Changing climate for energy

The aim of the levy, which applies to electricity, coal and gas (natural and LPG) used in the non-domestic sector, is to encourage industry, commerce and the public sector to improve energy efficiency and reduce emissions of greenhouse gases. The levy is part of the UK's commitment to achieve the targets set by the Kyoto Protocol to cut greenhouse emissions.

The tax imposes up to 20 per cent additional costs on businesses through a tax levied on energy suppliers' bills. The tax is also designed to recycle the revenues back into business by reducing employees' NI contributions from 12.2 per cent to 11.7 per cent. However, most facilities managers' energy budgets are unlikely to see the NI rebate and so will still have to face the full costs of the levy.

The levy will create complex problems with administration and there are likely to be many practical teething problems. For example, landlords will want to pass the cost of the tax onto their tenants. But, as landlords are not registered tax collectors, different arrangements will have to be made.

What to do about it
Building operators which did not prepare for the tax before should now take action and incorporate energy efficiency objectives into their project plans. The most effective way to reduce the cost of the tax is to reduce the amount of energy consumed. One approach to improving your energy efficiency could be to:

• estimate the cost of the tax and the rebate from the NI contributions
• ensure you have commitment from managers and staff and the resource and time available
• analyse existing energy consumption across the entire property portfolio to determine where potential savings can be made
• benchmark current performance against other buildings in the portfolio and/or against external benchmarks
• investigate energy use and identify high consumption and areas for savings
• investigate potential sources of funding for investing in renewable energy technologies and energy efficiency
• investigate ways to reduce your liability through the use of combined heat and power (CHP) and renewable energy

For example
Below is an example for a large office complex with 4,000 staff and shows a net gain across the company. However, the gas and electricity bills have increased by 26 and 12 per cent respectively.

The reduced NI contributions can be calculated from the total wages bill for the company multiplied by 11.7 per cent (12.2-0.3-12.2 per cent being the current NI contribution and 0.3 per cent being the reduction as part of the levy package).

To ensure that energy efficiency is on the agenda, commitment from senior management is essential. Also, someone must take responsibility for an energy management campaign. Such a campaign should include: raising occupier awareness; on-going monitoring of energy use; comparison against targets; and investment programmes based on sound business cases. A good starting point would be the implementation of no-cost measures to show the results that can be achieved.

Comparison with best practice
There are several ideas on starting a campaign and getting quick returns for your efforts. Benchmarking your company's current performance by comparing similar buildings within your portfolio and identifying the ones with highest energy use per unit floor area would also be a useful exercise. It may also be useful to compare performance against industry benchmarks, such as those contained in Energy Consumption Guide 19 for offices (see chart above). Other good practice guidance published under the Building Research Establishment's Best Practice Programme contains benchmarks for many sectors including retail and industrial buildings. You can call the government's environment and energy helpline for free advice on what is available.

Target high consumers
Benchmarking highlights buildings with comparatively high consumption. These should be targeted for more detailed study. Conducting a walk-round survey will help you to understand how energy is being used. Estimates of the breakdown of energy use can be made (see chart 'Breakdown of energy costs') using the capacity of the equipment, the running-hours of the plant and by monitoring energy use with clip-on electricity.

Find out the highest energy uses per m in the buildings and focus on them initially. For example, if your building is occupied from 9am until 6pm and the chillers are running 24 hours a day, there may be an opportunity to reduce their operating times and to add more sophisticated controls to switch them on only when there is a demand for cooling (see graph 'Example of daily load ..').

A proportion of energy use is in the hands of the staff in the building, e.g. locally controlled lighting. An awareness campaign is the most effective way to encourage people to turn off lights and equipment and so reduce energy.

Sources of funding and advice
To encourage companies to be more energy efficient, an enhanced capital allowance of £100 million will be available for energy efficient capital investment schemes. This is essentially a tax relief for capital investments in selected energy efficient technologies. The technologies currently being considered are combined heat and power (CHP), boilers, motors, variable speed drives, lighting, refrigeration, pipe insulation materials and thermal screens.

Firms making qualifying investments will be able to deduct the full costs of those investments in arriving at their corporation tax or income tax bills. The DETR is currently developing approved lists of technologies. The list will eventually be available on the government's enhanced capital allowance website (www.eca.gov.uk). The website contains information about the scheme and a contact number for further information. Companies will be able to make appropriate purchases once the lists are available but tax relief can only be claimed after April 2001.

Tax exemptions
There are effective ways to reduce your liability under the levy, including installing CHP and using electricity from renewable sources: