Scottish Government

Evaluation of the Central Energy Efficiency Fund

Executive summary

Scottish local authorities currently spend over £100 million every year on energy. Most local authorities could use less energy, cutting carbon emissions and making significant cost savings by improving the efficiency of their building services and plant. As well as benefiting the environment, these savings would free up budget from frontline services and contribute to efficient government.

In 2004, the Scottish Executive launched a new public sector initiative: the Central Energy Efficiency Fund ( CEEF). £20 million was provided over two years to implement energy efficiency measures which will reduce the carbon emissions across the public sector in Scotland. Within CEEF, £15 million is allocated to the 32 local authorities in Scotland. CEEF supports a rolling loan fund, administered at local level, which funds individual capital projects which meet scheme criteria of energy saving potential and payback.

The Scottish Executive has decided to carry out an interim evaluation of the overall effectiveness of CEEF support to local authorities to date. The evaluation has a number of specific objectives. These relate to both the impacts of the programme to date, and also the effectiveness of the programme in delivering these impacts.

Methodology

The evaluation methodology has comprised two related activities: a desk based analysis of the savings achieved to date; and a consultation with stakeholders involved in the CEEF programme. The evidence from these activities is presented in this report.

Projects implemented to date

As of 19th September 2006, 537 projects had been submitted through the on-line application process. The majority of projects have been implemented in schools, offices and swimming pools: key local authority energy using buildings.

There is considerable variation in the number of projects implemented across Scotland's local authorities: most have made considerable progress, but a few have yet to commit much of their allocated funding.

There is also a wide variation amongst the technologies deployed. Building controls were the most commonly used measure - although they are not the most cost effective measure, due to relatively short lifetimes.

Across all projects the average payback on the up-front capital expenditure was 3.25 years and the overall lifetime cost of carbon saved was £66/tonne for the fund.

Savings

Projects implemented to date have saved an estimated £1.3 million or 3,609 tonnes of carbon. Taking into account lifetime impacts, the projects implemented to date could potentially save £22.9 million or 80,451 tonnes of carbon.

If project implementation continues at the current rate, by 2010 lifetime savings of almost £104 million, or 392,820 tonnes of carbon will have been realised. Changes in fuel price will clearly influence the cost savings.

The actual performance of CEEF falls significantly short of the Scottish Executive's original aspirations. However, examining these in more detail suggests they are impossible given the current level of CEEF funding.

The study has also looked at how effectively the fund is being put to use. By the end of 2008 about £16 million will have been invested. However, because of the rolling nature of the fund a further £6 million will still be available. Therefore taking measures to increase take up would increase the effectiveness of the scheme.

Effectiveness of the scheme to date

Discussions were held with local authority staff to learn their experiences of CEEF to date. Perceived barriers to take up were examined including the terms and conditions of the scheme and local authority procurement procedures.

• Identifying projects

A wide variety of ways of identifying projects were reported, drawing on either monitoring and targeting systems or focusing on payback.

• Authorising projects

In many local authorities, considerable effort is needed to secure agreement before a project can be taken forward. In some cases the chief executives are clearly strongly behind CEEF and this eases approval of projects.

• Procurement

Considerable differences were reported for procurement practices in different local authorities and, in particular, in the value of project at which competitive tendering is required. All those spoken to stated that they followed procurement guidance.

• CEEF terms and conditions

Two issues were raised as requiring modification; quarterly repayments and five year minimum payback.

• Guidance from the Scottish Executive

Now that the scheme is up and running, start up issues are largely resolved and those interviewed said the guidance given to them from the Scottish Executive has been good.

• Support from the Carbon Trust

A mixture of views were expressed on multi site assessments. Some raised concerns that the resulting report was too generic and insufficiently detailed, although one local authority felt the assessment was very useful.

Putting the scheme in context

Of other initiatives which currently address energy efficiency in local authorities two are particularly relevant - the Central Energy Efficiency Fund operating in Northern Ireland and Salix's "Invest to Save" revolving fund.

These schemes potentially offer good practice experiences that can be used to improve the Scottish Executive's CEEF scheme.

A comparison has been made on a project basis of the cost effectiveness of CEEF Scotland with CEEFNI and Salix. This indicates average paybacks of 2.9 ( CEEFNI), 3.2 ( CEEF Scotland) and 3.5 (Salix) and cost/tC/annum of £641 ( CEEFNI), £1,205 ( CEEF) and £1,354(Salix).

Northern Ireland might be expected to have a shorter payback as they cannot fund all potential projects and so select the most cost effective. The higher cost effectiveness of carbon abatement in NI arises due to their greater use of high carbon fuels.

Finally, it must be noted that a comparison of the overall programme cost effectiveness has not been made: CEEF is intrinsically low cost as it is a loan scheme, with an automatic project approval system and low overheads. By contrast the other schemes are both grant rather than loan schemes and both require project approval management procedures.

Issues and opportunities

The issues arising from this evaluation were considered and some options identified to develop the fund in the future:

• Developing a more strategic direction for project selection, perhaps by supporting the construction of a Scottish benchmarking system, and drawing on any lessons from the Carbon Trust's LACM programme.
• Smoothing the way to easier project set up in the local authorities, by encouraging high level commitment.
• Changing from quarterly to annual repayments
• Considering a revision of the payback criteria, particularly for local authorities who have made substantial progress.
• Minor changes to the CEEF web site, to improve clarity and enable more accurate evaluations of the impact of CEEF in the future.
• Regular updates to chief executives on local authority performance, to encourage high level participation and support for CEEF.
• Requiring additional information on actual energy savings achieved, to feed into future evaluations.
• Reviewing the use of Carbon Trust multi site assessments, in conjunction with the local authorities to ensure they meet the needs of the local authorities.

Looking forward, CEEF has built up a considerable momentum. The use of a loan fund presents a very effective model. At the current rate of progress by 2010 the fund will have invested about £25 million in energy saving technologies. Nevertheless due to its rolling nature, a further £6 million will still be available to fund energy saving projects, which would give rise to further substantial savings.

Optimising the scheme to ensure these funds are put to use could help realise these savings and ensure CEEF produces the most effective and cost effective results.