Decentralised Energy

Over recent years a number of large national and international organisations have been exploring ways to achieve an economic advantage from decentralised generation of renewable energy. Decentralised energy is ‘energy that is generated at, or near to, its point of use and does not rely on the national grid transmission network’.

There are a number of principle drivers behind the movement towards decentralised energy generation, namely:

• To contribute to the Government’s green energy agenda
• Taking advantage of financial incentives such as the Renewable Obligation Certificates (ROC) and Feed-in Tariffs (FiTs)
• To avoid carbon taxes such as the Carbon Reduction Commitment (CRC), which in 2010 will apply to circa 5,000 organisations
• To contribute to corporate resource efficiency and environmental aspirations

To reduce the ever increasing financial risk associated with fluctuating energy price, in April 2010, the Government is proposing to expand the CRC programme to include businesses which have an annual usage of at least 6,000MWh and have at least one half-hourly meter. It is predicted that the ‘price of carbon’ will be in the region of £12 per tonne of CO2 and therefore a business which uses the minimum 6,000MWh of electricity per year could be liable for an additional ‘carbon tax’ of up to £38,000 per annum.

As shown in the graph below, certain industry sectors have made significant reductions to their energy consumption over the last 18 years. However, some industrial sectors including the chemicals, food, drink and tobacco and paper related industries have not seen a significant reduction. It is therefore suggested that it is within these sectors that considerable gains from the installation of a sustainable energy source can be made. This observation has been supported further in the pre-budget report (PBR) in December, in which Alastair Darling announced £30 million of financial support focused on the Teeside chemicals industry, to help the sector demonstrate new technologies and techniques to save energy, it remains to be seen how effective this will be in rolling out similar technologies and techniques to the rest of the UK. 

National Government has also been active in the promotion and facilitation of decentralised and renewable or low-carbon energy considered vital in achieving the planned reductions in carbon emissions1. For example, renewable electricity produced and consumed on-site by a business which falls within the CRC threshold, will be exempt from the carbon tax and is one measure being considered by business in order to considerably, reduce the financial burden of the CRC. The introduction of the Feed-in Tariff in April 2010 will make achieving realistic payback periods for decentralised renewable energy projects easily achievable as demonstrated in the example below which is based on the tariffs set out by the Government in February 20102. Carter Jonas’ Energy Team has developed a business model to provide a structured approach to assist businesses and industrial estate owners develop decentralised renewable energy. In terms of delivery, it is recommended that a four stage approach be utilised in order to develop a bespoke renewable energy business model for individual commercial, property and business owners namely:

• Assist clients to develop strategic objectives
• Assess and screen the site in line with the strategic objectives
• Facilitate the development of a viable project
• Provide assistance and management for project delivery