway to apply the esco model also to the second and third component): Renew Local – local energy networks (district heating and CHP) Renew Micro - funding of microgeneration Renew Homes – new build low carbon homes Renew Wind - community This response is in three parts: (i) Outline of the co-op esco business model and its significance on helping meet Scotland’s renewable energy objectives (ii) Response to specific consultation questions (iii) For ease of reference, a copy of our response to the Scottish Climate Change Bill is included, as many points within that response remain pertinent to the current consultation. 1. Significance of Co-op esco model 1.1 In October 2008, Renew was invited to present to a symposium organised by the Scottish Building Standards section of Scottish Government. This section summarises a section of our presentation. 1.2 To convey the significance of the co-op esco model, we will examine a sequence of issues commencing with the economics of sustainable energy 1.3 Economics of sustainable energy. Sustainable energy options tend to be characterised by higher initial capital costs than more conventional options. Where they are economically viable, they will also pay for themselves - taking available grant into account – over their asset lives. Many purchasers, whether in the public or the private sector, are capital constrained and thus the option appraisal which they are obliged to undertake will often focus on capital cost rather than the best economic test which should be the whole life economics of options under consideration. 1.4 This leads on to the fundamental economic logic of the energy services company or esco model (there are other reasons for taking an esco approach as well as economic, often to do with available staff time and expertise). Under the esco model, a long term contractual relationship with the energy customers for any given project is established. This obliges the customers to buy energy services from the esco (or to buy from a third party which utilises 2 EET/S3/09/6/2 and pays for the use of esco assets. On tyis basis, the esco is able to raise capital funding to help fund the initial costs of the project. 1.5 However, customers are often, not unreasonably, nervous about entering a long term contract with a private utility: how do they know they will be getting a good deal over the long term? The co-op esco addresses this barrier by a simple remedy: the esco is owned by its customers and is there to serve their interests. 1.6 Thus: (i) when stakeholders are considering energy project options and are presented with a sustainable energy option which has high capital costs but is otherwise attractive and, with available grant, has positive whole life economics (i.e. a positive net present value over its asset life), they have three main options: (a) find the extra capital (b) go for an option with lower upfront cost, even if it makes less economic and environmental sense; or (c) take an esco approach (ii) if they opt for ( c ), there are a further three main options: (a) Create their own esco: but this takes a lot of time and effort which they probably don’t have and gives limited or no scope for scale economies (b) Contract with a private esco: if their project is attractive to private escos and if they are happy that maximising shareholder value for the esco’s owners will, not unreasonably from the esco’s perspective, be the key priority (c) Contract with a co-operative esco such as Renew: on this basis, the key priority for the esco, whilst satisfying its mix of project funding partners, will be to maximise customer and community value 1.7 Examples: on the basis of the above rationale, Renew is working with a range of project partners on sustainable energy projects in Scotland. These involve renewable in most cases, but, for example for small projects or early phases, may be based on provision of gas CHP (which still provides large CO2 reductions against default options). The Cardenden Heat and Power project, currently in full development stage, will deliver an estimated 5000 tonnes of CO2 reduction in its phase 1 alone, which will also address issues of affordable warmth and in many cases fuel poverty for some 600 households. A proposed microgeneration programme working with both tenants and private householders in non-gas areas, which is under discussion at present with a local authority, would help address affordable warmth and fuel poverty for some 1500 households over a five year period and, by year five, reduce carbon dioxide emissions by some 10,000 tonnes per year. 1.8 Strategically, we believe that: (i) local energy, in all its forms, can play a large role in helping to deliver the Scottish Government’s renewable energy objectives. In Denmark, for example, local energy accounts for around 60% of the energy mix and its growth has played a big role in Denmark achieving some 70% economic 3 EET/S3/09/6/2 growth in the last quarter of a century without a parallel growth in energy. Much of Denmark’s provision is from the co-op sector. (ii) the esco model generically can play a large role in helping to deliver a considerable shift towards local energy. (iii) The co-op esco model is well placed to take the lead in this growth. We intend to play a full part in driving this process forward and will be happy to provide more detail of the co-op esco model and of our projects. 2. Response to Consultation questions Achieving 20% of energy consumption for renewable sources Do consultees agree that we should aim at 20% to meet the 2020 target and that progress should be made in all three sectors of electricity, heat and transport? If not - why not? Yes. This is achievable provided that full leadership encouragement and facilitation is given with regard to new economic models such as that which we describe above1.