The Scottish Low Carbon Investment Conference

Q: Has the focus on renewable energy generation meant that energy efficiency has been overlooked?

A: I think it is fair to say that the primary focus to date has been on the supply side of the equation – and rightly so. The renewable generation sector is an emerging technology with enormous long-term potential for the UK to become a world leader in this field. The demand side is the other side of the same coin, and is a crucial part of developing a sustainable energy policy in the UK. It has the potential to offset rises in energy prices and aid UK industries competitive advantage.
The supply side is focused very much on the generators, whereas the demand side applies to everyone across all industries – and this means a small change can have a very substantial impact across the whole of society.

Q: Is there a tendency to blame renewables for future energy price rises?

A: In speaking to the market there is certainly a perception that the focus on renewables in the UK is putting us at a competitive disadvantage in relation to other countries in Europe.
It is easier said than done to address that perception, because of a lack of understanding of the energy market more generally. Green energy is unfairly tarnished as being the sole element driving underlying energy prices – Renewables Obligation Certificates (ROCs) and Feed In Tariffs (FITs) are very visible at the moment and easy to blame, but renewables is a relatively small element of the energy supply chain and there are many factors driving prices.

Q: Why is energy efficiency so important?

A: Energy efficiency is a crucial enabler to both offset energy price rises and address emissions. There is a tendency to focus on the negatives and not what can be done through energy efficiency to deliver a sustainable energy solution across the UK. The UK is in a strong position to become a leader in the renewable generation field and the time is now right to look at ways to leverage off the substantial benefits available through energy efficiency measures. The Green Deal has the potential to stimulate this market but it still requires a high profile project to really demonstrate the advantages that can be gained from this sector.

Q: How does your session fit into the conference?

A: It follows a session on Smart Cities, which for me is where we want to aspire to be but the lead time to success is a way off. The Smart Cities agenda relies on technological developments and having both the public and private sectors working together to deliver a solution. Our session on energy efficiency looks at what we can do today. The burning platform is the government’s policy to increase GDP and grow GVA through a variety of different mechanisms – but almost 100 per cent of those actions have a detrimental impact on emissions. Energy Efficiency measures can offset these and still deliver the growth aspirations of government so it remains an important element of the whole strategy.

Q: Is retrofit too big a challenge?

A: No - it’s a big challenge but also a big opportunity. The market is not yet factoring energy efficiency measures into the value of property which could help in future take up but the real challenge is funding the improvements and creating a commercial model where risk transfer and benefit sharing is fully understood.  With retrofit, we need a high-profile proof-of-concept project to show retrofit is hugely beneficial.

Q: How might that big project happen?

A: We think government is well-placed because it is crying out for measures that reduce underlying costs, its property portfolio is ideal for these sorts of retrofit projects and it is well placed to fund these schemes. If it got a couple of projects going, people will pick up on them and it will really snowball. Scaleability is the big challenge and Government can show the way in this area. There are a lot of social housing companies looking at what they can do in this area but it is mostly at feasibility study level and the standard challenges around risk transfer have not yet been fully addressed.

Q: What is happening in terms of retrofit in the private sector?

A: Lots of private companies are doing small-scale retrofit, partly to meet internal Corporate Social Responsibility (CSR) goals and partly commercially driven, but we are not seeing the scaleability yet.

Q: Are there good examples of what can be achieved in other countries?

A: The best example is probably the Empire State Building in New York, where we saw a $20 million retrofit programme that included replacing lighting, heating, windows, etc – and they believe they will get payback in around four years. This is what we mean when we refer to a high profile proof of concept project. A similar project in the UK would really stimulate the market.  

Q: What is holding back investment in retrofit in the UK?

A: I think it is about getting the funding market to be comfortable about investing and the risks within the projects. It is a relatively immature market and the Green Deal is there to try to address that – the government has been hugely supportive. But you still need someone to sit in the middle and guarantee savings. A further challenge in all of this is the need to create a behavioural change in the way people use energy. You can have a target to make 20 per cent savings, but individual behaviours are a crucial aspect of actually achieving these savings.

Q: Is there much happening in Scotland?

A: Most projects being considered remain at the feasibility study stage and no-one is yet ready to move forward at scale. At the moment, local authorities have other priorities and are looking at the immediate bottom line, not potential future savings. They are understandably conscious about making upfront financial commitments in this climate – and they are reluctant to take what they see as a risk because it is an immature product.

Q: Is there potential for public and private sector partnerships?

A: Yes, these would not be traditional PFI type deals but we see a real opportunity for a similar contractual and commercial structure to develop to create that new market. There are more and more private companies providing solutions and more people prepared to provide guarantees around the savings, but it’s how we package it all together. The whole product has not come together yet.

Q: What role can micro-renewables play at the demand side of the equation?

A: We think they can play a significant role – it is about providing your own energy. Big supermarkets are starting to realise that it ticks a few boxes – from the CSR perspective and in terms of long-term energy security. So it offers green credentials, price and supply certainty - and possibly some money too. It’s not just the big companies – it is a good way for small scale businesses and landowners too.

Q: What do you hope people might take away from the session?

A: It’s about getting the knowledge out there – bridging the knowledge gap and understanding the opportunities rather than looking purely at the generation side. There are a number of opportunities and solutions, it’s just about getting to people to realise that it is worth looking at.  We do not have to wait for smart grids and new technology which is ultimately the long term solution – there is a lot we can do now.

• Andy Boak is Ernst & Young’s Cleantech  Leader in Scotland.

Email: aboak@uk.ey.com
Tel: 0131 777 2194