A guide through the energy markets
April 1st 2007

Awareness of energy is on the rise, but the understanding of the complexities and costs of using an outside provider of energy services has not been fully grasped.

There are key issues to consider in both the public and private sectors where actions and not words can have a major impact.Tim McManan-Smith spoke to Richard Derry, managing director of Cofathec about the key issues in the world of energy management

Energy is definitely being taken more seriously than in the past. Richard Derry comments that,"Certainly over the last couple of years all major Government contracts have a proportion of energy management in them and companies themselves are listening." Surprisingly he views this fact as a reaction to talk of carbon footprints and corporate social responsibility (CSR) as much as energy efficiency."There is a real will to move forward now that wasn't there two years ago.We must talk to the decision makers within organisations whether it is the financial directors, managing directors or owners. CSR is now on the boardroom agenda and can now work hand in hand with energy efficiency.".

Cofathec has been in the UK since 2000 when it completed its acquisition of Heatsave and has continued to grow organically and through other acquisitions such as Energy Services in 2005. Richard Derry himself started at Heatsave in 1987 and has been a director since 1989.The fit between Heatsave and Cofathec was a good one with both companies offering energy management and maintenance services in the UK and Europe respectively.Cofathec is the third largest outsourced service provider in Europe which employs over 8,000 people and has a turnover in excess of 1bn.

"What we do is relatively straightforward.

By benchmarking buildings we are able to calculate what the energy use of a building should be.

The contract for energy management and maintenance quotes this figure and incorporates guarantees to run the building at this optimal level, taking the financial risk if targets aren't achieved," says Richard Derry. By using experience and various tools Cofathec are able to benchmark a building's optimal performance fairly accurately, the next thing to do is to see what actual building performance is being achieved.This involves checking utility bills and using monitoring & targeting to identify areas where waste was occurring.

The next stage is to manage the plant effectively. If the contract is for sufficient length then large investment can be undertaken by the energy services company.This is not always the case as Richard Derry points out;"we wouldn't advocate relamping per se as an energy saving technique.When there is a need for replacement then, of course,we would use energy efficient lamps.The payback on paying a 10% premium for energy efficient lamps may be realised in 6 months,which is worth the investment but if there is no need for new lamps then the payback on 110% of the costs would be 5.5 years which is not economically worth it unless the contract is a long term one.However, the customer's CSR policy may require a relamp irrespective of cost" Cofathec is gaining long term contracts through PFIs and PPPs which can be up to 25 years, this allows for a complete overhaul of the installed plant so that it can be run very efficiently for the term of the contract. One PFI contract, for example, resulted in the decentralisation of boilers throughout the estate with the clients being charged for the heat they require rather than paying for the equipment.Across the entire estate Cofathec has achieved an average of 30% saving in energy for heat generation. Naturally projects can achieve better results if the contract is a long one, however people's natural caution often results in them having shorter term contracts and these are less effective."The difficulty that we have is that although there may be some forward thinking people at the top of the organisation who understand and like the idea of outsourcing areas of business where they don't have the expertise or inclination to become experts, there may be others who fail to see the long-term benefits.What they do not appreciate is that we take the risk of making energy savings, keeping the plant in good order and full operability, this is something that they no longer have to factor into their costs," says Richard Derry. Most of the contracts that Cofathec have do include maintenance as well as energy management and this is because of the risk of running plant that you have no control over.

"Energy management contracts are very difficult to run without having the maintenance contract.The two ought to go hand in hand," remarks Richard Derry.

Although all major Government contracts have a portion of energy management within them, they could go further according to Richard Derry,"At the moment they could put more of an onus on the Contractor, especially when KPIs (key performance indicators) are not part of the contract. If they were then there would be definitive aims for service companies to achieve when working for the Government which would result in either energy reductions or at least accountability if they were not achieved."The climate change levy has had a minimal effect and the energy performance of buildings directive (EPBD) was delayed.The EPBD would enable the assessment of a building's energy ratings and would lift the level of building stock. It's a great shame that it hasn't happened.

It's a good idea but it lost momentum with the delayed implementation," comments Richard Derry.

Currently he feels that it is easier to sell energy management contracts to the private sector, there is still a long way to go for the private sector be fully aware of energy management techniques.

"With a recent contract that we obtained, the building had a sophisticated BMS but no energy management modules! It was running at 25% more energy costs than it needed," says Richard Derry.

The biggest help here is the longevity of contracts, so that a more all encompassing strategy could be embarked upon.

Richard Derry believes that embedded generation is another possible way to make money from having green technologies."There are big revenue opportunities for stand-by generation. If a company is able to produce power that reduces its demand on the grid at peak times within half an hour's notice then the National Grid will pay a lot for this.Usually it needs to be in the region of 10MW, but we can aggregate 10MW parcels across various sites and companies." There are lots of exciting opportunities ahead such as the one mentioned above.Demands for improved energy management will only increase; so having a guiding hand in what is often a bewildering market can only serve to help.

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