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Building competition in the energy market

This is the first in a series of posts from the MLEI Cambridgeshire coordinators at the County Council, looking at some of the contextual isues for the project. Do please use the comments sections to give us your feedback.

Ed Miliband’s’speech at the recent Labour Party Conference has kick-started a new public debate on energy, triggered by the proposal for a 20-month energy price freeze.

Labour’s proposal is intended as an interim measure whilst the bigger question of how energy markets in the UK are going to run over the next few years, is addressed. On the 25th September, an open letter issued by Mr Miliband to the energy companies aimed to provide more clarity on the matter, stating the first thing that needed to be done was to legislate, “to build competition and transparency into the market.”

So whilst debate rages on the likely impacts of an energy price freeze and whether energy companies will simply raise prices significantly before the freeze starts, the real question is, “where will greater competition and investment in the energy markets come from?”

It is increasingly recognised that local authorities have a role to play in the provision of energy services to their residents and businesses. Councils like Cambridgeshire County Council are already involved in energy decisions around planning, large contracts for the purchase of gas and electricity for public buildings and street lighting; the County, District and City Councils are also closely involved in the delivery of energy efficiency improvements to homes. More recently, including through the MLEI project, Cambridgeshire is looking at how it can support development of more local renewable energy infrastructure.

We are not talking about exclusive municipal provision of energy; there are many other models. For example, a new heat network set to go live shortly is being developed by Southwark Council with Veolia, a private company, taking heat from the SEL CHP energy from waste plant. Such a system will provide the delivery of cheaper heat to tenants and help protect against future price shocks when international gas prices spike. Last week Aberdeen Heat & Power, a community-based not-for-profit set up by the Council, scooped a Global District Energy Climate Award in New York. A key feature that impressed the international judging panel was the commitment to providing benefit to the community through affordable low carbon energy. The key point is that both are local and resulted from initiatives made by the local Council. We hope that future energy schemes in Cambridgeshire, supported via the financial mechanisms put into place by the MLEI project, can similarly generate power locally that also benefits local people. This might be through lower prices, more reliable supply or support for the local economy through jobs and business development.

With these sorts of projects in mind, it is possible to envision a future where energy is provided through a multiplicity of businesses – local, national and international – with a variety of delivery models. Not just the ‘Big Six’ energy companies. This will provide customers with real choices in a competitive market.

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Energy Performance Contracting for Cambridgeshire Schools?

Impington Village College (IVC) is one of Cambridgeshire’s schools leading the way in managing its energy use. Earlier this year IVC signed a contract that will enable the school not just to cut its energy use and carbon footprint, but also to create a source of long-term revenue. Capital works to improve the energy efficiency of the school, a behavioural change programme and a biomass boiler will be funded by Skanska as part of the agreement. IVC will pay back the capital costs over 10 years using the savings from energy bills and revenue income from biomass.

This is an approach that is very exciting for the MLEI project. We plan to commission a similar service that we can offer to all of Cambridgeshire’s schools, with the finance coming through the project’s Low Carbon Investment Fund.

We will be discussing this and the MLEI project in general at an event on the 8th October at IVC. The event is specifically for local politicians, and we will brief Cambridgeshire County, District and City Councillors on the issues of energy security, energy demand and possible solutions for Cambridgeshire – including the approach outlined above.

For more details about the event please contact the project team on mlei@cambridgeshire.gov.uk

Starting up, scaling up and spinning out

The Community Renewables Economy: Starting up, scaling up and spinning out – Jelte Harnmeijer.

This is a very interesting report from Respublica about how community energy schemes can become more commonplace, and the kind of policy environments needed to make that change. In this way, it is very supportive of the approach we are taking in Cambridgeshire, aiming to increase the amount of low carbon energy infrastructure in the county by facilitating access to finance, thus helping to improve energy security and minimise price increases by increasing competition in the energy market.

The report challenges councils to step up to the challenge of community renewables, proposing that local authorities are well placed to begin to both invest and financially benefit from community energy projects. It says local authorities should establish links with local housing associations, businesses and churches, as well as social finance organisations like Big Society Capital to explore these opportunities. Currently MLEI Cambridgeshrie is looking at investment in the County Council’s own assets, and also exploring options for retrofit of community owned buildings. Are partnerships with the community sector the next step for MLEI Cambridgeshire?

Summer review and planning ahead

August is often a quieter time in local authorities, as it is in many working environments. But as project manager for the MLEI Cambridgeshire project I can’t say it feels like anything has slowed down! In particular we have been busy reviewing progress and planning the next phase of activity.

During June and July our consultants VERCO proposed a financial and delivery model that could enable a major step-up in delivery of low carbon energy infrastructure in Cambridgeshire, using public sector assets to leverage private sector input. A full report bringing together all the learning that has fed into this model, including the wider policy context, stakeholder views and discussion of potential financing arrangements, has now been produced. We will make that available to interested parties as soon as we can.

The next step is the development of a detailed business case based on financial modelling and more detailed information about the first phase of energy infrastructure projects. We will then need to seek formal approval, via the democractic decision making process, to proceed with setting up a financial and delivery model.

In the meantime do get in touch if you’d like to find out more. Also look out for further details of outreach events about the project planned for the autumn.

MLEI financial model workshop – notes and follow up

A more detailed note of the discussions from the event on 11th July is now available. Please download from the project webpage.

Project sponsors are now considering the outputs from the discussions, how the financial and delivery model needs to be adapted, and how this will inform the next stages of the project.

Shaping the MLEI financial model

Hi everyone – here’s a brief summary of the event last week. A more formal note from the event will be available in due course.  Slides etc. have been circulated but do get in touch if you’d like more info.  Thanks, Jane – Project Manager.

The MLEI breakfast meeting last Thursday gave local businesses an opportunity to shape the long term Vision for Cambridgeshire – identifying the framework of finance and delivery mechanisms that need to be in place to secure investment and delivery of energy projects. Keeping the lights on is a priority for businesses and residents but there is a real risk that if we don’t secure local energy supplies and reduce energy consumption,  growth will be constrained and black outs may occur. This will not be good for business so the workshop yesterday focused discussions on Verco’s proposed finance model.   Verco were recruited to support the MLEI project for their technical and finance skills to identify how an investment model could develop and work.

Our invited audience of investors, academics, business leaders and energy experts responded positively with their ideas and MLEI project partners now have lots of constructive inputs on how to improve the finance model.  In a nutshell, the model proposed by Verco identifies the need for a Cambridgeshire Low Carbon Development Unit with the role of brokering relationships between projects, investment and delivery mechanisms.  The Unit would draw on the most appropriate public and private sector funds and bundle projects to achieve the scale that attracts finance at a better rate.

Central to the discussion was the need to extend the current vision (low carbon infrastructure that profits Cambridgeshire) to include greater acknowledgement of the affordability of energy for businesses and communities and the benefits that this work can bring forward.  Also coming out of discussion the point that transparency must form a key principle to this work and more explicit reference to energy security, low carbon economy and carbon reduction objectives.

There was interesting debate on relationships between the public and private sectors and what this might mean in terms of bringing together different finance streams, pay back on debt and whether the framework proposed was a ‘push and pull’ framework. There was consensus that more projects need to be brought forward and the MLEI project explained that it was currently working on bringing forward public sector projects across Cambridgeshire looking at schools, offices and land estate.

Project partners will now consider this feedback and refresh the finance model.  We hope those who took part on Thursday will join us on other occasions as the MLEI project, and the financial and delivery models potentially coming out of it, develop.

We would like to thank everyone who participated, and a special thanks to Cambridge Network for assisting with the organisation of the event.

A Finance model for energy investment in Cambridgeshire

In order to design and test  the most appropriate fund model and delivery mechanisms consultants Verco have created a ‘strawman’ – a work up of what this could look like on the basis of research into the best fit model.  The strawman is currently in the process of being tested, discussed and further developed.

Local businesses, investors, academics and senior managers from the local authorities have been invited to a workshop this week to shape how a new  financial mechanism can deliver more investment into energy infrastructure in Cambridgeshire to benefit the economy, ensure businesses can grow, homes can access local affordable energy and critical services have sufficient energy to deliver to those in need.

A further event is planned during the autumn, that will be open to all stakeholders to share the Mobilising Local Energy Investment Project aims and objectives, learn what financial and delivery arrangements are required to bring about more investment in clean local energy and to discuss how local communities can invest in and own their own energy infrastructure.

To find out more about upcoming events and the consultant’s ‘strawman’ please contact us direct on  mlei@cambridgeshire.gov.uk