Agenda item

1.            Andy Morgan had had been working in energy efficiency and procurement for 25 years since graduating as an Energy Engineer. Andy has been with LASER for 12 years. His role was initially focussed on energy efficiency within the KCC estate and Kent Schools. Andy was now 2nd in command of the LASER business and directly responsible for 3 of LASER’s service areas:

 

            Energy Bureau Services (Team of 9)

·                     Mandatory energy and carbon reporting

·                     Invoice validation

·                     Energy data management

            Energy Surveying (Team of 3)

·                     Provide mandatory Display Energy Certificates for KCC, School and other LASER customer sites

·                     Provide Energy Surveys and reports on saving energy

            LED Energy Efficient Lighting service (Team of 3 plus contractor)

·                     Provide a lighting upgrade service to LASER customers

·                     Typically reducing electricity used for lighting by 60% to 70%

 

2.            Andy gave a presentation using overheads.  Local Authority South East Region (LASER) was a Commercial Service created by KCC in 1989 to procure gas and electricity through the newly deregulated energy market. LASER has now grown such that it buys around £400 million worth of energy per year for Councils and other public bodies (including Universities and NHS Trusts) across the UK.

 

3.            In addition to energy procurement KCC LASER provides related services around contract management, energy invoice validation, mandatory Govt. energy and carbon reporting, and energy saving services.

 

4.            KCC now has only 4% of turnover.  LASER buy £450 million of energy per annum.  This had produced £28 million of savings per annum to customers.  This is generated income by Commercial Services to KCC.  This is carried out by procuring energy using sophisticated “flex techniques by consistently watch the energy markets.

 

5.            LASER had access to wholesale markets through two energy suppliers which was totally transparent.  This minimised supplier fees and maximised market opportunities.

 

6.            LASER also provided a number of additional services including:

Energy invoice management – This involved the invoices from suppliers being check and a bill then being sent out on LASER headed paper.

 

7.            Data and reporting – This service offered data on how much the customer was spending on energy and how much they were using.

 

8.            LASER offered site surveying and certification; and

 

9.            Installing low energy (LED) lighting – This was supplied to schools and other councils across the country.

 

10.         Andy considered that energy security was a broad issue but broke this down into two key issues:

 

            Long Term – Looking at primary fuels and generation including Gas, Coal, Nuclear, Wind and Solar; and

 

            Short term – Managing the winter peaks by having a fast response electricity generation and fast response demand reduction.

 

11.       He referred to a graph that showed electricity generation and the mix of energy sources. This showed an equal split between the use of nuclear, coal and gas.

 

12.       Andy advised on the current government policy direction.  He explained that the government was pro nuclear and pro interconnectors [this was the export of energy between European countries and interconnectors with Scandinavian hydro generation. Andy advised that there was slower growth in renewable. 

 

13.       Andy referred to a recent government statement that expected coal to drop to zero by 2030.  The Green lobbyist outlook says that there was nothing to drive this opinion and there was nothing else to fill the gap that coal would leave.

14.       Andy considered that if coal did drop to zero something else had to fill that gap.  Nuclear would take a while to come up to the necessary level which would mean that gas would need to fill the gap that coal left.  He considered that depending on gas was not less frightening considering the recent threat from Russia of withdrawing the gas supply to various countries.

 

15.       Andy explained the slide headed “Growth in gas dependency” – import dependency on Gazprom.  The UK imported 20% of its gas from Russia, far less than other European countries.  The highest importers in Europe were Serbia, Bulgaria, Czech Republic Finland and Belarus.

 

16.       Japan imported nearly all of its liquefied natural gas.  This would be shipped.  Following an earthquake in Japan in November 2011 and a Tsunami, nuclear electricity generation stopped and LNG imports rose by 25%.  Countries including Australia, Qatar, Malaysia, Indonesia and Russia supplied liquefied gas to Japan.  There was a slight increase in the global gas price when Japan paid the price.

 

Short Term – this winter

17.       Andy advised that the forecast demand for 2015/16 was 5% which was significantly more than last year and significantly less than years before.  He considered that it was difficult to realise how important this was and difficult to get a view.  He did not envisage the National Grid seeing this as an issue.

 

That capacity = ready to use.

Mechanism to demand less

 

18.       Andy referred to showed one weekday of 24 hours indicating the use of nuclear, wind, coal and gas.  The peak was the use of gas and coal and was above interconnectors.  The peak demand was between 16:00 and 19:00  in the winter days.  Electricity was the most expensive.

 

Supply v Demand

19.       The Government agency (Ofgem) “booked” capacity through the “Capacity Market Auction”.  This was an annual auction 4 years in advance of demand.

 

20.       Demand growth financial incentives to reduce peak demand.

Andy considered that there was now a growing demand at peak times it was going to become more expensive to use electricity between 16:00 and 19:00 in the winter days.  There had been schemes where customers were paid to drop demand at peak times.

 

21.       Andy advised that Guildford Council Civic Office had set up that a third party could click a button to switch of  xxx of the capacity.  There was also the capacity to swith the lights off in 100 buildings.

 

22.       The National Grid best value for money was reducing the use at peak times.

 

In terms of how KCC responds

23.       New generation – LASER or KCC would not be involved in large scale generation. Opportunity in new generation was limited so there was a need to focus efforts.  Incentives for small scale were reducing.

 

24.       Demand Reduction – the incentives were increasing.  KCC was changing its lighting to LED lighting which was 60% reduction in lighting electricity use.  There was a capital investment cost typically repaid in 5 years.

 

25.       Andy advised that local authorities were able to receive interest free borrowing on energy efficient savings but had chosen LED lighting for now.

Short Term, Winter Peaks

New tariffs to benefit load shifting – Saving from

 

26.       Andy explained that work had been carried out with energy suppliers for the winter peaks.  Most paid day and night rates which did not show on the bills received. 

 

Exploring new financial incentives

27.       Payments for allowing 3^rd parties to control customer kit eg ventilation plant or back-up generators run through diesel.

 

28.       The use of batteries was being explored  - There was now the technology for batteries to stay charged and the energy discharged to the grid.

 

Question and Answer session

Q – Liquid gas is being shipped from Oman, I have concerns that the liquid gas being shipped is vulnerable and I have concerns about the security in storage.

 

A - Andy considered that he had not heard of any shipping of liquid gas being lost at sea and was sure that insurers took this issue seriously.

 

Q- There was concern that we may not be able to keep the lights on

Andy advised that the National Grid was publicly owned in 1989-1984.  It was now a private business that was regulated by the government.   They were required to keep the lights on.  Andy advised that their profit was regulated too.

 

Q – Biomass – Were there any incentives for school and corporate business to reduce their energy usage if they receive energy cheaper.

A – Andy advised that LASER procured their fuel but it was still a large part of their costs.

 

Q - Do you have any influence in reducing their consumption?

A – Andy explained that school ran their own budgets.  He was sure that they had heard about biomass but it was about selling the message to the schools.  It was a good thing for them to save money.  The school pay if they leave their lights on.

 

Q - Do you supply to the domestic market?

 

A – Andy advise that LASER did not supply to the domestic market.  It kept an eye on that market but concluded not to enter into that area.

 

Q – Southend Council had set up a company.  Could KCC use LASER as our company to supply to the elderly in the community?

 

A – Andy considered that the County Council was a trusted brand but the question would be how much benefit there would be.  You would be funding an advice service.  To generate income there were ways to do that but not necessarily providing a better service.

 

Southend Council had partnered with OVO Energy – This is a white supplier and there would be a small income to the council.  This may encourage users to change supplier. They could use the Switching Scheme.  That scheme could deliver income to Council.  A supplier expects to pay £50 per customer if it is a group you can save the £50 per customer.

This is not necessarily the best price in the market.  Nottingham County Council had created their supplier “Robin Hood”.  The press release said “… no profit.  Director worked for free…”  They did not expect to get the best price on the market.

 

Q  With the LASER Business Model do we charge a fee?

A.  LASER provides the bill LASER adds on a small margin and send the bill    this is all transparent.

 

Q What do you do for Kent businesses?

 

A. Luminar is the sister to LASER who deal with the SME market.  LASER ring around businesses advising how it can reduce their energy bills and they get a small cost for that service.  This had been very successful in reducing their bills, although savings in Kent had not grown as fast as LASER would have liked. [Andy agreed to submit further information to the Select Committee if required].

 

Q  What in your view can KCC do to procure energy?

 

A.Reacting to incentives government is putting in place.  Andy considered that the government was central to this.  Demand reduction is what the local authority should be doing.

 

Q.With small companies coming to market national grid regulated local network operators regulated suppliers

 

A. Those businesses do not deal with infrastructure eg OVO they pay national grid billing customers.  They are not worried about infrastructure they are the billing agents.

 

Ofgen pay some to sit there not to be used.

 

Q.  What is LASER doing to promote energy?

A.LASER does not talk about energy but talks about avoiding.  It also reacts to incentives central government provides.