CRCEES – what does Phase 2 mean?

Phase 2 of the CRCEES is supposed to be simpler but don’t hold your breath says Kerry Hamilton, Energy & Development Manager for energyTEAM.

The CRC Energy Efficiency Scheme is moving into its second phase and a lot more companies are going to find themselves falling within its scope due to growth, merger and acquisition since the 2008 benchmark which determined whether or not an organisation fell within the scope of Phase 1.

Given that the qualification year for Phase 2 is already underway (April 2012-April 2013), and despite the fact that the Government has yet to publish the threshold of energy consumption for inclusion in the Scheme, smart businesses need to be measuring consumption and undertaking due diligence now, so that they know exactly what impact it could have on their business.

On the face of things it may seem patently absurd that Phase 2 is effectively underway before we even know who it will affect. The general consensus is that the actual process involved in complying will not change substantially in practical terms affecting most participants, so the key piece of information the majority of businesses need to know is the threshold at which a business finds itself legally bound to participate by measuring its detailed carbon footprint. There is a possibility that the threshold will not change.

Nevertheless, I would argue that any sizable firm spending in the region of £250,000 or more per annum with consumption that is more than 50% of the current threshold of 6,000MWh should adopt CRC style measurement and be proactively managing its energy consumption as a matter of good management. Amidst all of the furore about the concept of the original levy turning into a tax, we seem to have forgotten that the objective of the whole scheme is to encourage firms to reduce their consumption and costs.

Approaching CRCEES as a proven methodology for reducing costs, rather than irritating and costly compliance can deliver massive savings for an organisation but only, of course, if you couple it with developing an action plan acting on the information it provides.

The background to Phase 2

The CRCEES is a mandatory scheme aimed at improving energy efficiency and cutting emissions in large public and private sector organisations. These organisations are responsible for around 10% of the UK’s emissions.

CRCEES covers both public and private sector organisations. At present, the scheme is affecting approximately 2,000 organisations in the UK. It was anticipated that the scheme will influence 25% of total business sector emissions within the UK. It works in tandem with the existing European Union Emissions Trading Scheme and Climate Change Agreements.

Phase 1 of the Scheme started in April 2010 when qualifying firms were required to submit registration details to the regulator. At today’s prices, the threshold for mandatory qualification is roughly equivalent to total half hourly electricity bills of approximately £500,000 per year.

At that time, organisations that had at least one half hourly electricity meter (HHM) settled on the half hourly market in the qualification year 2008, had to make an information disclosure under CRCEES. In other words, if you were just under the threshold for Phase 1 and likely to fall within the scheme for Phase 2, they already know where you are, so planning ahead to uncover energy savings makes especially sound sense for you.

In theory the good news is that Phase 2 promises to simplify participation of the scheme but we are not convinced that the changes will be meaningful in practice. Nor will the changes reduce the financial burden of ineffective energy management within an organisation – that is down to you.

How will Phase 2 differ?

Millions of pounds will be saved for businesses through ambitious new proposals to simplify the Carbon Reduction Commitment Energy Efficiency Scheme, (CRCEES) according to energy and climate change secretary Ed Davey. Participants will see their administrative costs cut by almost two-thirds, equating to around £330 million of savings up to 2030.

The package of simplification proposed by the Government is aimed at retaining the energy saving and reputational benefits of the CRCEES, whilst reducing the bureaucracy of taking part.

The simplification package is expected to include a shortening of the CRCEES qualification process, a reduction in the number of fuels covered from 29 to four and a reduction in the amount of reporting required by businesses. In addition it is expected to reduce the length of time participants will have to keep records and remove the requirement on facilities covered by Climate Change Agreement or EU Emissions Trading System installations to purchase CRCEES allowances.

We have been watching the progress of the formal consultation on Phase 2 with interest and, like a lot of people, no small measure of bemusement. But on the face of it we do not see that there will be much simplification in practice for most of our customers.

Most firms only use the four core fuels, the vast majority are confined to electricity and gas anyway, and relatively few are covered by the CCA. What they really need to know is the threshold so they can plan internal resources to manage their registration and participation.

When we visit firms around the country who may be on the cusp of joining Phase 2 we find that typically they are concerned that they lack the resources and expertise to comply. In the current financial climate, many organisations do not have the budget to employ dedicated energy managers. This is often coupled with a lack of enthusiasm! Most people working with the massive area of environment have enough on their plate without having to deal with their legal compliance.

CRCEES participation involves everyone within a business and engaging with the process at the earliest opportunity is important. We believe an effective Impact Assessment should be undertaken now because it will impact you if your company consumes more than 6,000MWh from next year. More importantly, the threshold may be reduced so if you consume over 3,000MWh of half hourly energy can you be sure you won’t be pulled into this too?

Impact assessment

Only when you know the task ahead, does it become manageable, with each person having a clear idea of what needs to be done and when. So an Impact Assessment should focus on developing a clear understanding for every individual on how it will affect their department so that they can plan and resource appropriately.

Saving energy is the right thing to do regardless of the CRCEES. Do you care about your reputation? How are you performing against your competitors? Surely saving money is a good reason to save energy on its own.

Identifying the financial and practical impact of the scheme logically leads into the energy reduction measures needed an
d our logical Carbon Ladder approach takes businesses through the process step by step from an initial energy audit, through action planning and exploring grants to implementation and on-going management and improvement. After all energy management isn’t just for CRCEES – it’s for life.

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