This spring, the London Energy Project will launch a tender for up to £500m worth of energy per annum for public buildings and street lighting.
The aim is to find the greenest, best value contracts that enable local authorities, health authorities and other public sector customers in London and the South to cut carbon and costs while unlocking social value.
Corralling such a large group of public sector customers and finding a contract and supplier to suit disparate needs is no mean feat. But Amanda de Swarte, head of the London Energy Project, thinks it can be done. “It is complex, but that does not mean we shouldn’t try,” she says.
Suppliers, while cognisant of the challenge, think they can deliver what’s required. £500m has an effervescent effect, suggests de Swarte.
The hope is that the vast majority of 33 London Boroughs and 37 health authorities, LEP’s members outside of London, plus new potential members will give the LEP sufficient clout to drive change and unlock greater value.
“In any tender, it is impossible to say that everybody is going to opt in. Each contracting authority has its own decision making process. But the expectation is that they will participate because they have been involved in the specification and it puts them in control of what they are getting,” says de Swarte.
“It is not just about getting best price and service, because that should be a given. It allows them to deliver greater community and social benefit, and it enables them to bring about a market change.”
Moreover, taking a collective approach should unlock energy efficiency, carbon reduction, innovation and savings by freeing up time and resource for councils and trusts that all too often find themselves firefighting administrative burdens.
Products and services cannot be homogenised to suit every region and customer: schools require very different services to hospitals, for example. But de Swarte says suppliers that develop solutions that can be applied to the customer segments across an area like London will likely find demand for their services in other regions.
They may also gain some benefit by working directly with a coordinated customer group rather than via a third party, such as a broker, suggests de Swarte. Meanwhile, baking in flexibility to the contracts should help suppliers prepare for the decentralised era.
Future proofing and flexibility
De Swarte says the aim is to create a framework that enables individual councils and trusts to ‘call off’ additional services and contracts without needing to undertake further tenders.
That approach should provide sufficient leeway to bring in other aspects, such as flexibility trading and demand-side response, power purchase agreements (PPAs) and energy-as-a-service, says de Swarte.
Taking that approach could enable councils that are building solar farms to sell their electricity into the framework, for example, as well as allowing individual authorities and trusts to optimise any generation or flexibility within their estates.
The frameworks should also have sufficient flexibility to accommodate peer-to-peer (P2P) models.
“P2P is not quite there yet, and neither is the market, says de Swarte. “But the framework will run until 2024, so we have to ensure we have innovation clauses that allow us to move with the market, because it may be that everyone is doing P2P by then.”
Future proofing the framework is critical, she says.
“2024 won’t look the same as now and so the contracts need to reflect that. We have to ensure all of the things we know go wrong on a regular basis, the things we know suppliers do poorly, are ‘specified out’ and the things they do well are ‘specified in’. Then, when we go to tender, we can be clear that suppliers understand our business requirements and that £500m is put to good use,” says de Swarte.
“Ultimately, what we are currently getting works. But it isn’t really good enough, does not provide social value and isn’t ‘green’ and it creates an admin burden – and we think we can do better.”
What does £500m buy?
The framework aims to procure 100 per cent REGO-backed renewable electricity, which the LEP thinks can be done without a premium. It will also include the option for authorities and trusts to buy green gas, though that will likely cost more.
The framework will include requirements to allow local small businesses to bid for work on energy services contracts, keeping value within the community.
It will also stipulate that fair prices must be paid for any exported self-generated energy.
The framework will run from 2020-2024.
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