Electricity Demand Reduction Pilot
DECC’s Electricity Demand Reduction pilot opens a new window of opportunity for businesses that want to implement energy saving measures but don't have the capital to invest.
Reducing electricity consumption through energy efficiency measures can result in considerable savings for businesses; however, many struggle to find the funding to get started. The new Electricity Demand Reduction scheme aims to alleviate this issue by providing funding via a one-year contract.
The scheme was launched last year with an initial pilot phase to allocate some of the £20m that was made available for the whole project. Just £1.28 million of funding was issued but now DECC have announced that they will be making a further £6 million available.
How does it work?
The scheme will work via an auction whereby businesses can bid to receive funding for their proposed projects. The funding can be used to implement energy efficiency systems such as improvements to electrical equipment, fitting LEDs and improvements to motor or pump systems. The EDR target is only for savings for 4 hours per day over the agreed 83 day winter period (Monday to Friday, excluding bank holidays) but naturally once your system is in place it will achieve savings outside of this timeframe as well.
Who can participate?
Any businesses from any sector can participate in the scheme as long as they are in the UK. The bids can include any number of eligible technologies and can cover multiple sites or sectors.
What are the requirements?
Each bidder must present a project plan that outlines the savings and how these will be measured and verified. The proposal can include one or more technologies but these must provide lasting savings that are relevant to winter peak (3pm – 7pm from November to February). The measures must be installed within 9 months of the auction and must have a payback period of two or more years.
What measures are not eligible?
Solutions that are not eligible are Demand Side Response, reducing demand by switching to an offgrid supply, reducing demand by reducing economic output, behavioral programmes and measures benefitting from specified Government incentives (e.g. Climate Change Agreements and Salix loans).
DECC want to make the reporting process as simple as possible, whilst at the same time ensuring they receive the data they need to validate the energy reduction claims. They will be issuing a guidance manual on reporting that includes two categories – deemed savings and metered savings. The deemed savings are pre-calculated savings that can be achieved using listed technologies such as lighting, motors, chillers, heating controls and retail display cabinets. Participants of metered savings will have to define and collect data for the baseline and reporting period.
What was our experience of Phase I?
We successfully achieved £143,000 of funding that was allocated for a client and is to be used in conjunction with additional finance to create a complete funding package.
Completing the first phase was challenging; a high level of detail was required (full asset register, calculations, M&V, operational hours etc.). The process was time consuming and thereby made it harder to meet the deadlines.
On the other hand, the savings calculators provided by DECC (specifically for lighting controls) used conservative estimations, which meant we had greater confidence that the targets would be easily met.
What has changed in Phase II?
DECC have announced a few changes to the scheme that they claim will encourage further uptake of the EDR and make it easier for organisations that wish to partake:
- Phase II has simpler evidence requirements, including project level payback and baseline information after application
- The minimum project size has halved to 50kW and each project can include multiple technologies
- You can now choose between installing within 8 months or 20 months, with the delivery of savings in either Winter 2016/17 or Winter 2017/18
- There is more scope for projects to develop over time and for you to make changes to your successful project according to your business need. This includes the ability to bid in for a lower amount of savings than the maximum your project can offer to reduce the risk of not meeting your original savings targets and incurring a penalty*
- Receive an early payment after installation (up to 20%)
What do these changes mean for new applicants?
The ability to bid in for lower savings is a crucial change for those businesses that are concerned about not meeting their target savings and incurring the reduced payment penalty; if a bidder does not deliver the amount of savings agreed under their contract then their overall payment is reduced by 2% for every 1% of under-delivery.
With the new changes in place i.e. an ability to bid lower savings, it is now possible for a bidder to reduce the risk of underpayment. This means they could be financially better off if they bid for lower savings rather than incur fees for not meeting their targets.
Phase II of the EDR offers a significantly increased (three times) amount of funding than Phase I. Remember the grant allocations only equate to the cost of capital required to deliver the project; the long term savings will amount to even more!
These changes will likely result in a greater uptake on the scheme.
The EDR scheme is an exciting opportunity for many businesses to kick start their energy efficiency improvements, providing not only the support for investing in energy efficient measures but a financial incentive too, via the savings achieved. As energy prices increase it is only a matter of time before we are all forced to act on energy efficiency but an investment today will result in the greatest possible savings.