Energy procurement in Lewisham

23rd May 2006

Richard HurfordGroup Manager - Sustainable Resources

richard.hurford@lewisham.gov.uk

Beacon Status for Sustainable Energy

Summary of presentation

•Current energy issues•The London energy procurement picture•History of Lewisham energy procurement, •Types of procurement tested•Contracts at present•Green procurement / biodiesel•Achievements•Conclusion

Key energy issues and drivers

High energy pricesOil reached a record $75 dollars per barrel in April 2006.

Carbon reduction• Global - Climate Change - Kyoto agreement• Europe - EU Building Performance directive• National – Building regulations• Local - finance ; cost reduction

– effective purchasing– energy efficiency– staff comfort – efficiency, environmental performance– maintenance of assets– awareness raising

National history

• Privatisation of energy companies in mid/late-1980’s.• Introduction of competition in early 1990’s.• Further deregulation of market in stages throughout 1990’s, overseen by the regulator OFGEM.• UK energy market far more developed than in most other countries. Considered more efficient than state-run energy supply which continues elsewhere.• Successful in reducing prices. Suppliers now work to small margins.• some of the highest gas prices in Europe – why?

London energy procurement

• London Boroughs Energy Group (LBEG) is the officer group representing energy managers and energy procurement officers across London, with a membership of approximately 40. LBEG is currently chaired by Richard Hurford from Lewisham.

• London Utility Consortium (LUC) was established in 1990 to work in partnership with Laser Kent County Council to achieve lower energy prices.

• Laser Kent County Council currently purchase energy for approximately 65 authorities, including 24 London Boroughs, plus district and county councils Most London Boroughs chose to use KCC -Laser at this time as it was initially the only option.

• LBEG has worked on the London Centre of Excellence review with Haringey and the Office of Government Commerce (OGC)

History of Lewisham energy procurement

• Following the de-regulation of the energy industry in the early 1990’s Lewisham took the first opportunity possible to buy lower priced energy, initially buying gas via KCC-Laser.

• Lewisham’s contractual relationship with Laser continued until 1998/99, when a decision was taken my Executive Committee to buy energy independently, in order to give the borough autonomy over the tendering process. However the Borough stated in the strategy produced at that time that it might start to use KCC- Laser again in the future.

• Lewisham has since tendered its own contracts, with electronic

procurement trialled in recent years.

Pros and cons

• Until 1992Negotiation, however basically took prices given by monopoly suppliersNo choice

• 1993 until 1998Mostly used KCC-Laser. Advantage; minimum work for internal officersDisadvantage; you do not see the tender returns

• 1999 until 2002In-house paper tender, advertisement - OJEU notice Advantage; you have full autonomy and other in-house officers can participate in the processDisadvantage; additional in-house officer work

• 2003 to dateactual tender outsourced to an agent, those tried in Lewisham include; Lloyds-TSB, Energyquote, UX-online, Utilix

E-tendering summary

E-tendering pros and cons

Advantage; agents have a good relationship with suppliers and can stimulate the market. Disadvantage; additional cost, however this is hopefully outweighed by the better prices

Summary of e-tendering agents• All can do the job• Generally their pricing is a little haphazard ie you can talk the

price down• Some companies have better software / internet sites than others• Do not sign a long term contract, but only appoint for each job

Lewisham tender process

• Full EU tendering exercise is undertaken for contracts at least once every three years. Price checks are taken with the contracts against KCC- Laser and by using the John Hall associates as a benchmark. By tendering on its own, Lewisham was able to achieve 100% green electricity by November 2000, which was one of the achievements that gave the Borough Beacon Status in 2005. Another decision that has brought significant savings was to accept a 3 year contract for small site electricity in October 2004; this will have saved the Borough an estimated £2.8 million when compared against three one year contracts.

• Lewisham has been seeking ‘best value’ on its energy procurement activities for many years, however, technological advances and the changing market have continued to alter the ‘rules of the game’. The borough was one of the first local authorities to use electronic auctions and could make a claim to be one of the leading boroughs on energy procurement in London. This has been practically confirmed by the award of Beacon Status for Sustainable Energy and Carbon Trust Energy Efficiency Accreditations.

Energy contracts

• Lewisham has energy contracts for gas, electricity and fleet motor fuel. Gas and motor fuel prices are both tendered and supplied on single contracts. Electricity is more complex and for historic, technical and best value reasons there are a number of contracts. It is likely that the number of contract will be rationalised in time, however, there are good reasons why these contracts have been tendered individually to date. The total estimated value of energy contracts at present is approximately £7.27 million. Tender exercises are carried out for the following Lewisham contracts:

• Gas Contract – currently supplied by Corona Energy. All gas supplies are included in one contract which is due for renewal on 1st October 2006. This contract has recently been advertised in an OJEC Notice and is due to be awarded in July. Current value approximately £2.87 million per annum.

Electricity contracts

• All have been tendered and awarded to Scottish & Southern Energy, bar cyclo control sites, that remain with EDF London Energy

• Electricity Contract (Large Sites) – Over 100kW site contract is due for renewal on 1st October 2006. This contract has been advertised in an OJEC Notice and is due to be awarded in July. Current value approximately £0.2 million per annum.

• Electricity Contract (Small Sites) – Contract started 1st December 2004 with fixed prices for 3 years. Prices are currently very low because they were fixed before steep price rises in summer 2005. Current value approximately £0.44 million per annum. Tendered with Electricity Contract (Housing) - Contract started 1st December 2004 with fixed prices for 3 years. Current value approximately £1.35 million per annum. These were fixed before steep price rises in summer 2005. Combined estimated savings from having placed three year contracts are £2.8 million over 2 years.

• Electricity Contract (Housing Cyclo-Control Supplies) – These supplies were tendered in 2004 but it was not possible to move them from the incumbent supplier, EDF. Current value approximately £0.15 million per annum.

Long-term green electricity contract

• Currently supplied by Scottish & Southern Energy. • The new contract will ensure green electricity from wind

turbines is provided for a group of large sites and for street lighting at a discounted rate.

• The contract is due to be awarded in early June, with a start date of 1st October 2006. Lewisham will be the first council in the country to enter such an agreement.

• New contract value approximately £1.33 million per annum.Advantages/benefits

• Receive green electricity at the same price or lower than brown electricity. Continue to buy renewable electricity.

• Benefit from a long term, stable contract.• Continue to reduce carbon dioxide emissions by

approximately 19,000 tonnes of per annum.• Be able to ‘badge’ a least one renewable energy generator

with Lewisham’s name/logo.• generate positive publicity from entering into such an

arrangement with a supplier.

Automotive Fuel Contract • This contract was awarded earlier this year for a contract start date

of 1st April. The latest contract was the first to purchase 5% biodiesel for Lewisham vehicles.

• Biodiesel is greener than conventional diesel, gives better fuel economy and was obtained at the no extra cost.

• Current value approximately £0.92 million per annum.• Long term looking to recycle Used Cooking Oil, working in

partnership with other South-East London Boroughs on the Bistro projectAdvantages

• Biodiesel counts as low or zero carbon emissions because it is a plant based fuel

• The cooking oil has already been used for production of food and is thus a waste product, with a negative value for disposal purposes.

• Once the project is set up it will be a truly sustainable cycle, converting a waste product into a valuable fuel.

Biodiesel purchase

• EU LEAP green procurement project• Joint automotive vehicle fuels contract put out by Lewisham via

OJEC in March 06• Tendered on Lewisham volume of 1.2 million litres ULSD,

40,000L unleaded petrol, may require substitution with biodiesel at 5%, 10% or 20%.

• Participating organisations - Lewisham, Sandwell Metropolitan Borough Council, ESPO (Eastern Shires Purchasing Organisation) and members of the LCSG (London Contract and Supplies Group)

• 13 expressions of interest, 7 tenders received back

Biodiesel prices

• The actual delivered price on contracts will be– Rotterdam spot market price per litre

Plus– Margin added by supplier (which has been tendered)

• Example 75pence per litre spot price plus 2 pence per litre margin, equates to 77 pence per litre. For Lewisham’s 1.2 millions litres this equates to a total annual cost of £0.92 million.

• Total tendered costs however would only be 2 pence times 1.2 million litres, or approximately £24,000.

• Winning tenderer was Petroplus, biodiesel the same price as diesel

• Spread of prices on Lewisham volume was £18,000 • 2% mpg efficiency in Lewisham this a further saving of £18,00

per annum• All London Boroughs can access this tender

Green Procurement

• The Biodiesel contract was part of the a LEAP project that Lewisham, Sutton and Southwark have been involved for 3 years. It is a European project, to work on best practice green procurement issues across 13 European ‘cities’. Lewisham has tendered two projects for this, one for Biodiesel, as mentioned and one for TFT computer screens.

• Lewisham has been developing an officer Guide to Green Procurement for some time. This will be available for other boroughs to use in the near future. Key officer who worked on this has recently joined;

• Camden on their Centre of Excellence for Green Procurement. This is an excellent project that will hopefully assist with green procurement across London. Encourage Boroughs to get involved through the London Contracts and Supplies Group.

Achievements

• Effective energy procurement despite constant change in energy market and changes in regulation

• 1st London borough to buy 100% green electricity in 2000, maintained until 2004

• Intend that Lewisham will be the first borough to buy deep green electricity under a long term badged contract.

• Current 3 year electricity contract saves £2.8 million when compared against 3 one-year contracts

• Tested many electronic purchasing agents• Continue to strive for Best value• Biodiesel contract for all of London• Quality work on green procurement – LEAP project

Vision & Strategy

Lewisham has been addressing sustainable energy issues for many years. The Borough has a comprehensive;•Environmental statement•Energy Policy•Affordable Warmth Strategy•Environmentally Responsible Procurement Strategy•draft Climate Change Strategy •draft Guide to Green Procurement.

This work has all been focused around the work of the Sustainable Energy Unit (SEU) incorporating the South East London Energy Efficiency Advice Centre

; political commitment and authority

EnergyPurchasing; Key information source/system driver

Training / forum

Monitoring & Targeting

Energy surveys

Technical installations

Review Policy

; Local Energy Manager / champion

Produce statistics and find savings

; EU BPD - feed to local capital programme

; local ACTION and delivery from centrally tendered spec.

; continuous, with annual report to stakeholders

Partnerships EfficiencyEffectivenessTransparency

Lewisham sustainable energy management

Conclusion

• Energy prices are at record levels due to supply and demand, market confidence and other issues.

• Lewisham have achieved good value for money on energy procurement and have trialled many procurement methods in an attempt to find further savings.

• Lewisham would be happy to use alternative procurement systems, once it has been shown that they are more effective. Officers have a healthy scepticism on claims for massive future energy savings, in particular because of current rising prices. However, due to the rapidly changing market, it is believed that there could be potential for savings at some point and thus officers continue to leave all purchasing doors open as potential future solutions.

• Possible route for savings is; Gas shipping is being investigated by the OGC, which would bring further savings

• More rapid decision making on e-auctions, ie decision within one hour of quotation

• Work on green procurement issues generally• Buy biodiesel through Lewisham tender

Further information

Thank you

Richard Hurford

Group Manager - Sustainable Resources

richard.hurford@lewisham.gov.uk

020 8314 7247