The Carbon Reduction Commitment (recently renamed the CRC Energy Efficiency Scheme) officially started in April 2010, and is the UK's first mandatory carbon trading scheme. The initial phase of the CRC is compulsory for organisations (public and private sector) that consumed over 6,000 MWh of half-hourly metered electricity during the period from January 2008 to December 2008. At today's prices, this is roughly equivalent to total half hourly electricity bills of in excess of £500,000 per year. In an extremely volatile market that has seen moves of plus or minus 20% in a single month, then it is a real challenge for Energy and Procurement Managers to keep prices under control.
The aim of the Carbon Reduction Commitment is to reduce the level of carbon emissions currently produced by the larger 'low energy-intensive' institutions by approximately 1.2 million tonnes of CO2 per year by 2020. The UK Climate Change Act 2008 sets an 80% reduction in all greenhouse gas emissions by 2050. Organisations delivering the reduction in CO2 emissions (that the scheme is designed to achieve) have the best chance of realising the potential benefits of the scheme.
Procurement can play a key role in delivering an organisation's carbon reduction commitment by helping to reduce the organisation's energy bills and thus earning profit by being placed in the upper part of the CRC league table (* see below for explanation of CRC league table).
The three key characteristics of best practice energy procurement are flexible purchasing, aggregation and risk management.
1. Flexible Energy Purchasing is a move away from the traditional fixed-price, fixed-term deals and allows greater freedom over the time of purchase thus offering the opportunity to take advantage of favourable market moves and in such a volatile market is a great advantage. 2. Aggregation - Combining energy requirement across organisations, as larger portfolios are more attractive and can drive down costs through economies of scale. 3. Risk Management - Due to the volatility of the market it is imperative for budgets to be effectively managed and a risk management strategy adopted
As part of offsetting the risk, purchasers who deal with exceptionally large volumes of consumption could work closer with the supply chain and purchase directly from energy generators or producers. This strategy will help offset some of the financial risk associated with the volatile market and allow more accurate budgeting, achieve better value for money and savings.
What is the CRC League Table? The main driver for the CRC is to stimulate energy efficiency in organisations, which might otherwise be resistant to implementing energy efficiency measures. A league table may affect brand reputation and therefore has a good chance of grabbing management's attention.
The CRC league table will be published each year after companies have reported their annual carbon emissions. CRC participants will be awarded bonus or penalty payments according to their placement in the league. In the first year the repayment adjustments will be between +10 and -10 percent. This will widen significantly to +50 and -50 percent by year five.
For further details on the Carbon Reduction Commitment click here