Keeping CRC and energy costs under control

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Sam Carson
EMEA Upstream Sustainability Services

The CRC Energy Efficiency Scheme (CRC) is now with us, and many are wondering how to best manage this new cost burden. Jones Lang LaSalle Sustainability Services has been helping clients look at how this scheme will function, and how to mitigate the costs. The message is clear, a quality carbon and energy management programme is key to keeping CRC and energy costs under control.

The CRC is a part of the UK Government’s plan for getting business to make energy efficiencies and cut carbon emissions. Although launched last April, the new government has made so many changes that it is currently in a state of policy limbo. How the CRC will actually operate over the next ten years is yet to be defined, but expectation is that it will provide about £1 billion annually to the treasury. This means that whatever form it takes, it will bear a cost to participants.

That said, in all the proposed versions of the scheme, the cost of the CRC – when seen within the context of overall energy spend will be small, especially given the expected rise in energy costs over the next years. When the first CRC cost is incurred in 2012, Jones Lang LaSalle calculates it will be approximately3-5 percent of total energy spend.

The predicted rise in costs for energy over the next decade will be far more significant than the additional cost of CRC. Electricity supply – particularly in the UK – has not increased with the rate of demand. Over the next ten years, the energy infrastructure in the UK will undergo significant change, with many large power stations reaching the end of their life-cycle, and we experience the transition to a lower carbon infrastructure.

Paying for this transition will not be cheap, and energy prices will no doubt be raised to fund the Feed in Tariffs programme and the infrastructure improvements required for the ‘smart’ grid. OfGem, the UK energy regulator, has made some predictions as to what we can expect electricity prices to look like over the coming decade. From this and other research, we have been able to model the cost implications for our clients over the next decade, as shown in the chart at the end of this blog.

It would seem a simple conclusion, CRC costs are not the main event and energy prices are key in keeping operational costs down. Unfortunately it is not quite as simple as that, and an effective carbon strategy will need to engage both the landlord and tenant.

By working together to the same goal, both the landlord and tenant can reduce their respective costs for both energy and CRC.

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