Ian Jeffries, managing director at EEVS, argues that how robust energy saving partnership models hold the key to tackling rising energy prices.
Taking a partnership approach to energy performance.
Where are we now?
We are firmly in the era of escalating energy prices. While some larger organisations have hedged energy prices for the near future – protecting budgets to a point – all organisations need to be thinking about how they will manage high energy prices going forward.
Becoming a more energy efficient organisation should be the first stop on this journey. Across large estates, some organisations are cost-effectively driving these energy savings via their third-party facilities manager (FM). FMs are well equipped with access to the data, skills and scalability needed to deliver efficiency improvements (for example optimising plant, equipment and operations) across many sites.
These schemes require time and money to set up and structure robustly, but the business case is simple: it’s significantly cheaper to pay an FM supplier to deliver verified energy savings than it is to do nothing and incur much higher energy bills – and carbon emissions.
Where do we go next?
Close attention to contractual terms, commercial and delivery models is key to ensuring close cooperation, aligned objectives and a shared sense of purpose.
To build trust and credibility, and to encourage investment, it’s vital that there is full transparency and traceability of the energy and cost saving claims made by FMs. Unfortunately many schemes fall down when businesses fail to stipulate how the financial savings derived from lower energy consumption should be attributed. And without independent verification, the accuracy of suppliers’ savings claims can be uncertain.
Energy savings must be clearly demonstrated using best practice standards and in a contractual manner that fairly shares risk and reward. While an FM may reasonably absorb the risk associated with optimising estate-wide energy use, it is incumbent on the client to absorb the risk of energy pricing so both parties are ‘in it together’.
To manage financial risk and drive value for money, clients should consider securing a robust performance guarantee from their FM supplier. An evidence-based approach to determining real-world performance against a guaranteed target ensures suppliers are held to account and deliver on their performance promises – supported by financial incentives to drive sustained performance and continuous enhancement of energy savings.
How do we get there?
Some corporate estate and property teams use a simple contract where excess cost savings are split, say, 50:50 between client and contractor.
A more sophisticated, market-based approach is to agree to a pence per kilowatt hour (kWh) payment rate for energy savings achieved. This offers both an enticing ‘carrot’ for verified over-performance and a significant ‘stick’ for under-performance – with suppliers financially penalised at the going rate if they fall short.
Independent performance assurance is essential. To verify an FM’s actual performance, a detailed qualitative and quantitative assessment of the methodologies and calculations used to generate savings figures is a necessity. It typically involves periodic audit of relevant contractual documentation, energy and related datasets and analytical processes.
The result is performance certainty and transparency for both parties. With a well-constructed tripartite contract between occupier, FM and independent verifier, the sky is the limit on achieving world-class energy performance.