This interview was originally published on 2degrees
We caught up with Dr Rukhsana Adam of energy partnerships for British Gas Business Services to find out more about Energy Performance Partnerships and what to consider when entering into one.
For those who don’t know, what is an Energy Performance Partnership?
An Energy Performance Partnership, otherwise known as an EPP, is a self-funding agreement designed to reduce your energy consumption and costs.
Within an EPP the partner can install and maintain a range of energy efficiency measures and can also enable you to generate renewable energy on site. The client pays the initial capital outlay back over time with the money harvested from the energy savings the new equipment brings.
Why are some companies reluctant to enter into an EPP?
The commercial sector is particularly reluctant to enter into Energy Performance Partnership contracts. There are several reasons for this, the key reason being their ‘piecemeal’ rather than strategic approach to energy efficiency. An example of the piecemeal approach includes going for the ‘low hanging fruit’ first such as LED lighting, which deliver good savings and have short payback periods.
The result is that when it’s time to move on to items requiring longer payback periods, such as upgrading HVAC systems, it’s difficult to convince key stakeholders such as the finance director to invest, as there is a demand to use the capital for investing into growing the business rather than consumption. Also, many companies think they’d prefer to do the work themselves and that by not having an EPP involved it will cut costs.
So why should they consider it?
EPP contracting helps organizations take a strategic and holistic approach to energy efficiency and also guarantees savings that can fund the proposed measures. As the savings are guaranteed and the payments are collected by the ESCO, the banks view these as less risky, which can result in a reduction in the cost of capital.
With an EPP, the partner guarantees to save a certain amount of energy and money, and if this doesn’t happen it’s up to them to pay for it. If you’re doing it by yourself you don’t have this guarantee.
By working with a partner, you’ll have the benefit of learning from people who’ve worked on lots of different projects in numerous sectors and who can share best practice from these experiences. This might be preferable to just relying on an internal energy manager who might not have had exposure to as many different environments.
Independent partners are also able to keep their clients informed about the latest technology out there that they might like to invest in.
What are your tips for energy managers considering entering into an EPP?
Firstly, an energy or facilities manager is going to know more about their building than anyone else. Therefore it’s probably not worth getting a consultant in to tell you what you should be focusing on. Draw up a list of areas you feel should be a priority for your business – are you particularly keen to invest in renewables, for example?
Although your partner will need to do an independent assessment, it’s helpful to see what your priorities are as contracts can be tailored to suit your needs.
Next, have a think about who you’d need to support the project and get engaged for it to work. Once that’s done speak to at least two or three different potential partners and ask them how they would help you to get these key stakeholders, such as the Board and the FD, on board and how they’d get that done quickly.
Energy managers sometimes use quite ‘technical’ language that other people across the business might not engage with, which is why it’s so important to understand how the partner will help to build the business case and engage those you need support from.
Once in an energy performance partnership, communication is key. This is a partnership and transparency between the two parties is crucial.
Is it too good to be true?
Ah… you mean people feel it’s too ‘motherhood and apple pie’. Well, it will be as the relationship progresses, but the journey of getting there has its ups and downs. It involves building a relationship and trust which, in turn, means understanding each other – and that does take time.
Seeing as the savings are backed by guarantees it also means giving up some control, which can be difficult for energy and facilities managers who might not be used to this. As the journey progresses and the partnership strengthens, things do become easier.
Finally, the current form of EPP contracting is only suitable for organisations spending over £1m per annum on energy, although British Gas is exploring how our current offering can be adjusted for customers with a smaller energy spend.