National Energy Category Strategy for Local Government 2022 – energising procurement

Councils collectively spend over £680 million each year on energy, and unit costs for energy continue to rise.

This update of the National Energy Category Strategy for Local Government is timely. The 2022 energy crisis, combined with supply chain and geopolitical issues, is putting increased pressure on council resources. Energy security is high on the political agenda and councils are being asked to play a key role in tackling climate change. Therefore, the LGA must produce a forward-thinking strategy focusing on these issues.

The updated strategy will help councils to optimise the way energy is managed and procured in today’s markets. It includes practical examples, good practice and case studies in important energy procurement areas. These include:

• reducing energy consumption
• using energy efficiently
• looking at new ways councils can act to increase energy security.

This strategy is aimed primarily at council procurement officers, to help them understand the potential opportunities and challenges within the energy market.

However, rising energy costs will have a cumulative effect on a wide range of contracts and projects. Therefore, the strategy also provides information for other officers, including energy and estate managers and sustainability teams, to help them understand the role of colleagues in procurement and finance functions. Commercial teams, contract managers and senior leadership may also find the content useful.

Pressure on local government is building. Councils continue to bear the impact of the national Government’s budget and resourcing reductions and have been further stretched during the COVID-19 pandemic. The current energy crisis, together with supply chain and geopolitical issues, add increasing financial pressure on council resources.

Councils also have a key role in tackling climate change. The decarbonisation agenda continues to pick up pace following the COP26 UN Climate Change Conference, with more councils declaring climate change emergencies and beginning to develop local delivery plans. Alongside this, councils are prioritising economic recovery from the pandemic and are being asked to support the Government’s levelling up agenda.

Taking a category management approach

All councils are keenly aware of the need to act efficiently and explore revenue generation opportunities wherever possible. To this end, councils are increasingly adopting a ‘category management’ approach as a starting point to identify key spending areas.

This strategic approach can reduce costs and increase overall value by reducing demand, simplifying the procurement process, and aggregating spending to achieve economies of scale.

The LGA has published category management strategies for four major areas of local authority spending: energy, ICT, construction, and social care. The energy strategy is the first in the series to be updated.

Energy policy and economic context – opportunities and challenges

In 2019, the UK became the first major economy to pass a net zero emissions law. This requires the UK to reduce total national emissions of greenhouse gases to net zero by 2050. The Government’s Ten Point Plan for a Green Industrial Revolution outlines the Government's approach to accelerating the transition to net zero. It aims to lay the foundations for a green economic recovery from the impact of COVID-19 and put the UK at the forefront of the growing global green economy. Councils and the wider public sector will need to play their part in its implementation.

The only climate-related statutory duty for councils at the time of writing (September 2022) is the legal requirement to enforce Minimum Energy Efficiency Standards (MEES) in private rented domestic, non-domestic and commercial properties. However, councils across the UK have declared climate and ecological emergencies and are creating action plans to deliver on their ambitions.

Action on energy can deliver cost savings or generate additional income for the council in addition to reducing carbon emissions. Energy is one of the largest controllable overheads in many council buildings. There are many opportunities to make savings and generate income through energy demand management and energy generation.

The energy crisis has increased the importance for councils to minimise costs and maximise benefits for local communities through energy procurement. Our June 2022 analysis on cost pressures to council budgets estimated that inflation, energy costs and projected increases to the National Living Wage will add £2.4 billion in extra cost pressures onto council budgets this year alone, rising to £3.6 billion in 2024/25.

Local communities and taxpayers depend on councils to commission essential public services and to commercially manage suppliers.

Many stakeholders involved in the production of this strategy stressed the importance of ensuring value for money but noted that this wasn’t always about obtaining the lowest price. There are wider considerations, which are summarised here under the themes of the National Procurement Strategy for Local Government in England 2022:

• showing leadership
• behaving commercially
• achieving community benefits.

Councils have a role to play in setting an example to inspire and influence others, both within their communities and more widely through increasing their impact and influence across the public and private sectors.

Investing in energy efficiency can reduce the amount of energy that has to be procured. Procuring clean energy wherever possible contributes to tackling climate change but will not necessarily reduce costs, although investing in ownership of clean energy generation could provide income for the council. 

Councils, along with the LGA and the National Advisory Group for Procurement (NAG), have a significant role in sharing best practice and actively promoting collaboration between councils and the wider public sector. Councils should demand value for money and improved service quality from suppliers, for example by asking for energy efficiency advice and investments alongside energy supply, rather than simply accepting standard offers. If they then collaborate or share best practice, they may collectively be able to change the market.

Councils can demonstrate leadership to others in their community by extending their procurement services to external clients, as seen with the London Borough of Islington which offers a range of energy services to customers in a range of sectors. This could also involve offering good value and affordable energy contracts to schools, social housing and the voluntary sector, through heat networks for example.

Councils are dealing with significant financial pressures resulting from reductions in government funding, rising demand for services and the economic impact of COVID-19, supply market disruption, the energy price crisis and the invasion of Ukraine. These extra cost pressures pose a serious risk to the future financial viability of some services and councils.

Most councils have been enjoying cheaper energy that was procured two to three years ago. However, those who will be renegotiating contracts in the near future will now be looking at energy prices that are six to seven times higher. Given that budgets for the year were set before much of the increase in inflation and energy prices, they will not cover the additional costs.

Reducing energy costs may seem a near-impossible task. However, financial savings can be maximised if councils think about more than just the unit price of energy. By reducing energy demand, through the retrofitting of energy efficiency measures, energy cost savings can be realised year-on-year.

If a council invests in ownership of (renewable) energy generation assets, income can be generated and / or reliance on purchasing energy from others reduced.

Councils need to maximise the economic, social and environmental benefits to communities from every pound that is spent.

The Public Services (Social Value) Act (2013) transformed the way public bodies buy services and the 2021 National Procurement Policy Statement and accompanying notes highlight social value as being a key Government priority which should be considered by all contracting authorities.

All public bodies in England and Wales are required to consider how the services they procure might improve the economic, social and environmental wellbeing of their local area. This should be driven through the inclusion of added social value elements and use of a social value assessment tool as part of any tendering round.

Market transformation commitments (MTCs) have also become a way of considering wider benefits which can be achieved through procurement. For example, the Green Heat Network Fund (GHNF) has MTCs written into its application process: applicants need to demonstrate actions they can take, as part of the delivery of a heat network, to enable growth within the supply chain that will provide a lasting benefit to the wider market.

Case study – West London Alliance (WLA)

The West London Alliance (WLA), comprised of eight councils (Barnet, Brent, Ealing, Hammersmith, Harrow, Hillingdon and Hounslow) in partnership with West London Waste Authority, has created a procurement policy that aims to ensure that procurement activities are delivered sustainably and at value for money. It contributes to the participating councils’ vision of providing services for their residents while also delivering net zero targets.

The West London Low Carbon Procurement Policy is not only designed to address the climate crisis through procurement. It also recognises the wider value of improving living conditions for residents by addressing challenges such as air quality, enhancing biodiversity, and protecting health and wellbeing. It covers all areas of commissioning and the procurement cycle and embeds an ethos where local and global impacts are considered irrespective of contract duration or value.

The policy is intended for all stakeholders involved in public procurement. This ranges from a councillor who leads the way procurement is carried out, to a delivery contract manager who ensures that supply chain commitments comply with the sustainable objectives laid out in the tender. It is also relevant for residents and local stakeholders who wish to remain informed about how their councils are tackling climate change.

The West London Low Carbon Procurement Policy is also an example of ‘showing leadership’. It demonstrates an ambitious, clear objective from an existing partnership and harnesses collaboration to create a bigger impact on the environment and residents’ wellbeing through sustainable procurement.

Example social value clauses

The following social value clauses are examples that could be included as part of tender specifications and contracts for energy and related services.

Skills and associated apprenticeships

Consider whether there are opportunities for apprenticeships in the supply chain. For example, energy suppliers who operate nationally may not have much to offer here, whereas meter service suppliers, who will have local operations, could be required to take on local apprentices. Thus, adding meter services into energy procurement can offer a key opportunity to reduce energy demand while also supporting local employment.

Support for local research and development

Energy suppliers could be invited to support research at local higher education establishments on new and innovative ways of generating energy.

School programmes

Energy suppliers could be invited to run sessions with or provide resources to school children about reducing energy demand.

Opportunities

Energy is one of the largest controllable overheads in many council buildings. There are many opportunities to make savings through energy efficiency and to generate income through energy generation.

Case study – Dorset County Council

Dorset County Council has published a buildings action plan which is designed to ensure that carbon emissions from Dorset buildings are eliminated. For its own buildings, the council has agreed on an action plan which sets out actions by type (direct, influence or in partnership), carbon emissions reduction potential, other benefits and cost. Each action has an immediate target which needs to be achieved by 2023 to keep the council on track. Actions include:

• carrying out audits to identify opportunities to retrofit energy efficiency, water efficiency, and renewable energy generation across the estate on completion of the asset review
• ensuring procurement specification favours energy efficient equipment
• conducting a commissioning study to identify opportunities for small-scale on-site renewable energy installations on council buildings and assets
• increasing capacity of energy team to develop and implement a retrofit programme
• expanding the centralised utility management service across Dorset Council to incorporate an oversight of energy use, monitor consumption and target energy reduction at site level
• reviewing operational controls on energy using equipment across council estate to ensure optimum efficiency.

Challenges – delivering ideas into reality

However, the energy market is complex and there can be a lack of understanding on where to start, how to build a business case and how to then implement ideas. Councils should, therefore:

• find out what the council’s energy supplier or public buying organisation (PBO) may offer as part of the service contract
• establish a baseline position and gain a thorough understanding of the council’s portfolio and assets
• assess what options are available to reduce energy demand and to generate energy
• develop a business case, including reference to social, economic and environmental factors
• consider procurement options and frameworks
• benchmark costs and wider service offerings from suppliers
• consider finance options, from both internal and external sources.

There are a range of support services that can help with establishing a baseline, including from the LGA, the Carbon Trust and central Government (see Appendix A: Reducing councils energy demand).

When assessing available options, quite often councils are missing the ‘low-hanging fruit’ and focusing on high profile activities. For example, some councils have focused on renewable energy projects before looking at opportunities to reduce energy spend through energy retrofit projects. For all options, councils should consider resource intensity, capital outlay and risk factors associated with the projects.

Future market trajectory

The UK has made great progress towards decarbonising the power system, although there is still a great deal to be done. There is now a focus on how to decarbonise heat.

The Government has announced that there will be a phase-out of gas boilers, with no new gas boilers installed in newly built homes after 2025. Alternative heating systems and fuels such as heat pumps, heat networks and potentially hydrogen will be relied upon.

There is a great deal of policy and market activity to support the growth of heat networks, connecting the public sector, businesses and homes to networked low carbon heat sources. Councils will play a central role in the delivery of current heat network policy, as procurers of networks and also through their role in local area energy planning.

Councils can reduce demand for energy in a variety of ways:

• monitoring energy consumption across the council portfolio and targeting areas for improvement
• engaging with council staff to ensure everyone understands energy efficient ways of working and puts them into practice
• retrofitting energy efficiency measures across the council portfolio
• implementing energy performance contracts (EPCs)
• implementing energy efficiency procurement standards.

Monitoring and targeting

Councils cannot effectively manage what is not measured.

Monitoring and targeting enables councils to understand how energy is being used across their portfolio. It can help councils identify avoidable energy waste and where there may be opportunities to reduce consumption.

Data collection can be manual, automated, or a mixture of the two. It will involve technologies such as smart meters, heat metering, and building (energy) management systems. Once a monitoring and targeting scheme has been set up, its routine operation should be neither time-consuming nor complex, and will underpin the council’s energy management activities.

Key actions

Investigate what the council’s energy supplier can offer as part of the service to the council. This may help to reduce resources required. If the current supplier does not offer monitoring and targeting as part of the contract, ask whether they can be included.

Consider including these requirements the next time the council is procuring the energy supply contract. Develop a checklist for procurement tenders, including requirements around monitoring and targeting and data management.

Consider how data can be collated and aggregated and how it can then be used as part of wider energy management activities. Think about how data can be usefully shared across sites and external clients such as schools. Consider what resources are required to verify the savings associated with any investment in energy efficiency measures. Monitoring and targeting can be delivered in-house or by an external provider.

Some councils outsource monitoring and targeting through a total facilities management (TFM) contract. Others disaggregate monitoring and targeting services so that contracts can be awarded to smaller, local businesses. This may be more convenient than in-house options, but it does not offer the value of building internal expertise.

Some councils use bureau services which offer data collection, validation, forecasting, monitoring and reporting services. This can free up staff to work on implementing wider energy saving activities.

The London Boroughs Energy Group (LBEG) looked at what to consider if councils outsource monitoring and targeting:

• What does the contract cover? Does it cover the whole of the council portfolio or are certain categories excluded, such as schools and housing?
• What can the organisation offer in terms of flexibility?
• Define service level agreements and update these periodically.
• Do keep some expertise in-house in order to challenge your monitoring and targeting service provider.
• What should we ask for in a TFM contract?

Case study – London Borough of Islington

The London Borough of Islington’s monitoring and targeting is delivered by an in-house team of energy conservation officers. The team had to demonstrate the cash benefit of their service. The team calculated that for every pound spent on monitoring and targeting, there is a £3.40 benefit. Tracking this data has been vital in ensuring the budget is maintained and extending services to neighbouring councils have provided income generation opportunities.

The council is using artificial intelligence (AI) in managing energy. This is an emerging market and something that some councils are beginning to explore in partnership with the private sector.

The council is also implementing GreenSCIES – a revolutionary smart local energy system that aims to reduce carbon emissions and tackle fuel poverty across the London Borough of Islington. The project will help the council to achieve its ambition of being a net zero carbon borough by 2030.

Case study – Demand Logic software platform

Demand Logic was approached at the beginning of 2020 by Avison Young who expressed an interest in using building analytics to support their property management offering at Brindley Place. Demand Logic successfully deployed a data acquisition device (DAD). The DAD connects to the heating, ventilation and air conditioning (HVAC) systems – usually via the building management system (BMS) – to collect data. During the following weeks, energy savings actions were identified and completed by the proactive Avison Young site team. The optimisation of major plant operation has been the priority to date, alongside the monitoring of air handling unit (AHU) ventilation to adhere to the latest COVID-19 guidance. The Avison Young team have demonstrated how quickly improvements can be made, improving energy efficiency, occupier comfort and mechanical effectiveness with building analytics.

Employee engagement

Every person working for a council can have an impact on its energy use. Therefore, a strategy to engage with all council staff will need to be developed and implemented. Staff need to understand and use procurement standards, and the council should also make sure that procurement contracts for energy related equipment include the information or training needed so that council staff can use the new equipment effectively. These actions should be carried out as part of a wider strategy within the council to create an energy aware culture across the organisation.

Key actions

Investigate what your energy supplier can offer as part of the service to your organisation to support employee engagement. This may help to reduce resources required from your organisation.

If the council’s current supplier does not offer these services as part of the contract, ask whether they can be included. Consider including these requirements the next time the council procures the energy supply contract.

Case study – Carbon Literacy Project

The organisation Carbon Literacy Project has received Government funding to develop carbon literacy training courses for councils. Development of the Carbon Literacy Toolkit for Local Government has been funded by The Department for Business, Energy and Industrial Strategy (BEIS) via The Greater Manchester Combined Authority, and has involved contribution and donation of materials and testing and piloting by 13 different councils across England and Wales.

Stockport Council has rolled out carbon literacy training, firstly for senior managers and then for all of its staff.

Michael Cullen, Borough Treasurer at Stockport Council, the world’s first Carbon Literate local government treasurer, discusses his experience of undertaking a Carbon Literacy course in this Carbon Literacy Project video.

Retrofitting energy efficiency measures across the council portfolio

While councils are not responsible for paying energy bills of council housing tenants, energy efficiency activities can help to alleviate fuel poverty, and reduce energy consumption in communal areas and therefore energy efficiency upgrades should be included as part of planned maintenance programmes as demonstrated in the Enfield City Council case study below.

This involves the installation of a variety of energy saving measures, including:

• building fabric insulation (cavity wall insulation, internal and external wall insulation, roof and floor insulation)
• glazing upgrades
• heating system, heating controls and boiler replacement
• lighting upgrades to LEDs, including both internal lighting and street lighting.

It is important to note that, from Saturday 1 April 2023, the scope of minimum energy efficiency standards (MEES) will extend to all privately rented non-domestic properties, including where a lease is already in place and a property is occupied, and will restrict a landlord’s ability to continue to let property with an Energy Performance Certificate rating of 'F' or 'G'.

In December 2020, as part of the Energy White Paper, the Government confirmed that MEES for commercial properties will be increased to reach a requirement for a minimum Energy Performance Certificate rating of 'B' by 2030, provided the required investment is cost effective.

The Government estimates that by 2030, 85 per cent of rented commercial properties will have to have made improvements to their energy performance to comply with the standard (approximately 1,000,000 buildings across England and Wales).

Council-owned commercial buildings that are leased to other tenants will be included in this policy and councils should be working towards making the necessary retrofit upgrades to be compliant.

Key actions

A display energy certificate (DEC) is required for public buildings and those occupied by public authorities which have a total useful area greater than 250m2 and provide a public service to a large number of people and are therefore frequently visited by those people. DECs must be updated annually. Use DECs to assess actual and potential performance of buildings and consider how to implement the measures suggested within the accompanying advisory report.

Consider a holistic multi-measure approach rather than the installation of individual measures. While more challenging, it will be easier to obtain internal support for those measures with longer payback periods when they are combined with measures with quicker payback periods, and this will be more cost-effective in the long term.

Consider what resources are required to verify the savings associated with any installation (see the monitoring and targeting section above).

In addition to finance from the council’s own resources, grant funding and finance is available from a wide range of external sources, including Salix finance from the Carbon Trust, the Public Sector Decarbonisation Scheme, the Social Housing Decarbonisation Scheme and ECO (see Appendix A: Reducing councils energy demand).

Use the Find a Tender service (FTS) to search and apply for high value contracts (usually above £118,000) in the UK’s public and utilities sectors. The Find a Tender service replaced the Official Journal of the European Union (OJEU) procurement process on 1 January 2021. The service is aimed at keeping all procurement and tender processes ‘in-house’ and adapting procedures already in place.

RE:FIT is a procurement initiative to support public bodies to install energy efficiency measures and renewable energy generation assets across the public estate, reducing their carbon emissions. Councils can use this to support work on their own estate and also to help other local public sector organisations such as schools. Other public bodies such as central Government departments, NHS trusts and universities can also use RE:FIT. It has been used by more than 250 organisations to deliver in excess of £180 million of investment to over 1,000 buildings.

Energy Systems Catapult produced a range of guidance, under its now-concluded Modern Energy Partners programme, aimed at demonstrating that it would be possible for the public estate to achieve at least 50 per cent direct carbon emission reduction by 2032.

Case study – RE:FIT

RE:FIT is run jointly by the Greater London Authority (GLA) and Local Partnerships. The latter is a joint venture between HM Treasury, the LGA and the Welsh Government. The GLA run RE:FIT in respect of Greater London and Local Partnerships in respect of England and Wales (excluding Greater London). Local Partnerships and the GLA launched RE:FIT 4 in April 2020. It consists of an updated energy performance contracting framework running to April 2024. The expectation is that RE:FIT 4 will enable up to £500 million worth of contracts to enable development of EPC projects during its four-year duration.

To find out how you can benefit from RE:FIT 4 and other available resources, email Local Partnerships at [email protected]

Case study – Stroud District Council

Stroud District Council is replacing gas boilers with heat pumps at its headquarters and another of its buildings, with an estimated annual saving of up to 156 tonnes of carbon dioxide emissions across the two sites.

Find out more about Stroud’s heat pumps in our councillor workbook on the local pathway to net zero.

Energy performance contracts

Energy performance contracts (EPCs) involve a partnership between an organisation and an EPC provider to improve the energy efficiency of buildings and other assets, such as street lighting. A basic EPC will involve the provider identifying and investing in energy saving measures for the council and providing a guarantee of their energy-saving performance. Contracts can result in substantial cost savings and carbon emissions reductions. Contracts may also include energy generation measures and hence offer the potential for income generation.

Key actions

For a council, using EPCs can make strong financial sense offer the council a range of attractive benefits including:

• guaranteed energy savings
• a reduction in backlog maintenance levels, maintenance and other running costs
• reduced CO2 emissions and future Climate Change Levies (CCL) costs
• reducing the impact of future energy price rises through significantly reducing energy use.

Councils can explore EPC suppliers through a range of procurement frameworks, which are detailed later in this resource.

Energy efficiency in procurement standards

Crown Commercial Service notes in its Public procurement policy guidance that all public procurement must be based on value for money, defined as "the best mix of quality and effectiveness for the least outlay over the period of use of the goods or services bought".

Key actions

Councils should consider the use of:

• display energy certificates (DECs) when reviewing options, for example, disposing of energy-inefficient buildings and leasing new or more energy-efficient buildings or with a landlord who is willing to make the necessary building upgrades to improve the EPC rating
• energy efficiency standards across wider procurement functions, including electrical equipment.

Consider the purchase of products from the Energy Technology List (ETL) because these have been included in the list on the basis that they provide cost-effective energy savings.

Case study – Enfield City Council

Enfield City Council, alongside Kensa Contracting and utility company ENGIE, launched England’s largest shared ground loop array heat pump installation connected to eight tower blocks comprised of 402 flats.

The installation was done in one year between 2017/18, with tenants remaining in their flats. Shared ground loop arrays qualify as ‘district heating’; so, Enfield Council was able to benefit from both the Government’s Energy Company Obligation (ECO) scheme as well as the Non-Domestic Renewable Heat Incentive which offered a 20-year income of over £4 million to the council.

By changing electric heating in the flats to ground source heat pumps, 773 tCO2 have been saved per year and tenants have been benefitting from a 30 to 50 per cent reduction in their energy bills, which translates to around £200 to £250 compared to their previous energy bills.

This is an example of a council behaving commercially. Enfield partnered with expert contractors and applied for publicly available funding. This allowed them to achieve significant community benefits by offering residents the opportunity to change to a cleaner, cheaper alternative heating system.

Case study – Durham County Council

Durham County Council’s Sustainable Buying Standard: Electrical equipment (non-ICT) commits the council's procurement team to consider the environmental, social and economic impacts of products and services. The council recognises that by purchasing the most energy-efficient, appropriate, and durable electrical appliances and equipment, substantial savings can be made in terms of both cost and environmental impact.

Demand side response

Demand side response (DSR) (also known as flexibility) involves increasing, reducing or shifting electricity demand. This may involve making more use of onsite generation or batteries, shifting heating or cooling patterns, using smart appliances or even re-designing some business operations.

Councils which can be flexible in their energy use can take advantage of price fluctuations in the energy market and receive payments for their dynamic interactions with the grid.

There are two primary benefits from demand side response:

• making money – creating new revenue streams by participating in demand side response schemes (There are range of schemes through which councils can get paid to increase, reduce or shift their demand to help balance the electricity transmission system, manage local or national constraints and to manage market risk.)
• saving money – reducing electricity costs through reducing power consumption at peak times and avoiding peak network charges. (Electricity prices fluctuate, reflecting seasonal changes and daily demand. Councils opting for a variable price contract can save by reducing their power consumption at peak times.)

There are also indirect benefits. Participating in demand side response involves having a better understanding of energy use overall and can therefore help identify energy efficiency opportunities. Secondly, while it is difficult to accurately measure, lower prices in the electricity markets usually mean that the carbon intensity of the electricity grid is lower. Therefore, being flexible may help reduce carbon emissions.

Councils can take part in these services directly or through a ‘demand side provider’. A demand side provider is an organisation – such as an electricity supplier, an aggregator or third-party intermediary – who can help councils and others to participate in DSR.

If councils do decide to take part through a ‘demand side provider’, they should ensure that the provider is signed up to the voluntary Flex Assure scheme. Flex Assure is a Code of Conduct and compliance scheme, which sets common standards for flexibility services providers (sometimes referred to as ‘aggregators’). By defining and enforcing minimum standards of practice, Flex Assure provides assurance for business energy users of the service they will receive from companies signed up to the scheme.

The UK’s energy sector, in particular the electricity sector, is experiencing a period of unprecedented change.

Established low carbon technologies, such as solar photovoltaics, are rapidly evolving to become more affordable and efficient. Meanwhile, new transformative technologies, such as battery storage and heat pumps, are emerging and maturing. The energy regulator is looking at ways it can make the energy market more accessible (including to councils) in response to a demand for more local control over energy. In addition, there are other energy markets including balancing services and Distribution System Operators (DSO) flexibility markets which some councils are already getting involved in.

These changes present new opportunities for councils.

They can generate revenue and reduce costs through generating their own (clean) energy through assets sited on buildings and land in their own portfolio or in the local area.

There are further revenue- and cost-saving opportunities through:

• energy storage – using batteries to store generated electricity to be used when demand is high (see the section on Energy storage).
• participating in the electricity capacity market
• participating in the balancing services market
• participating in the DSO flexibility markets.

When considering these opportunities, it is important to note that the different markets have different entry requirements (for example, minimum asset size) and the extent of revenue available and any risks/liabilities (for example, penalties for non-delivery) will be different.

Find out more about:

• participating in the Capacity Market
• balancing services
• DSO flexibility markets.

Generating energy

There are a number of options for generating energy at a local level, including:

• electricity generation from photovoltaics or wind turbines
• heat pumps (at an individual building level)
• low carbon heat networks and district heating systems, generating energy across multiple buildings through:
  • large scale heat pumps
  • energy from waste, which involves the recovery of renewable energy in the form of electricity and/or heat from the controlled incineration of residual waste or anaerobic digestion
  • recovery of heat from water, for example, from canals, waste water treatment plants and mine water
  • recovery of heat from data centres
  • combined heat and power (CHP). (Note that CHP is a technology that currently relies largely on gas. Gas use for heating will be phased out of the market as part of heat decarbonisation, but there are other fuel sources for CHP that are being developed.)

Key actions

It is generally much more cost effective to reduce energy demand (through energy efficiency) than to generate the equivalent amount of energy. Therefore, before investing in energy generation technologies, it is prudent to ensure that all cost-effective energy efficiency retrofit opportunities have been implemented.

Councils should investigate what support their energy supply company or PBO (energy framework owner) can offer as part of their service, to help them assess how much cost-effective renewable and low carbon energy generation could be sited on the council’s buildings and land. If the council’s current supplier does not offer these services as part of the contract, ask whether they can be included. Consider including these requirements the next time councils procure the energy supply contract.

There are various options open to councils for raising finance for large-scale energy generation projects, including prudential borrowing, private investors, community share offers or council bonds.

Some councils have established an energy services company (ESCO) to deliver and manage energy generation schemes. These can also be used to supply energy to others within the local area, for example via a council owned and operated heat network (see the energy supply section for further information). This can be either as an arm’s length organisation or in partnership with a private or community ESCO. For example, Bristol City Council’s City Leap partnership is aimed at delivering low carbon energy infrastructure, such as solar photovoltaics (PV), heat networks, heat pumps and energy efficiency measures at scale, all which will help Bristol meet its carbon reduction targets of becoming carbon neutral by 2030.

Investing in ‘energy from waste’ facilities can help councils meet targets for the reduction of waste going to landfill and can be very cost-effective in the long run (see Appendix B: Generating energy).

Power purchase agreements

Councils with energy-generating assets can investigate the potential for Power Purchase Agreements (PPAs) to secure revenue from any surplus electricity generated. PPAs are contracts between a generator and a buyer of that electricity (an energy supplier or a user buying directly). Through this contract, the supplier or user agrees to buy the generator’s power. The terms of power purchase agreements vary. These include the price paid for the power, length of contract and the balance of risk between the supplier and generator. There are different types of PPA including: corporate PPAs, private wire PPAs, virtual PPAs and export agreements.

Case study – Cambridgeshire County Council

Cambridgeshire County Council is aiming to make all the buildings it owns and operates fossil fuel-free by 2025. It’s doing this through a range of opportunities, including developing its ambitious solar energy projects.

The Triangle Solar Farm in Soham was an early pilot case for Cambridgeshire and has since become the council’s flagship project. Construction of the 45,000 panel, 70-acre solar farm began in 2016 and it went live in January 2017. This 12 megawatt (MW) solar farm produces enough energy to power 3,000 homes. Triangle Farm was supported by the council’s successful bid to the Government’s Contracts for Difference auction. It was built with an estimated 25-year life span and will provide an income to the council over its lifetime. The income is used to support the council’s frontline services, thus benefitting the local community.

Triangle was the springboard for Cambridgeshire to expand its vision. New solar projects in the pipeline total 42 MW and will focus on making the most of the council’s assets at park and ride sites, disused landfill sites and across its rural estate.

Case study – Warrington Borough Council

Warrington Borough Council has piloted the use of community municipal bonds, a fundraising tool for local authorities, to fund renewable energy projects. Community municipal bonds allow councils to raise money directly from residents.

More than 500 investors contributed to the bond, with an average individual investment of £1,921. The bond was structured as a five-year investment with a 1.2 per cent return rate, making it competitive with high street savings and investment opportunities. Return payments are made to investors every six months, with the option for these interest payments to be donated back to the council – 11 per cent of Warrington investors did so with their first payment.

Warrington Borough Council has used the funds raised to develop a solar farm and a battery storage facility in Cirencester. Construction on the solar farm began in March 2021 and is due to finished in May 2022. The council anticipates that this solar farm will produce electricity above its annual energy consumption. The surplus will be sold to generate revenue.

Energy storage can take the form of battery storage of electricity, or storage of heat in a thermal store. Energy stores are emerging technologies and payback periods are currently long – but expected to fall rapidly in the next few years, making this technology an attractive option for councils with their own generation assets.

Electricity storage

This involves the installation of battery systems or have them linked to energy generation technologies. This can enable councils to use more of the energy they generate themselves and potentially to participate in the electricity capacity market for example through demand response activities.

Thermal storage

Thermal storage can store excess heat. They exist at different scales: from those for use in individual homes with boilers or renewable heating systems like heat pumps through to much larger thermal storage with heat networks. Their advantage is that they allow heating systems to be used at their most efficient. As flexibility becomes more prevalent (for example, through time-of-use tariffs), thermal storage can also be used so that the heating system can be turned on or up, and off or down, in response to low or high prices respectively. 

With regards to use in a heat network specifically, a thermal store may be a consideration when developing a new heat network. While many heat networks in the UK do not have a thermal store, they are used in some schemes to support the extent to which the heat network can flex in response to price signals. 

Market development

Approximately 1.8 million electric storage heaters are installed in the UK and almost 400,000 hot water tanks are sold annually. Currently in the UK, there is only a market for technologies that store heat for a few hours at most. There are, however, research and development projects taking place in the UK looking at latent heat storage using phase change materials (PCM) and thermochemical heat storage (THS). The cost reduction for sensible heat storage is limited but with more investment and research and development in PCM and THS systems, costs are expected to reduce significantly and commercialisation to also advance.

Sensible heat storage is based on raising the temperature of a liquid or solid to store heat. It is also the most direct way to store heat.

Case study – South Somerset District Council

South Somerset District Council owns one of the largest council-owned battery storage installations, totalling 40MW. The batteries store excess renewable energy production at low usage periods, which would otherwise be wasted, and resupply it to the grid when needed at peak times. The council, working with Kiwi Power, uses the batteries to provide balancing services to National Grid thus generating revenue for the council.

After reducing energy demand through energy efficiency retrofit and behaviour change activities and maximising the amount of energy that can be generated and stored on the council’s estate, the final step is to procure the remaining energy needed from external suppliers.

Councils, and the wider public sector in general, have huge buying power and are also highly desirable customers for suppliers given the guarantee and reliability of payment, something that many businesses cannot offer.

Councils should be aiming to achieve the best value in terms of pricing, but also maximising broader social value from these contracts. A council must determine its own key drivers for procurement, which could include the carbon footprint of the supply, environmental performance of the supplier and social performance of the supplier.

Energy market volatility makes energy procurement more complex than many other categories of procurement, particularly during times of crisis and instability such as at present. A council’s attitude to risk, and the market conditions at the time they choose to go to market, will make a difference to the price that they can achieve. In addition, the length of time for the contract is very important. A balance may need to be struck between stability and value for money.

Traditionally, there were three main contract options for councils to take when procuring their energy supply:

• fixed price contracts, with prices fixed on a given day from the market
• flexible fixed price contracts, where a risk management strategy is followed, but all energy is purchased in advance of each contract year. This allows a fixed and firm price to be applied to invoices
• flexible variable price contracts where a portion of energy is left open to purchase during the contract year. This increases the buying window to achieve lower prices but reduces budget certainty
• fixed price contracts offer an opportunity for budget certainty. However, with extremely high market prices, they also risk locking councils into high delivered energy prices for a sustained period (see Appendix C: Energy procurement).

Things to consider: Councils can procure energy in one of three ways:

• the council procures energy (generally electricity and gas) exclusively for itself, negotiating directly with potential suppliers
• several local authorities work collaboratively to procure energy internally which is similar to the above, with the exception that, by working jointly with a number of councils and external clients, economies of scale may be achieved
• the local authority uses the services of energy purchasing professionals or specialist purchasing organisations – which may include professional buying organisations, public buying organisations (PBOs), or other intermediaries such as brokers.

Using a professional or public buying organisation, or working as a consortium of councils

Many PBOs are collectively owned by councils.

Utilising category expertise, PBOs are a recognised way of benefitting from councils’ buying power. It is also important that councils understand that the category expertise that PBOs offer does not stop at price negotiation, or achieving the lowest price, but extends far wider to contract management with suppliers, billing management and energy management.

There are a number of public buying organisations (PBOs), but the ones below specifically offer energy service frameworks:

• Eastern Shires Purchasing Organisation (ESPO)
• LASER Energy Buying Group
• North East Procurement Organisation (NEPO)
• West Mercia Energy
• Yorkshire Purchasing Organisation (YPO)
• Crown Commercial Service (CCS).

Notes on brokers:

• There are about 2,000 brokers operating in the UK market and they primarily serve small- and medium-sized organisations, although some councils are known to use brokers.
• Historically, brokers sold fixed term standard contracts over periods of 12, 24 or 36 months.
• There are also different types of fee charging structures that brokers typically offer:
  • fixed fee – a broker charges a fixed fee for the service that they offer
  • hybrid offer – the broker’s costs are built into the unit cost of energy
  • inclusive – the cost of the service is built into the unit cost of energy, but not separately identified so the buyer may not be aware of the actual cost of the service.
• Councils should ensure that broker’s costs are transparent, and procurement officers should be able to see what they are paying for in terms of energy and the broker’s services.
• Is the broker independent? Generally, brokers’ fees come entirely from buyers, but there may be cases where brokers are incentivised to promote certain supplier’s products.
• Some smaller brokers may not have access to all of the supplier offerings.
• Concerns have been raised as to whether all brokers have the necessary specialist understanding of the energy market
• Anecdotal evidence suggests that smaller councils and other smaller public sector organisations may not achieve best value from contracts through brokers. These smaller organisations are also targeted by brokers and there is pressure from brokers for councils to ‘buy today’ resulting in councils not fully understanding the contracts before entering into them.
• Smaller councils should therefore consider using PBOs to fulfil their energy contracts, or at least benchmarking their broker’s offer against the PBO offering.

When engaging with suppliers or PBOs (or brokers), consider how they could support the council by:

• providing advice on when is a good time to go to market, and how best to package the council’s requirements
• understanding what attitude to risk the council has rather than just what unit price they can achieve
• undertaking audits across the council portfolio to identify the properties that can benefit most from energy reduction programmes. This is particularly valuable if the council is yet to assess their portfolio and they do not have in-house skills in energy management to undertake monitoring and targeting and data management activities
• assessing the opportunities for energy generation across the council portfolio.
• supporting bill validation and consolidation activities
• ensuring regulatory compliance
• delivering wider social benefits to support council objectives such as green jobs, local energy generation, CO2 reduction activities or fuel poverty alleviation. (Note that some PBOs are committed to supporting the local economy in which they operate.)

When working collaboratively with several councils, consideration should be given to the alignment of needs of all the councils and not simply procurement on ‘the coat tails’ of the lead council. Whatever type of approach is taken it is essential that the council, and the finance director, understands that energy is not a fixed cost about which little can be done. The cost to the council of their energy is made up not only of current prices, and the nature of the contract but, and very importantly, how the energy is managed across the council portfolio. Using 10 per cent less energy is of greater benefit than a five per cent reduction in price, particularly given that saving will remain whilst the price reduction may only be temporary.

Consider using a checklist for procurement tenders around these requirements. It is important to benchmark the various offers of the PBOs and to ensure that they offer the services that the council requires, plus a good customer service offering.

Case study – London Borough of Islington

The London Borough of Islington offers a range of energy services to customers from a range of sectors. One of these is an independent purchasing service using buying techniques to deliver value for money. This includes:

• detailed market analysis to identify the best time to purchase
• obtaining lowest prices from a panel of vetted suppliers
• varying contract lengths and offering fixed or flexible purchasing
• varying buying strategies according to clients’ appetite for risk or price certainty
• negotiation with suppliers around terms and conditions
• aggregated gas purchasing
• standalone energy purchasing or combined with site visits, energy audits and efficiency recommendations
• supply of energy management data or internal reporting
• assistance with invoice disputes.

Adding external clients to the council’s main contract has benefits for both the council, in terms of fee income, and for the clients in terms of potentially better prices by being part of a larger contract and reducing management costs compared with separate, individual procurements.

Case study – London Energy Project

Since 2007, the London Energy Project has enabled its 36 members to deliver significant financial benefits of around £60 million (£1.7 million per average sized council) – through better value for money supplies and improved commercial, social and environmental outcomes from a £0.5 billion aggregated annual spend on essential utilities (electricity, gas and water).

London Energy Project is council-led, council-owned and independent of commercial market influence, operating on a cost recovery only basis to:

• enable London councils to work together effectively and combine their £0.5 billion annual spending power, so authorities get more for less from the supplier dominated utilities market
• equip councils to adopt better solutions (commercial contracts, new technology, internal operations, market innovations) to manage the impacts of increasing utility and regulatory costs within constrained budgets
• benchmark energy prices and services, so councils can be sure they are getting the value for money they expect and take action where they are not
• ensure poor supplier practice does not prevent councils’ efforts to transform operations and reduce back-office costs
• get better social and environmental benefits from essential authority spend, for example apprenticeships, schools’ education packs, good quality green energy, support for low carbon London
• develop and manage LEP member joint procurements, as part of a long-term category strategy, including:
  • improved and transformative energy supply contracts for 2020, to deal with the ever more complex electricity market; making sure councils seize opportunities to control costs and innovate on many levels, and have the right commercial arrangements to deliver complex commodity trading right though to providing certified green energy at no additional cost, or which support and pay more for the onsite generation
  • carbon audit and support, so that councils have a low cost and guaranteed route to regulatory compliance.

There have in the past been examples of councils playing a role in energy supply. This included councils who became fully fledged energy suppliers, or those that offered white label energy supply contracts. The general upheaval in the energy market has meant that this activity has fallen in popularity, but there remains an important role for councils in the supply of energy through heat networks.

Councils’ role in heat networks

The role councils play in heat networks varies, but policy is moving towards them having a greater involvement in heat network zoning and energy planning, as well as delivery of heat network development and operation.

Models of heat network delivery differ. Some councils will wholly fund and own a heat network, using either their own balance sheet or loans from say the Public Works Loan Board. Others might formally contract with the private sector and, in this case, both the council and the private heat network developer may contribute funding towards the project and have a degree of control over it. At the other end of the spectrum, it may be that the council takes no stake in the heat network and doesn’t fund it but does, for example, use its powers in planning to encourage heat networks to be built in its area.

Heat networks can offer many benefits in local areas, contributing to reductions in carbon emissions and fuel poverty, and reduced property maintenance costs.  Council involvement can help to ensure that these benefits are realised. However, it is important to note heat networks are not regulated and the market framework is still in development (see Appendix D: Energy supply).

Case study – East Cambridgeshire

In spring of 2022, Swaffham Prior – a village of 300 homes in East Cambridgeshire – inaugurated one of the first heat networks in an off-gas village. With no connection to the gas grid and 70 per cent of homes relying on oil for heating, Swaffham Prior Community Land Trust and Cambridgeshire City Council partnered to bring renewable energy to the village.

Through the Heat Network Delivery Unit (HNDU) and capital borrowing from the council, £11.9 million was invested into a community heat network powered by thermal energy generated by ground source and air source heat pumps.

This heat network has been a cost effective, low carbon heating alternative which is expected to save around 47,000 tonnes of CO2 per year.

Case study – Gateshead Energy Company

Gateshead Energy Company is the operator of the Gateshead District Energy Scheme, both of which are owned by Gateshead Council. The scheme provides low-cost, low-carbon heat and power to homes, public buildings, and businesses across the centre of Gateshead. Becoming part of Flexitricity’s demand response network means the project will receive in excess of £60,000 per year over the next 15 years, simply by using its flexibility to smooth out peaks and troughs in national electricity demand.

Collaboration amongst public sector bodies across any – or all – of the themes discussed here can bring benefits. Sharing the workload of developing a new initiative can make action possible; understanding legislative drivers can ensure effective compliance; sharing expertise and information about both good and bad practice can improve quality; and grouping together for procurement can produce better value offers and begin to change the market.

One area for collaboration could be benchmarking pricing information between councils as without transparency it is very difficult for councils to know if they are getting a good deal. Historically people have been wedded to their own PBO and it has been difficult to know what offers are available. Therefore, collaboration and benchmarking across PBOs is key.

Collaboration happens most often between geographically close organisations. It can involve councils in different tiers (county councils collaborating with districts); it can also involve councils working with other public sector bodies (such as health trusts, higher education establishments, and the police and fire services). While partners can have different portfolios and energy spends, there will be joint working opportunities, and while several stakeholders involved in this project noted that ‘big is not always best’, working together can have its advantages.

Long-distance collaboration can and does also happen. Councils from different European countries may work together to share ideas and experiences, particularly in areas where action is relatively new to some of them (see Appendix E: Information for councillors).

Things to consider:

• Do not underestimate the time and effort needed to set up and maintain a good collaboration: the outcomes in terms of more efficient and more effective energy projects will be worth it, but they will not happen without it.
• For any given project, some within the group will be able to contribute more than others, depending on expertise, political support and hence time available, and budgetary constraints.
• The organisations choosing to collaborate on one energy-related project may not do the same for all local energy projects: it is important to ensure that, for any project, councils have clear objectives and that these are shared amongst all the organisations that are working together.
• Taking time to develop suitable governance for any collaboration is important to ensure a shared understanding of roles and responsibilities.

The National Advisory Group for Local Government Procurement (NAG) and the Local Government Association (LGA) want to support delivery in this sector through direct actions and encouraging collaboration. Specific areas of action include:

• sharing good practice across the local government sector – this includes the development of:
  • toolkits, including how to build a business case and how to trade in the energy market, and ‘deep dives’ into individual topic areas referenced within this strategy
  • comprehensive case studies
  • training to upskill local government personnel
  • information on how to benchmark savings and services, and key requirements that councils should require of PBOs, third party intermediaries and energy suppliers
• supporting the visibility of free services to local government (for example, Carbon Trust, but also highlighting services from energy suppliers that are in contract with councils already)
• fostering council collaborations and facilitating price sharing across PBOs
• promoting energy related national Government activity and policy development, to ensure that councils can understand how changes to the market could impact on them, for example, engagement with members on a wide variety of consultations
• promoting Local Partnerships (a joint venture between HM Treasury and the LGA) to help the public sector deliver at the local level by supporting the delivery of investment in local infrastructure and local services
• helping councils and funders to collaborate on procurement, for example, making sure that the structure and timing of funding does not result in lots of councils procuring the same expert services at the same time, potentially resulting in lower quality or higher cost bids being successful due to supply shortages, and to help avoid duplication of efforts to secure best value for all concerned
• investigating how the provision of indicative return on Investment (RoI) figures for councils can help councils to achieve best value
• investigating how to ensure further transparency in the market (for example, providing benchmark pricing for technology and PBOs, third party intermediaries and energy suppliers)
• facilitating discussions with relevant stakeholders about developing a set of suggested KPIs for councils to use in this field
• working with Government to ensure clear guidance about use of data; at the moment, there is sometimes triple or even quadruple handling of the same data because of Government requirements, which is inefficient
• working with Government to streamline policies and reduce resource demand on councils, for example, data and toolkits; there are currently different teams working with different requirements.

Monitoring and targeting

• The Carbon Trust's Energy management – a comprehensive guide to controlling energy use presents monitoring and targeting from two perspectives: routine use (on a weekly cycle, for example) which is quick and simple and requires no expertise on the part of the user; and target-setting and diagnosis for users who want to analyse data in more depth.

Employee engagement

• The Carbon Literacy Project's Carbon literacy toolkit for local authorities was funded by the Department for Business, Energy and Industrial Strategy (BEIS) via the Greater Manchester Combined Authority (GMCA).
• Carbon literacy provides learners with an awareness of the carbon dioxide costs and impacts of everyday activities and the ability and motivation to reduce emissions, on an individual, community and organisational basis. The Carbon Literacy Project was recognised by the United Nations at the COP21 United Nations Climate Change Conference in 2015 as one of 100 ‘transformative actions projects’ worldwide that could materially change the way we deal with climate change.
• Learners who successfully complete a day’s worth of approved carbon literacy learning are certified as 'carbon literate'. As part of certification, participants are required to complete an action plan where they must commit to both a significant individual and group action to reduce their carbon footprint. Upon successful assessment, a learner is awarded a uniquely numbered certificate to evidence their Carbon Literacy and confirm that they have met the requirements of the Carbon Literacy Standard.

Retrofitting energy efficiency measures across the council portfolio

• The Carbon Trust offers a wide range of public sector sustainability resources and services.
• Assess where your council is on the energy management journey with the Carbon Trust's Energy management self-assessment tool which includes an energy management matrix and assessment workbook.
• The Carbon Trust's Office energy efficiency guides include lessons which can be applied to local authority buildings and introduces the main energy saving opportunities and demonstrates how simple actions save energy, cut costs and make the most of budgets.
• Salix Finance operates a number of interest-free loan programmes for the public sector across the UK.
• The Salix Recycling Fund aims to increase investment in energy efficient technologies across the public sector. It is a ring-fenced fund with capital provided by Salix, and matched by the partner organisation, to be spent on energy saving projects with paybacks of less than five years.
• ADEPT's Street Lighting Working Group resources include toolkits and case studies.

Energy performance contracts (EPCs)

• The Guide to energy performance contracting best practices helps to identify points for consideration in relation to energy performance contracting, based upon experience from several projects within the UK public sector.
• The Energy performance contract (EPC) guidance note and model contract help organisations navigate the structure, and specific areas, of the Model Contract for Energy Performance Contract (EPC).

Energy efficiency procurement standards

• The Energy technology list (ETL) is a Government list of energy-efficient plant and machinery, such as boilers, electric motors, and air conditioning and refrigeration systems.
• Crown Commercial Service's Public procurement policy guidance outlines directives, regulations, policies and guidance relating to the procurement of supplies, services and works for the public sector.

Generating energy

• Local Partnerships' and Cornwall Energy's Local energy options – a guidance document for local government helps to inform councils about the scale of opportunity available in the changing energy sector.
• CLASP has published a briefing for local authorities on Financing large-scale investment in renewable energy.
• The Association for Decentralised Energy (ADE) provides a range of resources related to decentralised energy including combined heat and power (CHP), district heating and demand side response (DSR).
• APSE Energy’s local authority energy collaboration is a partnership developed by member authorities to bring councils together on a national scale to work on the green energy agenda. Currently, around 60 councils are members of APSE Energy. Members receive a range of benefits including support on infrastructure projects such as renewable micro generation schemes and energy networks.
• The Department for Business, Energy and Industrial Strategy (BEIS) commissioned the Carbon Trust to produce a guide to stakeholder engagement in heat networks. The guide will help councils and other project sponsors understand how better stakeholder engagement can improve project outcomes, and how to put the theory into practice. It offers advice on making the best use of internal resources and how and when to procure external support, including a template procurement specification. Email [email protected] for further information.
• Research conducted by the University of Strathclyde on UK local authority engagement with the energy service company (ESCo) model – key characteristics, benefits, limitations and considerations explores how some UK local authorities have opted to engage with the ESCo model in a bid to enhance their influence over local energy system change and help them to deliver on their political ‘public good’ objectives.
• The Department for the Environment, Food and Rural Affairs' (Defra's) Energy from waste (EfW) – a guide to the debate includes information on different aspects of EfW technology, the purposes and functions of EfW facilities and guidance on how an EfW strategy might be implemented.
• The Renewable Energy Association (REA) has published Energy from waste – a guide for decision-makers.

Energy storage

• The Parliamentary Office of Science and Technology's 2015 Energy storage report outlines the roles of energy storage in the electricity, heat and transport sectors and describes the technologies used from the household level up. It also discusses current barriers and policies for energy storage and potential future uptake.
• The Renewable Energy Association's (REA's) 2015 report Energy storage in the UK – an overview provides more information about applications.

Demand side response (DSR)

• Power Responsive is a stakeholder-led programme, facilitated by National Grid, to stimulate increased participation in the different forms of flexible technology such as demand side response (DSR) and storage. It has a range of resources to help organisations interested in participating in DSR services.
• Power Responsive's Short guide to how your business can profit from demand side response can help organisations to understand what DSR involves and how they can benefit from participating in DSR services.
• The Major Energy Users Council's guide on Profiting from demand side response can help organisations to benefit from DSR.

Internal procurement of energy

• Ofgem's information on Types of business energy contracts provides guidance on how business energy contracts differ from domestic (household) contracts.
• The Energy Managers Association’s (EMA's) Energy managers' guide to electricity procurement offers an overview of the energy procurement process and principles for good practice.
• The Government offers guidance and services in energy procurement for public sector organisations through the Crown Commercial Service (CCS), for example, its guidance on Buying energy – options for public sector buyers. CCS agreements are in line with the findings of the Pan Government Energy Project, which recommends that all public sector organisations adopt aggregated, flexible and risk-managed energy procurement. CCS takes the delegated authority to purchase gas and electricity on behalf of central Government and public sector organisations, creating an aggregated committed volume to take to the wholesale market.
• The Crown Commercial Service (CCS) offers a wide range of agreements covering the purchase and management of electricity, gas, fuels, water, renewable energy and related services.

White label supplier approach

• Ofgem published a review, in 2015, of the Treatment of white label providers in the domestic retail market.

Becoming an energy supplier

• ESG Global supports new entrants to become Ofgem-accredited energy suppliers.
• The Government and Ofgem have published Guidance for independent energy suppliers, including key documents and events that impact on independent suppliers and contact details for relevant policy leads.

Introduction

There are significant cost-effective opportunities for councils to reduce their spend on energy by investing in energy efficiency, improving energy procurement practices, and participating more actively in the energy market. There are also opportunities for councils to generate income from their energy related activities.

What difference can taking action make?

Energy action by councils can offer benefits to the councils themselves, and to their local communities.

To protect council finances, councils can:

• procure gas and electricity at lowest cost
• reduce spend through investment in energy efficiency
• generate income by:
  • investing in revenue-generating technology such as renewable energy
  • participating in the electricity capacity market
  • setting up a council-owned energy supply company.

To support local economies, councils can:

• help local businesses cut costs and increase competitiveness by working with them to help them reduce their energy demand and procure energy at best cost
• include clauses within procurement strategies that seek to reward providers who will benefit the local economy, for example, those who are offering practical training opportunities or apprenticeships
• invest in local renewable energy generation which can be linked to local jobs in installation and maintenance
• buy energy from, or invest in, local community energy schemes.

To minimise environmental impact, councils can:

• reduce energy demand through efficiency measures
• purchase clean energy and / or generate clean energy.

Key questions councillors should ask

Energy use

• What does the council spend? Where are there opportunities to make changes?
• Is there a team internally that manages energy? If not, is there someone who could help with this, for example, with a sustainability or climate change function?

Technologies

• Are street lights LED?
• Have charging points for electric vehicles been installed?

Energy contracts

• Have we secured a Best Value contract?
• How is that demonstrated?
• Have we compared it with the best in class?
• How will Best Value be assessed going forward (as circumstances change)
• If a supplier is offering a free service (for example, bill validation), has there been an investigation about how this is actually paid for (given that nothing is actually free)?
• Is the process transparent? Are there any hidden charges, margins (for example, in the case of energy from waste, there are charges for energy generation but also charges for councils to deliver waste)?
• Has a benchmarking exercise been undertaken and, if so, how? For example, was it based on a particular date and criteria to ensure a comparison of like with like? Since much of the energy price is commodity driven, savings on last year’s costs are irrelevant.
• What is the approach to market and what alternatives were considered?
• Is it a fixed or flexible contract?
•  How is the deal structured in terms of risk, and are the risks outlined up front?
• Do we need to take appropriate external advice to understand how the industry operates and what opportunities exist?

Ways of working on energy projects

• Has collaboration with other councils/public sector organisations been considered?
• Is the council working with other councils in the area, to pool resources and maximise market power?
• Is the council working with housing providers and schools (including academies) to provide them with support and help them access Best Value energy, for example, through buying via the council?
• Are there other organisations that could be brought into the council’s buying group? (For example, one consortium of councils uses the method of asking: ‘Would the council have to step in if that organisation failed?' If the answer is 'yes', then the organisation could be added in to the buying group.)