By 2050, the UK will have to meet an internationally agreed target of cutting its greenhouse gas emissions by 80%. To stand a hope, it will need to accept the Committee on Climate Change's recent carbon budget, which stipulates that by 2027 emissions must be half their 1990 level. It's a tough prospect: there are reports of almighty rows between government ministers about the likely effect of imposing these targets on business during a fragile economic recovery.
Like it or not, however, UK industry must cut its dependence on fossil fuels massively. It makes sense to treat it as an opportunity rather than an obligation. Good energy management is good for the bottom line. When it's based on new, clean-tech developments it could be even better. Schemes like the Renewable Heat Incentive (see panel, p24) promise potential returns beyond the basic cutting of the energy bills. And, despite swingeing cuts in government expenditure, there is still some funding around or in the pipeline – firstly, for companies willing to embrace innovations and, secondly, for those breaking new ground in their design.
Not that it's going to be handed to anyone on a plate. CMR Consultants carries out energy surveys for the Carbon Trust, which has been the bedrock of industrial energy efficiency for many years. Now Liam McDonagh, CMR's business development manager, says that recent changes to the Trust's own funding have made it harder for smaller clients in England to start tackling their energy issues. Previously, many surveys were arranged effectively without charge through the Trust. "We still provide strategic advice and develop carbon management and energy strategies for them, but now they need to approach a consultancy themselves and pay for it. It is making them more reluctant to do so. When they have to pay perhaps £1,500 to £2,000 to survey a site, they have to persuade their accountant who sees a risk it won't yield the savings. The cost-justification is there – we have never done a survey where we haven't yielded savings more than the survey cost. But when finances are in competition with other areas of their business, it's not going to be a straight yes or no."
It's not just on the operational side that things have changed. Product developers are having to explore different avenues, too. But as Dave Raval, head of the Carbon Trust's Entrepreneurs Fast Track explains, it's not all bad news: "The landscape for funding has changed and not just for us. In the past, entrepreneurs interested in public sector funding could go to a regional development authority (RDA) in England or the bodies in Northern Ireland, Scotland and Wales directly managed by their own national governments. And they would supply you with a range of support funded by EU legislation. That had its plusses and minuses. People often complained that variety made the whole landscape confusing which persuaded the Labour government to consolidate some of them. They obviously no longer exist – the RDAs are winding down and the grant giving schemes have pretty well all closed to new applications."
So far, so bad. On the other hand, he points out that the Technology Strategy Board's new programme of Grants for R&D directly replaces the RDA provision (see panel, right). "The Carbon Trust itself is purely focused on low carbon technologies," he continues. "We decided when there were lots of grants to consolidate many products behind one front door. Getting through the door is difficult because we set a high bar. We help the premiership league of British clean-tech early-stage companies. Once you are in, we offer services that include grants for R&D – although these are restricted to certain geographical areas – incubation services (the advice we give to help you commercialise) and networking support. So, rather than give out some money and forget about you, we have good contacts with potential investors, customers and supply chain partners."
The downside? In England, those advice services are focused on a priority list decided in consultation with its funder, the Department for Energy and Climate Change (DECC). This does not apply to Scotland, Northern Ireland or Wales that fund the Trust directly. He accepts it is much more complex today than it was six months ago when he could simply say, "If you get through the front door, we'll work out what it is you need and provide it". Despite the regional variation, however, he is adamant it's a good scheme. "For every one pound I spend, the private sector puts in 13 more on schemes we support. Money comes in from UK, corporate and overseas investors and it's money that would not have otherwise come in at this stage. We pick companies deliberately that are not yet investment ready and make them ready. It still produces good results."
The point still remains that direct grants once provided by the Trust are gone, in England and Northern Ireland at least. Before the cuts, it helped Cambridge-based Camfridge in the early-stage development of technology that can reduce the energy consumption of fridges by up to 50%. Its potential is huge: refrigeration and cooling account for 15% of the energy used in the UK. Installing this technology in beverage coolers alone could reduce UK carbon emissions by 51,000 tonnes a year by 2020. Part of the support came in the form of two R&D grants totalling £400,000 – today it couldn't provide them. So is there now a Camfridge funding gap?
"There are multiple funding gaps – it's difficult for any entrepreneur to raise money to develop ideas," says Raval. "Across the western world, banks won't provide cash for early-stage technology. It's down to the private equity market – and the angel investment market is booming. It's a real bonus to the UK economy and a lot of my portfolio survives on it."
It's worth noting that the new Regional Growth Fund – which has been widely criticised for funding companies that would probably have expanded anyway – has actually thrown welcome gold into this pot. One of the winners in the first round of awards was Capital for Enterprise (CfEL) which will manage an allocation of £50m to invest alongside business angel syndicates into eligible SMEs.
So much for the product innovators; now back to potential manufacturing customers and their own problems in funding green equipment. In the spirit of the times, the Carbon Trust has tied up with the private sector to make it easier for manufacturers of all sizes to pass go. Worth up to £550m over the next three years, the scheme – the first of its kind – will enable UK businesses to invest in energy efficiency equipment and other low carbon technologies such as efficient lighting and biomass heating. Siemens Financial Services UK will provide the financial backing and manage the funding, while a subsidiary of the Carbon Trust independently assesses the carbon, energy and cost savings of any project. Loans will be repaid through the cash saved from reduced energy bills at, they anticipate, no net cost to the business.
Steve Barker, head of energy efficiency at Siemens, stresses finance is available for any accredited products, not just Siemens' own. He believes manufacturers will see a far firmer prospect of return than schemes like the Feed In Tariff: "The only risk is a dramatic reduction in energy prices. Not very likely!" Funding is available for any scale of project and he points out that the sum exceeds anything industry ever achieved from government coffers, allowing the Carbon Trust to widen eligibility.
Siemens has been running and financing energy efficiency schemes on its own account for many years. In general, Barker is seeing an increase in interest and uptake but the potential is still huge. "People may think there is no investment available but we have money we would love to see used on these types of projects." Nonetheless, he encourages people to take a systematic approach: "They need to evaluate their site and decide what is the most appropriate technology for them – there is no one size fits all. The number of times, for example, that CHP (combined heat and power) is misapplied is quite frightening." Sites regularly oversize their units: "What they should do is optimise all the electrical and thermal loads first before going for CHP. Energy efficiency and demand reduction should always be the first step before they consider any kind of additional generation or renewables." And, presumably, before they even start assessing external support schemes.
Liam McDonagh is even more direct. Despite the fact that CMR Consultants is likely to be handling a lot of the RHI feasibility studies, he is still very keen to prevent manufacturers putting the cart before the horse. "Of course, if it's photovoltaic, we will do complex things like look at the angle of the building and the slope of the roof and calculate the annual kWh generated, based on the solar incidence in that area. But we would probably also identify a lot of low cost measures like controlling out-of-hours electricity use."
He is constantly amazed by companies' poor attention to their electricity bills. "They have one meter for the whole building so they can't break down where energy is being used." He salutes all the long-term prospects but the immediate payback will always be through looking at what you are throwing away: "Photovoltaics (PV) and renewables are sexy but don't lose sight of the quick wins. Start from scratch. You'll get a return from PV over a long period of time but not to the same level and with the same simplicity as achieving energy efficiency savings by better management and behavioural change."
For information on private equity funding: www.capitalfor
enterprise.gov.uk or British Business Angels Association www.bbaa.org.uk
schemes for product innovation
Grant for Research and Development
Who from? Technology Strategy Board (www.innovateuk.org)
What? Grants in "strategically important areas of science, engineering and technology from which successful new products, processes and services could emerge".
Who for? All UK pre start-ups, start-ups and SMEs working in any sector.
How much? Three types of grant:
- proof of market: for projects up to nine months; maximum grant £25k; funds up to 60% of total project costs.
- proof of concept: for projects up to 18 months; maximum grant £100k; funds up to 60% of total project costs.
- development of prototype: for projects up to two years; maximum grant £250k; funds up to 35% for medium enterprises or up to 45% for small or micro ones.
Starting: Now
Bonus: £12 million available through three R&D competitions: Energy Materials (£3m), Design for Future Climate (£2.4m) and ICT for high value manufacturing and construction (£7m).
Entrepreneur Fast Track
Who from? The Carbon Trust (www.carbontrust.co.uk)
What? A complex series of support activities with considerable regional variation. [See below and main feature.]
Who for? Depends where you are situated and, in England, if the technology you are developing is on a technology priority list (TPL) which includes biogas, carbon capture and storage, heat pumps, hydrogen-based energy, marine renewables, solar hot water heating.
How much?
- England: Advice – otherwise known as incubation – services and networking support available to those whose developments are within the TPL. Grants no longer available.
- Northern Ireland: None available
- Scotland: Advice services and networking support available for any low carbon technology. Grants no longer available but the Scottish government provides its own support schemes.
- Wales: Advice services and networking available for any low carbon technology. Grants reviewed on a case by case basis.
Starting: Already in action.
schemes for energy efficiency
The Green Deal
Who from? The government (www.decc.gov.uk)
What? According to Chris Huhne, "to radically overhaul the energy efficiency of homes and small businesses" by installing energy efficiency improvements.
Who for? Homes and small businesses
How much? Still rather hazy: "The upfront finance will be attached to the building's energy meter. People can pay back over time with the repayments less than the savings on bills."
Starting: If passed by parliament, will probably be available in late 2012.
Feed in Tariff (FIT)
Who from? A government scheme administered by the electricity suppliers and Ofgem (www.ofgem.gov.uk).
What? Energy suppliers pay a set rate for each kWh you generate from renewable sources such as solar photovoltaic (PV) panels or wind turbines. An additional payment for every unit exported to the national grid.
Who for? Initially intended for homes, communities and small businesses. But much larger PV schemes have threatened to bust the budget and tariffs for these are under review for new entrants only.
How much? Rates range from 32.9-30.7/KWh but will reduce to 8.5p-19p/kWh for new PV installations. The rates will continue to reduce each year for new entrants but, once in, FIT members will stay on the same tariff for 20-25 years.
Starting: In operation.
Renewable Heat Incentive (RHI)
Who from? From government, administered by Ofgem (www.decc.gov.uk/rhi).
What? A financial incentive to install renewable heat pumps, biomass boilers, solar thermal panels etc. A tariff will be paid for 20 years for each KWh of renewable heat produced through eligible equipment installed since July 2009. There are additional arrangements to support the cost of installing new equipment. Good news for the manufacturers of these products too.
Who for? Big heat users in industry and commerce first and the domestic market a year later. But the whole scheme is still subject to parliamentary approval.
How much? Still arguing behind closed doors: projected fund only £860m. Government cites an ROI of about 12%. According to the Guardian, a large ground source heat pump costing £300k could be subsidised at £27,600 per year.
Starting: This year sometime for industry – if the bill gets through.
