Decarbonising PFI – what is the IPA’s guidance?

PFI projects involve the operation of large, energy intensive public sector assets. Energy consumption creates financial pressure for authorities, but also impacts on the achievement of their net zero objectives.

Whilst later PFI contracts do have energy efficiency and energy consumption targets, these were written around 20 years ago and are unlikely to be fit for purpose in the context of net zero.It's against this background that the IPA has issued Guidance on decarbonising operational PFI projects. According to the Guidance, 42% of the UK’s carbon footprint is attributable to the built environment meaning decarbonising public sector assets will come under greater focus. Additionally, all public sector organisations are tasked with reducing their carbon footprint. As a result, decarbonising PFI projects is moving up the agenda.The Guidance proposes a generic approach to decarbonisation which can be used irrespective of the vintage of a project. Noting the difficulties of retrofitting within a complex built environment and the contractual straitjacket of PFI, it is recognised that variations may be required to achieve net zero ambitions. However, the Guidance also highlights that PFI projects present the public sector with a unique opportunity to access private sector expertise and innovation. And whilst the Guidance does not mention it, there may also be an opportunity to access private sector capital and lifecycle budgets, as we have discussed here.Three sources of operational emissions are highlighted:

• Scope 1: direct emissions generated from sources owned and controlled by authorities (e.g. on site fossil fuel heating systems)
• Scope 2: indirect emissions generated from purchased electricity, steam, heating or cooling
• Scope 3: indirect emissions generated by the public sector’s supply chain

As Scope 1 and Scope 2 emissions can be influenced most readily they should be the key focus for the public sector.The guidance sets out 5 key principles to develop a decarbonisation plan for a PFI project:

1. Data first: authorities need to pull together basic information on energy consumption and carbon emissions. This baseline data is the starting point from which a course to net zero can be plotted.
2. Know your contract: authorities need to understand the existing risk allocation in relation to energy consumption/management under the Project Agreement (bearing in mind that this can differ from project to project).  Whilst some decarbonisation measures might have limited contractual implications, there is clearly scope here contract variations, many of which will require sign off from key project stakeholders (including lenders).
3. Engage stakeholders: clearly, this isn’t going to work unless there is collaboration between the public and private sector partners. The guidance highlights that through working with the private sector, the public sector can gain access to private sector innovation and expertise, in particular management services and facilities management providers with technical knowledge of the project assets and equipment and experience of delivering decarbonisation measures on other projects.
4. Prioritise: Look for the easy wins! The first step should be to look at reducing energy consumption, before looking at mechanical systems and energy generation. Carbon offsets should be the final port of call.  The guidance highlights a number of critical factors which are likely to impact on priorities, such as the size, nature and age of the asset, the age and efficiency of existing plant and equipment, the cycle of planned repair and replacement of installed equipment, site and property specific design limitations, the remaining contract duration and the availability of budgets.  Again there is no one size fits all approach and the priorities will be shaped by project specifics.Interestingly, authorities are encouraged to ask for lower carbon options to be considered. where existing project lifecycle plans contemplate the like for like replacement of plant and equipment – the replacement gas boiler paradigm so often mentioned by commentators.  This is consistent with some of the themes in the PFI expert guidance from last year (see my commentary here).   Authorities should also assess the feasibility of onsite renewable energy generation such as the installation of solar photovoltaic panels or wind turbines.
5. Make a plan – the public and the private sector need to work together to agree a long term plan for decarbonisation that identifies baselines and targets, supports the monitoring of progress over time and that is flexible to change. The implementation of preferred options also needs to be aligned with the project company’s planned maintenance and lifecycle programme.

Conclusions

There is mounting political and financial pressure on authorities to reduce energy consumption and their carbon footprint. Notwithstanding the difficulties in retrofit in the context of a PFI, the lack of progress in this area to date does feel like a missed opportunity. However, it is pleasing to see the IPA lighting the way for authorities. As we move closer to the expiry of PFI projects, decarbonisation should come to the fore as authorities plan for life post PFI.

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If you have any queries on topics relating to decarbonising operational PFI projects, get in touch James Larmour.