Power politics

6 May 10
Green issues took a back seat in the general election but that’s no reason for town halls and NHS trusts to ignore them. Installing wind and solar power in public buildings will cut both costs and emissions, argues Michael Ware
By Michael Ware

6 May 2010 

Green issues took a back seat in the general election but that’s no reason for town halls and NHS trusts to ignore them. Installing wind and solar power in public buildings will cut both costs and emissions, argues Michael Ware

One of things that struck me while ­watching the election coverage was how quickly saving the planet has become the After Eight mint of the policy menu. Nice to have, of course, but maybe a bit self-indulgent and only to be tackled after we have digested the weightier issues of ­Gordon’s gaffe or Nick Clegg’s expenses.
 
This is clearly a mistake, albeit one shared by most commentators. ­Changing how we produce and consume energy in this country has the potential to make a much bigger impact on the public purse than fantasy efficiency savings or ­clamping down on a few thousand
non-dom taxpayers.

We are actually in the midst of an industrial revolution from ‘micro-generation’, where individuals, small firms and even the public sector produce low-­carbon heat and power. Previously wacky ­technologies seen only in California, such as solar panels and wind turbines, are now mainstream and on sale at Tesco.

But the potential remains largely ­untapped. In the 90 minutes it will take England to lose in the quarter-finals of this year’s World Cup, the sun will beam enough light on to our planet to power global energy needs for two years. Not a lot of people know that, and fewer still in the public sector are doing anything about it.

According to the Office for National Statistics, the public sector consumes energy equivalent to 7 million tonnes of oil every year. Only a tiny fraction of this is derived from renewable sources. The ­sector also emits 9.7 million tonnes of CO2, which is at least four times more than the ­emissions of the domestic ­aviation industry.

So if you want to cut your carbon ­footprint, keep taking cheap flights but stop using your local library.

On a more serious note, the public sector has the largest collection of roofs, buildings and windy open spaces in the UK and hence has the potential to be at the forefront of a green revolution. But with the exception of a few brave pathfinders, most are still buying energy made from dirty fossil fuels and mainly from the French.

So why is this? The primary objection is, of course, money. All micro-generation requires an upfront investment followed by an uncertain but definitely long payback period. Our politicians and, let’s be honest, the electorate, have an innate preference for short-term benefits and long-term costs. The Spend Now to Maybe Save Money Later Party did not trouble anybody in the election.

The outgoing government, to its credit, did try to create a more amenable financial environment by introducing Feed-In Tariffs. In essence, these work by giving micro-generators a cash payment for every unit of energy produced, even though they consume it themselves, plus a cash payment for anything exported back to the grid. A typical medium-sized school with solar panels on the roof, a wind turbine in the grounds and a biomass boiler in the basement could make £20,000 per year in income and savings.  

The tariffs are designed to give an ­internal rate of return of 8%–10% for electricity and 10%–12% for heat. Not spectacular but not shabby in a world where bank base rates bump along at 0.5%. And, if your reserves are looking a bit thin ­post-Iceland, the banks are becoming more interested in helping. The prospect of long-term, government-backed subsidies and positive PR is a welcome relief from banker bashing and a lot better prospect for investment than failing football clubs or long-dated Greek government bonds.  

Much to my wife’s dismay, I have become fixated on this potential and spend our summer car journeys pointing out the roofs of schools, hospitals and council ­offices, all bathed in glorious but wasted sunlight while their officials swelter inside dealing with the problems of ­spending cuts and redundancies. 

 So why this apparent reticence to save money and what can be done to change it? First, to be fair, the Feed-in Tariffs regime for electricity is relatively new and the equivalent scheme for heat will not come in until April 2011.

The Labour government did not do that much to publicise the existence of either, probably because announcing ­subsidy ­regimes for green energy does not play too well on the electoral doorsteps. 
Secondly, not all sites are suitable. With renewable energy, location is everything. For example, a wind turbine needs an average wind speed of at least 8 miles per hour over the course of a year; ­easily achievable on the bleak north coast of Scotland, less so in a playing field in leafy Surrey.

Solar is more forgiving but it is harder to make the economic case stack up once you get too far away from the South and Midlands. For those in the North, every cloud does not have a silver lining.

Finally, the private sector has so far ­focused its marketing drive on the ­angsty middle-class domestic market rather than the public sector. This is probably why David Cameron has a wind turbine on his roof and my local school doesn’t. It is a matter of understandable expediency on behalf of the technology suppliers. It’s his roof, there are millions of people like him, and they can all make a ­decision a lot quicker than a council ­finance committee.

So where do we go from here? Well, the award-winning Summerfield Eco-village partnership in Birmingham shows what can be done with a little ­determination and perspiration. Together, ­Birmingham City Council, Family Housing ­Association, housing market renewal pathfinder Urban Living, New World Solar Installations and local residents worked to install solar ­panels, insulation and ­energy-efficient heating and lighting to 329 homes.

As a result of their efforts, the £2.3m project should provide 60% of each household’s hot water per year and ­significantly reduce fuel bills.

But there are other models for public sector bodies that want to join in. The simplest is to lease the space on the school roof or playing field to a generating company and sit back and collect the free electricity. This is easy to do but most of the financial ­benefit will go to the generating company and their funder.

An alternative is to borrow the money up front and collect the tariff yourself alongside the free power.

Finally, there are joint venture models whereby you and the private sector share the cost and the benefits. There is a wall of private sector money that is keen to get involved in anything secure and vaguely green, so finding a partner to come in alongside you will not be an issue. 
Whatever you do, the key is to do something and do it now. Every sunny day and every gust of wind is a missed ­opportunity to make savings.

For the hard-pushed local finance director, the rules of the energy game have changed. Time is not money anymore, the weather is. 

Michael Ware is corporate finance partner at BDO Stoy Hayward

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