Energy has never been as topical as it is now for organisations in both the public and private sectors.
Not only are they under ever-increasing pressure to reduce their carbon footprints — given extra momentum through the climate change levy — but the rising cost of electricity and gas means this issue is now firmly on the boardroom agenda. Recently, an even-more alarming scenario reared its head; according to energy regulator Ofgem, the amount of spare capacity in the UK’s network could fall from its present level of 14 per cent to just 4 per cent by 2015, raising the very real threat of power cuts in just a few years’ time.
This, in turn, is creating opportunities for both in-house FM teams and FM service companies, in evaluating, installing and maintaining alternative energy sources that provide a degree of price and supply security outside of the main network. Mitie Asset Management is an example of one company that has actively targeted this space, particularly since its acquisition of the FM arm of Dalkia back in 2009.
“Organisations are seeing that cost efficiency will only provide so much contribution to their own core operating model, and that they need to look more broadly than that,” says Mike Tivey, managing director of Mitie Asset Management. “When you have a 24-hour process, such as a hospital or manufacturing facility, it lends itself to a generating asset.”
Interserve, too, is one of a number of FM service companies — others include GSH, Balfour Beatty and NG Bailey — that are increasingly looking to get involved in this market. “FM organisations are in a very good position to be able to support and influence clients; but it also needs the client to realise that there’s a need, and those two aspects are converging now,” says Colin Hamilton, divisional director. “We’re being approached by clients as much as we’re approaching them.”
Bright inventions
There are a number of technologies that can come into play here, ranging from smaller-scale photovoltaic projects to combined heat and power (CHP) schemes and even larger set-ups around district heating or waste-to-energy. “Typically for commercial buildings, hospitals or higher education premises, you’re going to be looking at CHP engines because it’s a proven technology,” says John O’Brien, managing director of consultancy firm LCMB. “You can drive it on gas or biofuel and they work fairly effectively.
“As you go up in scale, with larger heat loads, you can move towards gas turbines. When you get into the scale of a city you can look at more complex industrial processes like waste gasification, district heating using municipal waste or biomass.” Such schemes are only likely to be suitable for organisations such as universities, he says, or hospitals in the same city looking to pool resources, he says.
Larger-scale anaerobic digestion and waste-to-energy schemes are less well-suited to FM organisations anyway, suggests Clare Wildfire, projects director at Mott MacDonald, and a number of established firms already exist in this area. “With a big project you might conclude that anaerobic digestion or biomass CHP would be a good thing to do but it’s a bit risky,” she says. “Unless we have a really enlightened client who was able to understand the risks we’d be very careful about suggesting that.”
There are a number of different contract models emerging; some of which are better suited to FM organisations than others. The most basic is for organisations to fund the projects themselves, and either maintain them in-house or through a services provider. “If you take a CHP plant, it would typically cost £1,000 per kWh installed in terms of the capacity, 1p per kWh in maintenance, and then the cost of the gas to produce the energy,” says O’Brien.
“You’ve got risk in acquiring the capital asset, and in maintaining it.” Many organisations instinctively back off from this kind of arrangement, adds Wildfire, preferring to purchase a service, and move the risk firmly outside the organisation.
Next-gen outsourcing
Of more interest to FM organisations is likely to be the energy performance contracting model, where the FM provider arranges finance — often through a financial institution — to fund the investment, and takes responsibility for installing and running it.
From a customer perspective, this requires no up-front cost and the price of the equipment is usually exceeded by savings on the energy bill. “For me, this is the next generation of outsourcing,” says Tivey. “An energy performance contract sweeps up deployment of the capital asset and its operation, so the FM is very much contained in one single model. It’s a convergence of capex and opex.”
Interserve, too, has its eyes on these kinds of arrangements, and is currently bidding for a number of projects under the carbon and energy fund, which aims to create a number of such contracts with NHS hospitals running over a 15-year period, predominantly through the use of CHP. The length of other projects tends to vary; the capital investment made by the provider will usually have been repaid within 8 to 10 years, but contacts themselves may be much longer, particularly where part of the business case revolves around incentives such as the renewable heat incentive or feed-in tariffs.
Isabel Boira-Segarra, head of renewables at build asset consultancy EC Harris, says this type of set-up is particularly relevant to FM organisations because of the maintenance aspect. However, she points out that FM providers could get involved even where there is another FM services company already managing a client’s estates. “You just have to be careful contractually that everyone understands their boundaries and who is doing what,” she says.
Case study – Royal Free Hospital
The Royal Free Hospital in London first adopted combined heat and power in 1996, but with that equipment becoming increasingly inefficient, and an existing energy management contract up for renewal, it looked to revamp its operations.
With the help of the Carbon Trust, in 2008 the Royal Free Hampstead NHS Trust produced a five-year carbon management strategy, which revealed that the main requirement was an overhaul of the entire existing heat system.
“We still had four of the original 1970 boilers in place and, by now, an inefficient combined heat and power plant,” says Martyn Jeffery, director of estates. “We were also left trying to co-ordinate contractors and major repairs, and that’s not what our core focus should be.”
After evaluating the different contracting models, it decided to seek an energy performance contract that would enable it to benefit from new equipment without any capital investment and appointed Mitie to design, build, operate and maintain a new energy centre using recuperated gas turbines.
Under the agreement, Mitie financed the purchase of the equipment and undertakes the running and maintenance of the plant, while Royal Free pays an annual unitary charge, which is subject to regular downward-only reviews. The efficiency savings are expected to exceed the initial capital outlay over the 15-year contract term, with both organisations benefiting from this.
The two organisations are now working together on two further schemes, involving both waste-to-energy and district heating, which could allow the trust to sell heat to local councils for use in community heating.
A final alternative for end-users is simply to contract with an energy service company (ESCo), which can provide services in much the same way as organisations do currently with traditional energy suppliers, using decentralised energy. “They just provide a service of heat and electricity and typically charge on a fixed and variable cost basis,” says O’Brien. “But you have the risk of the third-party becoming insolvent; the other risk is future performance, where your load profile changes. That could present difficulties because typically an ESCo contract will have a length of between 20 and 30 years. The other risk you take is that you could miss out on technical innovation in the marketplace.”
Interserve recently undertook one such project on this basis, helping Severn Trent to grow maize on contaminated land for use exclusively in an anaerobic digester in Stoke Bardolph, Nottinghamshire. “They wanted to invest and do the work, and we designed and built it,” says Hamilton. “The digestive gas is used to drive a 2MW CHP plant, and it provides the energy for the sewage treatment plant.” This kind of pure energy provision perhaps sits less comfortably with FM, however; leading players in this space include Dalkia, Cofely, Environenergy, Utilicom and EnerG.
Data with destiny
In-house FM teams and FM services companies also have a pivotal role to play in helping to make the case for such investments in the first place. “They hold the key to a lot of the data,” says Wildfire. “A lot of the risks are about how technologies will perform for a building with a particular energy profile. The beauty of the FM industry is that they have access to that information.” She led something of a campaign to raise awareness of this very topic a couple of years ago, including speaking at the BIFM conference, and feels now may be the right time to pick it up once more.
FMs will also be required to work with providers even if they are not the organisation that installs the equipment, says O’Brien. “If you have a CHP scheme it’s going to need integrating into the existing estate, so you’ll have to cut it into the electrical and heating systems; FM will definitely be involved in that,” he says. “FM teams will also have to understand from a conceptual and strategic point of view how the plants and the equipment operate and they will have to work alongside third-party providers, be they self-owned or ESCo arrangements.”
The market today may still be relatively immature, but there are already signs that FM is beginning to move into this space in a meaningful way. This is only likely to become a more prominent part of the landscape going forward. “Energy prices are only going in one direction,” says Hamilton. “As organisations and facilities managers come together to find solutions, even some of the things they’re currently risk adverse to, like energy performance contracts, will become business as usual.”
