ESOS requires large organisations to audit the energy used by their buildings, industrial processes and transport every four years and to identify energy-saving measures.
The scheme is aimed at large companies, yet the individual recommendations that result – measures such as LED lighting – are typically low value relative to a company’s finances. For a lot of organisations, this means that considering recommendations in isolation is simply not viable. If a project costs £20,000 and requires a lot of time and effort to communicate internally, yet will only save £20,000 over three to five years, it’s unlikely to go ahead.
Combining solutions
But what if you could get more value from the individual projects? What if you were able to, for example, bundle three solutions together?
You could then also consider value that fell outside the scope of ESOS such as social and environmental value. Three solutions combined might cost £60,000 and pay back £100,000 over three to five years. There would be a bigger benefit and a de-risked investment. The internal understanding can be done in one step and the whole proposition would be more appealing to a large organisation.
Then there’s the question of how to finance such a project. The ESOS scheme only targets large corporates, which typically fall outside the scope of both government funding and innovative funding streams. For the scale of projects and initiatives identified through ESOS, internal funding or debt financing secured against the company are most likely to be appropriate. Depending on the risk profile and the value of the project there are more complex options can be considered.
The initiatives being combined to create a business case don’t just have to be technological. Things like behavioural change initiatives – encouraging people to reduce energy use – can be grouped together with changes to control systems to make heating more efficient.
Using better data
To build a business case for any intervention, you need robust data and methodology. ESOS can sometimes lack detail here, with a simple payback approach that can all too easily gloss over vital details.
Imagine, for example, you were looking at installing a renewable energy system and used the contracted price of electricity today to calculate your payback. What if a cheaper tariff became available? If the project were built, then the savings you were expecting to make to repay the finance may not cover the repayments. Additional money would need to be found to subsidise the project.
So, while ESOS flags areas of interest, you really need to understand the assumptions made and confirm them with real data. Then you can combine business cases to build a financing position.
At WSP, we work with our corporate clients to help them understand the process of designing multi-solution projects that enable them to generate the value and returns they need.
Getting more value
Investments in core functions of a business that promise high returns will naturally appear more attractive to corporate boards than lower-payback energy-efficiency projects. But we are able to provide a 360-degree view of the potential energy-efficiency project. We can show how it will provide not only financial value but also help to achieve corporate governance goals, support ambitions to achieve net zero carbon and realise other social and environmental benefits.
This is the value that ESOS doesn’t consider – but we do.
