INFORMATION SHEET 22
Options for Sites that Might Fail the 1st Milestone Target
Performance during the 1st Milestone Year (October 2001 to September 2002) must show the improvement as specified in each Underlying Agreement. If a site fails to meet the 1st Milestone Target there is a significant risk that the site will lose the CCL discount for the 2-year period from April 2003. It is in the interests of all sites with a CCA to avoid this eventuality. This Information Sheet provides advice about how to avoid losing your CCL discount.
Track Your Performance
It is vital to keep track of your performance versus the 1st Milestone Target. Review your performance from CCL Year 2 (October 2000 to September 2001) – the Discount Scheme has provided you details of your performance calculated in accordance to the rules in your Underlying Agreement. Also, keep a regular track of performance since October 2001 and make an estimate of whether you will meet your target. If you think you might fail, try and estimate by how much you might miss the target, as this could influence your approach to avoiding losing the CCL discount.
The Best Option – Meet the Target!
Clearly the best option is to make the required level of energy savings and hence meet your target. Then you are guaranteed a CCL discount for the next 2 years. With over 6 months left in the 1st Milestone Year it is not too late to start making savings. You can get Government funding for energy audits and feasibility studies via the "Action Energy Programme". This could provide a useful impetus to your energy saving programme. Further details can be obtained at www.energy-efficiency.gov.uk, through contacting the energy efficiency Help Line; 0800 585 794 or by contacting the CCL Help Line.
Five Further Options to Save Your CCL Discount
If you cannot meet the 1st Milestone Target there are 5 options that can be considered to save your discount. These are as follows:
Option 1: Buy CO2 Credits from the Emissions Trading Scheme (ETS). A simple way of meeting your target is to buy a sufficient number of CO2 (carbon dioxide) credits. The UK Government is launching the ETS in April 2002 and it will create a market for the sale and purchase of CO2 credits. The price of CO2 credits is not yet known but prices will become available after the ETS has started trading. If the cost of buying sufficient CO2 credits to meet your target is well below the value of another 2 years of CCL discount then this is potentially a good way to proceed.
However, risks associated with the price of carbon and the availability of carbon credits in the market place should be carefully considered before choosing this method of securing your discount.
Option 2: Invoke Your Risk Management Option.
The product mix and product output algorithm – this allows you to adjust your target if you have become less efficient because of either a drop in output or a change in product mix. This is a potentially powerful tool for modifying your target by a significant amount. See the DEFRA paper CCA (01) 08 for more details. In most situations the product mix and product output algorithm is most useful of the risk management options.
Option 3: Apply Regulatory Constraints. If you are forced to use more energy by some form of regulation (e.g. the Environment Agency demand a higher standard of air quality in an exhaust gas stream), then you can have your target adjusted to take this extra energy into account. You will need to collect good data to prove that such constraints apply.
Option 4: Rely on the Sector Umbrella. Your site is one of many sites belonging to a Sector Umbrella Agreement. The Sector has an overall target (equivalent to the sum of all the individual site targets). If this target is met then all sites in the Agreement are deemed to have met their targets. Effectively this means that if "over-performers" beat their targets by a greater amount than "under-performers" fail their targets then the whole sector passes. However, relying on the Sector Target being met IS HIGHLY RISKY! There are various financially attractive options for over-performers (see Information Sheet 21) including banking and sale of CO2 credits. If the majority of over-performers adopt these then there is little chance that the Sector Target will be met.
Option 5: Share CO2 credits with another site in your company (ONLY applies to multi-site companies). If you have several sites in a single Sector CCA then you can balance out performance across the group. This can either be done via Option 1 (i.e. formal CO2 trading via the ETS) or by grouping all your sites into a single "target unit". This type of "company bubble" was offered when you set up your CCA (see Question D5 of your Application Form). However, the majority of sites opted for a single target for each site rather than a company bubble. DEFRA have agreed that it should be possible to re-organise contracts into company bubbles. Whether it is best to trade via the ETS (Option 1) or modify your contract into a company bubble will depend on the relative costs of these 2 actions. These costs are not yet clear, but should be better understood by mid-summer 2002. At that time we will issue further advice on these options.
Reminder about the Qualitative Requirements
Your CCA includes a set of Qualitative Requirements that form an optional set of guidelines for creating a strong foundation for your energy efficiency improvement activities. Do not forget that if you wish to apply Regulatory Constraints that the Qualitative Requirements are MANDATORY. It is also worth noting that it will be hard to apply the product mix and product output algorithm unless you have the type of energy monitoring regime recommended in the Qualitative Requirements (see Information Sheet 7).