Clinton C40 Climate Change Initiative: MPA/S proposal

Report: 9
Date: 18 October 2007
By: Director of Strategic Finance on behalf of the Commissioner

Summary

This report has been prepared to provide MPA members with an update on the latest position on the Clinton Climate Change Initiative being developed by Transport for London (TfL) on behalf of the Mayor and propose options for MPA involvement. The primary aim of the initiative is to enable the GLA Group, London’s boroughs and other London-based organisations, including schools, hospitals, and businesses to retrofit their buildings to reduce energy consumption and save carbon dioxide emissions (CO2).

The Clinton Foundation has established a Climate Change Initiative (CCI) engaging with 40 cities to reduce CO2 emissions in line with long term targets. The CCI has partnered with the Mayor of London to establish a procurement alliance of companies that can deliver building energy efficiency retrofit to organisations in London. The concept is that by organisations committing jointly to a number of works, this provides economies of scale and guarantees a market to these companies, lowering the costs of the technologies. The capital costs of the projects could be financed by a consortia of financial institutions and savings delivered would then be used to payback these costs. Savings will be guaranteed by the supplier carrying out the works or organisations can finance capital costs independently. The CCI programme is being delivered in three phases, with GLA buildings being committed in two Tranches. The CCI funding proposition will not be available in time for the first tranche of GLA Group buildings, and therefore will need to be financed from existing budgets. The programme is designed to offer a service by the selected ESCO from audit to works completion. Works have been identified by the ESCO through a building audit, which comply with agreed payback periods and CO2 reduction parameters. If the client does not wish to proceed with the audit recommendations then they shall be liable for the cost of the audit.

The CCI programme is an innovative procurement mechanism for delivering a guaranteed reduction in carbon emissions in line with the MPS Environmental Strategy and Mayor’s Climate Change Action Plan. Exact costs and payback periods cannot be defined until the service is commissioned and audits are complete. As this model is untested in the UK challenging timescales for implementation, it is proposed a small pilot of 10 MPS buildings are included in Tranche 1, with the ability to expand the MPS programme in Tranche 2, subject to relevant approval.

A. Recommendations

That

1. MPA/MPS note the current position in developing the Climate Change Initiative on behalf of the Mayor of London and the work carried out by MPS officers in support of the programme;
2. the MPA/MPS participate in Tranche 1 of the CCI C40 programme and agree to energy efficiency audits being carried out on MPA properties identified in Appendix 1 at an estimated cost to the Service of £0.2m if works under the programme are not progressed; and
3. implementation of works on specific properties within the terms of the CCI programme will be subject to further approval following consideration of business cases based on the outcome of the energy efficiency audits and compliance with MPA procurement and contract requirements.

B. Supporting information

1. CCI C40 Programme is a global Energy Efficiency Building Retrofit Program, a project of the Clinton Climate Initiative (CCI) led by the Clinton Foundation. This program aims to bring together a framework of the world’s largest energy service companies (ESCO’s), five of the world’s largest banks, and forty of the world’s largest cities in a landmark program designed to reduce energy consumption in existing buildings. The ESCO’s will audit, commission and implement the efficiency works and guarantee savings under a performance contract.

2. The overall C40 programme objectives are to:

• Reduce CO2 emissions in London
• By 2010 the goal is to reduce CO2 emissions from GLA group buildings by 20% (initial MPA CCAP target was to reduce CO2 by 10%), for which there is provision of £5.7m in the current capital programme.
• Longer-term goal to aim to reduce CO2 emissions by 60% by 2025.
• Create an exemplar model for wider public and private sectors to follow
• Develop a sound commercial working model and framework for London’s organisations across both public and private sector to enable all the buildings in London to be made more energy efficient.
• Re-emphasise the commitment, leadership and partnership across public and private sectors.
• Accelerate implementation through the development of a strong procurement framework and sharing of best practice and lessons learned across London.
• Emphasise London’s leadership role and commitment to effecting change on key urban/global issues.
• Be the first of the C40 participants to kick-off a CCI Buildings Programme initiative and to reinforce London’s commitment to reducing effects of climate change through reduction of CO2 emissions.
• Once the CCI Buildings Programme is well established across London’s public and private sector, we will have the ability and knowledge to share our learning with other cities/members of C40.

3. Five major Energy Services Companies (ESCOs) have signed up to the programme and are committed to provide “performance guarantees” to financially guarantee the energy savings that will result from their retrofit projects.

• The ESCOs are Honeywell, Johnson Controls, Siemens, Schneider Electric and Trane
• Links to these ESCOs will not effect plans for the CCI Buildings Procurement Framework. Procurement will be open to all who meet tender criteria
• However, the key and differentiating component of the evaluative criteria is the ability to financially guarantee the energy savings within an agreed payback period
• This will be done through various types of technology / application, such as:

4. The actual payback period for the project will be set at maximum of 10 years, but would vary with the unit energy costs. The savings guarantee will be based on the current utility cost paid by the MPS and fixed for the term of the payback period. Changes in utility costs, which is further complicated by the MPA flexible purchasing strategy and this may have an impact on savings realised by the MPA and the MPA would be liable for this risk.

5. The wider Clinton Climate Building Energy Efficiency Programme (CCI BEEP) covers all of the members of the GLA Group, including TfL, MPS/A, and LFEPA but the funding of retrofit works would be the responsibility of the individual GLA Group members. The programme has 3 phases of activity. Phase 1 focuses on the retrofitting of an initial subset of GLA Group of buildings (TfL Tranche 1 is part of this), Phase 2 focuses on the development of a procurement framework which could be rolled out across a both public and private sector. Phase 2 will also include the retrofitting of subsequent tranches of TfL and GLA Group buildings and working with parts of the public sector to enable them to retrofit their buildings. Phase 3 focuses on sharing the learnings of the CCI Buildings Energy Efficiency Programme with the wider public sector and private sector in London.

6. While the audit itself will not result in any cost savings, the completion of the retrofit works will secure on-going revenue savings in the form of reduced maintenance and energy costs. Retrofit projects will only be taken beyond audit stage, which comply with the MPS prescribed performance criteria (i.e. financial payback within a specified period or delivering a minimum annual carbon reduction) subject to approval of a separate business case. These savings from these projects will be monitored and measured over time as part of the performance guarantee with the supplier and MPS energy efficiency regime, and will be reported the MPA and the GLA through existing sustainability reporting mechanisms.

7. Energy costs and consumption for each site are recorded on the Property Services TEAM database by the RCOS Energy Management Team. TEAM is accredited by the Carbon Trust and the National Energy Foundation standards for energy reporting and management. Building Management Systems provide more detailed analysis of building performance. The monitoring and reporting process also complies with the requirements laid down by Defra as part of the Salix grant energy reduction funding. Contracts will be required to conform to the ‘International Performance Measurement and Verification Protocol’. In addition, incoming legislation on the Energy Performance Buildings Directive, Building regulations: Part L and the Energy performance Reduction Commitment will require all public buildings to display energy efficiency certificates and actively monitor and reduce consumption. The MPS may employ independent Quantity Surveyors to verify the costs associated with the scope of works arising from the audits. The MPS will establish the appropriate systems to capture the financial savings and recycle these savings into further energy efficiency schemes as agreed by the MPA under the Climate Change Action Plan. All CCAP/CCI BEEP projects will be given a unique identifier code to track progress and savings on initiatives.

8. A resource proposal has been developed from the GLA group for the CCI programme as outlined in Annex B Fig. 1, with a challenging Procurement Timeline illustrated within Fig.2 shown at Appendix 2 . The MPS CCAP project manager and delivery team will support the management of these projects as part of the overall CCAP programme. Monitoring will be ring fenced to allow benefits to be calculated.

9. Similar building energy efficiency programmes have been undertaken by Berlin, resulting in an average saving of 26%. Achieving this in London would equate to 4 million tonnes of CO2 – a figure equivalent to twice CO2 currently emitted by public transport in London.

10. MPA buildings (Appendix 1) have been selected based on the following criteria:

• They are not ‘critical’ sites
• 80KW sites or larger that demonstrate appropriate potential for energy efficiency works and have already been identified in previous un-funded forward works programmes, and perform poorly against best practice benchmarks. This will assist with assurance of ‘Value for money’ through the implementation of quick wins and lower cost measures. Newer more efficient buildings will be more expensive to achieve reductions (diminishing returns)
• Compliance with the MPS Estates Strategy for medium to long term investment and therefore represents a good return on the investment;
• Half hourly data is available in electronic format to enable robust monitoring
• They have Building Management Systems to allow robust performance monitoring or BMS will be specified as part of the scope of works.
• In addition, a spread of properties has been selected in terms of age, building type, nature of activity on the site, and are spread between the North and South of the estate. The rationale for selection of these properties will provide variations in the recommendations with regards to the technologies / applications suitable for a building of that age and the technologies and application which are not. These findings can be analysed and replicated in other police stations across the Met Estate, ensuring best value from the audit process. In the future we can use the findings of the surveys to implement a 'Best Practice' strategy for Met Police Stations linking directly into the Benchmarking work currently being undertaken.

11. Some of the specific project elements will improve building resilience in terms of inherent reliability and early–warning, fault detection and maintenance systems. Contractors are required to comply with MPS safe systems of work and Resilience/Business Continuity Guidelines at all times. There is a marginal resilience risk associated with all building works.

Procurement

12. An OJEU notice has been issued by TfL on behalf of the GLA Group which allows for extension to the MPA. Completed PQQ questionnaires will be collated and evaluated in line with TfL scoring criteria and procurement process. MPS Procurement Officers have been involved at each stage to ensure documents are in line with MPA contract regulations.

13. On contract award the proposed CCI tender model allows the winning ESCO to perform a series of technical audits that will recommend work being undertaken (subject to meeting minimum requirements). Whilst the MPA is under no obligation to accept the recommendations of the audit or carry out works, it would be liable for the audit costs if no work was commissioned.

14. However, should the works be commissioned it should be noted that there is no provision to allow for further competition to ensure the MPA are obtaining the best possible value. The MPA would therefore be committing to the successful company, as the sole auditor and works provider, via a single tender approach, for the majority of the overall contract value. It is proposed that the MPS would reserve the right to employ independent Quantity Surveyors to verify the reasonableness of the costs associated with the scope of works arising from the audits.

15. The proposed procurement approach for the follow on works therefore does not conform to MPA contract regulations as there would be no competition for the majority of the overall costs and an exemption to the Contract Regulations would need to be approved before any commitments made.

16. Implementation of the programme will be subject to further reports to the MPA. Those reports will consider the cost and benefits of carrying out the proposed works including an assessment of value for money issues.

17. The GLA Group is acting as a demonstration project for London for a relatively new and untested model for London. As a result, the MPS feels it is pragmatic to limit Tranche 1 to a small pilot of buildings to test this methodology, with consideration to commission further projects in subsequent tranches.

18. Energy efficiency audits will be required to inform the CCAP strategy and would need to be commissioned. The Property Services Technical Consultancy Framework is an alternative vehicle to progress these (currently at tender evaluation stage), but will not be available until January 2008, which would delay the implementation of CCAP. The subsequent works arising from the recommendations of the audits could be delivered via existing Property Services procurement routes/contracts. Until the scope of works has been developed, and assessed it is not possible to compare these to existing delivery mechanisms. Currently existing delivery mechanisms do not offer the benefit of performance guarantee of the energy efficiency savings and robust monitoring associated with performance contracting. Option appraisal will form part of the business case and MPA approval for implementing the recommendations of the audits.

Environmental Sustainability

19. The table below indicates the expected effect of the recommended option (compared to the ‘do nothing’ option) on:

There are significant environmental impacts associated with carrying out energy engineering works, and these will be fully assessed in subsequent business cases to the MPA seeking approval to implement audit recommendations.

Abbreviations

TfL

Transport for London

CCI

Climate Change Initiative

GLA

Greater London Authority

MPS

Metropolitan Police Service

ESCO

Energy Service Companies

MPA

Metropolitan Police Authority

CCAP

Climate Change Action Plan

CCI BEEP

Clinton Climate Building Energy Efficiency Programme

RCOS 

Resilience Compliance and Operational Support

BMS

Business Management Systems

OJEU

Official Journal of the European Union

 C. Race and equality impact

There may be equality impacts associated with procurement evaluation and maintaining access for employees while work commences. The MPS will ensure that contract documentations meets MPA/S equalities standards. An equalities impact assessment will form part of the business case preparation for each site once audit results are known.

D. Financial implications

1. This report seeks financial authority to fund the audit costs to launch the first phase of the CCI Buildings Energy Efficiency Programme (BEEP). The total amount sought is £200,000 to be financed from revenue the budget in the first instance – these costs will be capitalised as the project progresses. These set up costs are to cover any potential liability the MPS incurs should refit works not take place on any properties defined in Tranche 1 of the CCI BEEP.

2. A total of £200,000 is required to cover auditing services for Tranche 1 of MPA Buildings and will be absorbed within overall programme costs assuming works are contracted following audits.

3. The audit would identify energy saving measures that would comply with MPS prescribed payback criteria (10 years depending on technology).

4. Major funding will not be required until audits are completed and therefore the MPA is under no contractual obligation to carry on any further works with the suppliers (subject to payment of the audits and supplier’s overheads and administrative costs associated with auditing services) should the MPA decide not to commission the project despite its compliance with the payback criteria. The MPA would have intellectual property rights to the audit findings and reserves the right to refuse recommendations that are not practical or achievable within its operational constraints.

5. Once audits are complete, the MPS will put forward a more detailed business case articulating the specific funding requirements for Tranche 1 works within the CCI BEEP. This cost is expected to be financed from the Climate Change Action Plan fund (£5.725 million approved by the MPA in February 2007). However the final funding requirements will only be clarified once all audits have been completed in early 2008.

6. The decision to use existing capital funding ensures that the MPA retain benefits from reduced revenue costs. Once the model has been tested through application of Tranche 1, the MPA may decide to fund any remaining un-funded energy efficiency works utilising the financial model to be developed in Tranche 2. Previous feasibility studies have estimated the potential to spend approximately £17 million in energy efficiency works in the MPA estate, which could save up to 38,000 tonnes of carbon dioxide. If the investment model developed in Phase 2 is suitable, this may provide a cost neutral vehicle for meeting the Mayor’s long term CO2 reduction target (30% by 2025). However, further investigation and feasibility would be required.

7. The preliminary costs of setting up the schemes in terms of resources would need to be absorbed by the sponsoring organisations as will the supervision of auditors. As indicated above, this can be managed by the MPS for Tranche 1.

8. The manner in which the MPA procures energy (which is different to the rest of the GLA group) is not readily transferable to the C40 approach, which, in simple terms, relies on a fixed tariff. This could increase financial risk for the MPA as well as undermine the MPA intention to focus on green/renewable energy procurement. This latter situation arises due to tight markets for the purchase of green energy. The costs of the works would be financed by the financial institutions but officers would need to establish how the likely management fees associated with managing the works in MPA/MPS buildings would be funded.

9. The anticipated capital repayment arrangements would currently envisage repayment out of revenue savings generated from the improvements works i.e. this would be cost neutral to the MPA.

10. The application of the C40 plan does not presently reflect property asset management plan methodology in the UK. Hence the concept that underpins the model may not be applicable or relevant to many MPA properties. This issue requires further research, which is not funded in current MPS budgets, before decisions are taken on which properties can be included in future phases of the programme.

E. Legal implications

Legal Services are currently working with TfL and a firm of solicitors to ensure the contract documentation comply with EU and domestic legal requirements.

F. Background papers

• None

G. Contact details

Report author: Anne McMeel, Director of Strategic Finance

For more information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

Appendix 1: MPS Buildings for Tranche 1 of the C40 Clinton Climate Initiative

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