Good news. As spotted by Tom N, the LCBP Stream 2 is back up and running with £35m of new funds (and a hefty backlog of PV, GSHP, and solar thermal projects that weren’t processed before the money ran out the last time). One lovely feature: the cap for heat technology has gone from 45kW to 300kW. Much more sensible.

It’s clear this is the Government’s stopgap until the FiT comes in for electricity in March 2010  and the RHI comes in for heat generation in April 2011. They’ve put those dates on the LCBP website as if they were set in stone, but I wonder…

The Biomass Energy Centre has launched a national woodfuel supplier database. A couple of websites have tried to do this over the years but this one is already fairly well populated and it looks like BEC mean business.

As Phil Clark pointed out in a comment on my last post, there’s a very good piece in Building on the disappearance of ESCOs. This is a subject near to my heart as I’m part of  Fontenergy, an independent ESCO.

Before the economic crisis, the majority of our clients were private developers. When they put the brakes on last summer, a significant part of our pipeline stalled.  We’ve still got a number of very good projects on the go (with large RSL components as you’d expect) but progress is significantly slower than it would have been 18 months ago. And the pipeline is leaner and less certain than we’d like.

One nice thing about being an ESCO is that in order to do the job well, you must have excellent breadth of expertise within your team. There are three essential legs to the stool: commercial strategy, energy markets, and building services engineering (something that the big engineering consultancies don’t appear to be able to effectively pull together). So right now we’re doing a lot more consulting and training  in order to maintain our presence and pay the bills, all the time watching the horizon for the return of the market.

Surprisingly, unlike for developers, financing for DE isn’t a problem at the moment. A manager from one bank recently told me they’re sitting on a £400m fund for this sector. The picture for private equity is similar – a reliable modest return is very attractive at the moment and there is private money out there.

The problem is projects. Private development has ground to a halt. There is more movement on social housing projects but the approach among RSLs varies hugely and it’s taking longer for them to pick up the experience that will enable them to successfully procure energy services for low or zero carbon developments.

The downturn comes at a critical time: the industry was just taking the first steps towards meeting requirements for zero carbon. Several large projects intended to trial technical and commercial routes to low carbon (one-off zero carbon homes are lovely but I think they teach you very little about how to reduce carbon at scale).

But the crisis came, pilots halted, deals failed to materialise, and ESCOs disappeared. As Peter Walker from EcoCentroGen points out in the Building article, it’s the small ESCOs that are suffering most.

The big energy companies may offer ESCO services when they see a demand for it. But as demand dwindles, they either cut people loose or simply pull their ESCO resources back into the areas of the business they were taken from.

There are also questions around whether the big energy companies actually want to see a meaningful move towards distributed energy. Certainly the stronger their presence in the sector, the more they’re able to control the way in which DE is delivered. For the cynically minded, there are several examples of large incumbents making all the right noises until it’s time to commit, then digging their heels in.

Paradoxically, there are some real dangers that will accompany the eventual end of this economic crisis. When the market returns, the construction industry will find itself starting from scratch rather than drawing on experience. It will face greater risks as, rather than gradually meeting tighter targets, it’s forced to make giant leaps in order to meet regulatory requirements.

In addition, the crisis may wipe out many of the independent ESCOs. When demand returns, we may find large energy companies moving in to dominate the ESCO market, effectively dictating terms to developers and government. This will stifle innovation and possibly make it even harder to achieve meaningful carbon reductions through DE.

There are a number of steps that we can take now to help the situation. Here are a few:

1. Clarify the terms of the FiT and RHI.
2. Governments, banks, and ESCOs themselves should work to remove costs and barriers to developing DE. Priority number one: standardise contracts and share them with others.
3. The government should strengthen energy market reform to level the playing field for DE. Three examples: make cost reflective distribution charges a reality. Bring supplier services to market by hook or crook to enable non licensed ESCOs to break through the 1000 home barrier. Put gov’t backed loans in place to reduce finance risk for DE schemes.
4. Recognise that large energy companies have a vested interest in maintaining the status quo. Should they be in charge of administering the feed in tariff as DECC has proposed? Should they run the Low Energy Refurbishment programme as proposed in the HESS consultation?
5. Support your independent ESCO.

Most people who work in the built environment agree that ESCO stands for Energy Services Company. But that seems to be the only thing about ESCOs that everyone agrees on – the term can mean vastly different things to different people.

So what is an ESCO?

The short answer is: there’s no one answer. Here’s a rough list of the services that an ESCO might offer. Keep in mind that a company might provide all, some, or only one of these services and still call themselves an ESCO:

Retail services are all those required at the interface between the customer and the ESCO. These include things like billing and meter reading, calculating and sending out bills, and chasing late payments. It may also include taking on debt risk.

Energy market services relate to management of the energy itself. This is generally a high-cost high-competency area and can require special attention. It includes buying in fuel and electricity from the grid, holding contracts for exported energy (e.g. power purchase agreements), managing sale of instruments such as ROCs, responsibility for market regulations such as Balance and Settlement Code, allowing third party access on private wire networks, and holding Supply Licenses when not license exempt.

Finally, plant services relate to the equipment itself. This might include designing, funding, and running plant. This often seems to be what people have in mind when they use the word ESCO. Companies that specialise in this area are frequently the equipment manufacturer/supplier as well (e.g. gas CHP).

Going back to the point that an ESCO might only offer a subset of the list of services in the figure above – this isn’t necessarily a bad thing. From experience, you might want to be wary of going with a one-stop-shop. This is for several reasons:

1. If service is poor in one area, the client’s comeback options can be very limited. For example, if one company owns the plant and handles customer interface, what do you do if their billing services are rubbish?
2. It’s often not clear what margins are being made in which parts of the business and so difficult for the client to know if they’re getting a good deal.
3. There’s a very broad range of skills required to provide all of the above. It’s *hard* to find one company who’s competent at all of them.

So piecing together all the above services from more than one supplier might require more time and thought, but can result in a more transparent and flexible solution.

Sometimes the term ESCO refers to a commercial arrangement where a company sells services rather than units of energy. For example, they might charge for “lighting” or “thermal comfort” rather than electricity or heat.

The idea is that by offering services in this way, the ESCO can afford to fund energy efficiency improvements on the customer’s site. For example, by improving the efficiency of light fittings, the ESCO increases its own margins as it continues to charge for “light”, not electricity.

While it’s often talked about, in reality this model has yet to emerge in the market in any meaningful way. At the domestic scale it’s difficult to see quite how this arrangement would work in practice.

A perfectly reasonable question when someone uses the word ESCO is: what do you mean by ESCO? But I think most of us either think we know what the word means or that we should know already and so keep quiet to avoid looking foolish.

But try asking that question the next time you’re in a meeting where ESCOs come up. You might even find that the person can’t tell you what they mean – in which case, well done! But at least you’ll establish what their understanding of the term is, which is essential if you’re going to have a meaningful conversation.

I wrote a post in April about a new, more collaborative way of working. It turns out Mel Starrs had been thinking along similar lines. Then Jackie Sadek at Estates Gazette wondered if we should bypass the recruitment agents in the construction and sustainability sector, applying a collaborative model not just to working but also recruitment.

In that spirit, here’s an experiment. Nick and Julian at Brooks Devlin are looking to hire a new person. They’re a small practice doing great work – and as a small practice, hiring the right person is absolutely crucial.

Talking to Nick about this yesterday I suggested that advertising via web 2.0 might be interesting as the audience is self-selecting; I suspect you’re more likely to get motivated, interested, intelligent, autonomous people via blogs, twitter, etc. Anyway here’s the blurb Nick sent:

Brooks Devlin is a small and successful Environmental Design Consultancy based in West Dorset and is seeking a new team member to assist in delivering our increasing workload. We are looking for an experienced Code for Sustainable Homes assessor, preferably with other BREEAM and SAP accreditations.

Our core services include CSH assessments, renewable energy strategies, daylight modelling and SAP/ new build EPC’s. We have a wide client base with projects across the southwest, south and London regions. Our projects ranging from one-off low energy houses to 5,500 home master-plans, but also includes commercial, education and healthcare.

The position is based in Bridport, West Dorset. Remuneration will be commensurate with experience and capability. Interested parties should call 01308 428918/01308 428917 and speak to Nick Devlin or Julian Brooks. Alternatively email CVs to enquiries@brooksdevlin.com.

Link to it, tweet it, digg it, whatever you like, but if you think you have access to a network of people who might be interested, pass it along.

• Poyry – Potential and costs of district heating networks report
  Brilliant report. Pöyry finds that, where DHNs can achieve high penetration in built up urban areas, the carbon abatement costs of various district heating options are more cost effective than stand alone renewable technologies.

  But the report indicates that unless there is a shift in the present market or regulatory environment, the take up of DHNs in existing building stock is likely to be limited, particularly in the domestic sector.

• Climate Change round up from Nabarro – CCS update
  Dorothy Thompson, chief executive of the Drax group,doubts whether CCS would contribute anything significant to Government targets for reducing carbon emissions by 34% by 2020. Ms Thompson pointed out that, should a modern coal-fired station be fitted with CCS today, it would need to generate 25% more electricity just to power the equipment to remove the increased carbon being emitted. Ms Thompson finished with a warning against planning for the future and neglecting the present.
• Eco-ventilation health scare prompts regulation change
  A review of MVHR in use. The BRE’s report said: “There is no market for replacement filters, with several manufacturers reporting no filter sales at all. Even basic maintenance is not undertaken.”

• The National Renewable Ammonia Architecture Spring 2009 | Stranded Wind
  A quickly evolving study into the requirements for achieving sustainable industrial agriculture using ammonia fertiliser
• Andris Piebalgs : it may have peaked.
  "When public office holders approach the ends of their terms, they sometimes feel less constrained by political correctness. That's precisely what seems to be happening with European Energy Commissioner Andris Piebalgs. In a note that could be your regular post on The Oil Drum, the Commissioner talks about peak oil in the past tense and warns that present oil prices at relatively low figures are simply transient"
• Outlook tips for Inbox Zero
  Mel makes me feel organisationally inadequate again.
• European energy prices vary up to 300%, depending on where you live – Building Sustainable Design
  This is interesting as huge variation in energy prices across Europe has a corresponding effect on value of on site electricity.

We’ve all seen the private development sector hit the skids over the past nine months. At the moment, the only residential projects that seem to be going ahead are those with a large RSL component (and so grant-funded by the HCA). This has a serious implication from a regs point of view because from spring 2011 all publicly funded housing will have to meet Code 4 (pdf). That effectively means that the residential development sector, such as it is, has to meet its regulatory targets two years early.

Here’s a map (ok, I know Code 6 won’t look quite like that once the consultation finished, but it will still be a hell of a drop):

Bob Cervi, the editor at the CIBSE Journal, writes this month that on the road to zero carbon “it’s going to be a quick six years.”

It’s going to be an even quicker 5.

We engineers are great at estimating energy and carbon emissions and dealing with concrete systems: pipes, wires, flues – that’s our bag. One of the things we do poorly (but for some reason are too willing to do) is financial modeling relating to low and zero carbon generation.

For the last couple of years I’ve been working alongside financial and commercial bods who actually do know what they’re on about and it’s been a real eye opener. They might not know how to size a duct but they can tell you where your business is making money – and where it isn’t.

On a recent project I was looking at small CHP engines (5 – 30kWe) on a sheltered housing scheme. As part of that work, I put together a simplified financial model (with guidance from the bods) to quickly test whether a given option was worth looking at in detail. It was hugely useful and threw up some surprising results – for example, none of the small engines I looked at could pay back its capital cost in its lifetime. Ouch.

So based on that work, here’s the model. I’m using micro-CHP as an example but it’s just as easy to use for renewables.

The main principle is that we want to simplify everything down to a single year. Here are the steps:

1. Estimate your revenues (or value of output)

Assume you’re selling heat and electricity. The value of the heat is the price of the offset fuel with an allowance for plant efficiency. So assuming you’re offsetting heat from an 86% efficient gas boiler, the value of heat is:

heat price = gas price  / 86%

The value of electricity is equal to the price of gas multiplied by a spark spread (the multiple of electricity price to gas price). We’re doing it this way so that it will be easy to do some sensitivity analysis and try out the effects of changing the spark spread.

There’s also a value associated with the fact that we’re generating electricity on site – this comes from the fact that we’re avoiding distribution and some other charges. Let’s say it’s 1.5p/kWh. So the value of electricity is:

electricity price = gas price * spark spread + 1.5p

So you can now take a range of gas prices and spark spreads to use in your sensitivity analysis:

Table 1 – Sensitivity variables

Now for each kWh of heat and electricity delivered by your CHP, you know exactly what the value is. In this example, the electricity prices (p/kWh) break down as shown in the following table. We’re going to ignore heat for now and take it off our costs rather than add it to our revenues (hopefully this will be clear in section 2 below).

Table 2 – Electricity price (p/kWh)

2. Estimate your operating costs

Costs are based on the characteristics of the engine. So let’s take a well known small CHP engine:

Table 3 – engine characteristics

We know that for each kWh of electricity produced, it costs 3.79p for O&M. The next thing to do is work out what it costs us to generate that kWh of electricity. To do this, you take the cost of the fuel input and subtract the value of the heat that’s created as a byproduct (this assumes all energy is being used on site):

cost of electricity = (gas price / electrical efficiency) – (heat efficiency / electrical efficiency * heat value)

So taking the sensitivity variables and engine characteristics laid out above, for our engine the cost of electricity looks like this:

Table 4 – Cost of electricity generation (p/kWh)

3. Calculate your operating profit based on 1 and 2

If you take your electricity value per kWh and subtract your O&M costs and cost of electricity per kWh, you get your gross operating profit. At the simplest level we’re interested in whether the engine generates any profit. Here’s how it looks:

Table 5 – Operating profit (p/kWhe)

From this table, you can see that at average gas price and spark spread, the engine will generate 3.73p/kWh of profit. It’s helpful to put this in a graph.

So the engine is making money, but is that profit enough to pay back the installed cost of the engine?

4. Factor in the installed cost

In this next step, we want to calculate a cost per kWh based on the installed cost and total kWh run. But we also need to allow for the fact that the capital has a cost. At the simplest level this is equal to the cost of borrowing the money from the bank. Our financial bods use weighted average cost of capital (WACC) based on cost of borrowing and the minimum return on investors’ equity. But whatever, the principle is roughly the same. Let’s say the cost of capital is 7%.

Our engine has an expected life of 80k hours, which at 6k hours a year equates to 13 years. The installed cost is £18.5k. Putting this all together:

installed cost = pmt(7%,13,18500) / kWh per year

PMT is a function in excel to calculate the periodic repayment of a loan over so many years at such and such an interest rate. For our example, that gives us an installed cost per kWh of 6.7p.

So factoring in our cost of capital, the bar chart above now looks like this:

It’s immediately clear that the unit doesn’t support its own costs. In other words, it will never pay itself back. You can install it for other reasons (as a planning requirement, because you think it will save carbon, etc) but just understand that the engine will cost you money over its life, not make you money.

The basic principles of the method above are useful for CHP but you can also use them for biomass boilers or other LZC generation.

Ok, here we go! The draft version of the new SAP is out.

This is it – the document that could assist or sabotage the whole move to low carbon homes. Have they sorted out the major issues? I almost can’t bear to look.

[update 14/5: No, they haven't. All the more reason to respond to the consultation.]

Let’s get stuck in.

Hat tip to Nick Devlin.