This module will focus on the main financial and non-financial reporting considerations for organisations as they strive to become more energy efficient and sustainable.The module provides participants with information on current trends within Australia and Asia Pacific around sustainability reporting and the value of assurance reporting to shareholders and addresses current hot topics of the carbon scheme and integrated reporting and highlights the impacts these will have on organisations financial accounting and reporting functions.It is intended to provide participants with an introduction into the various reporting frameworks applicable to them as they move towards becoming more sustainable.
Use these questions to stimulate discussion and set the scene for the seminar.
Use this slide to demonstrate how energy is lost across a typical supply chain
Provides a simple example – that of replacing an incandescent light bulb with a compact fluorescent light bulb and highlights the benefits flowing through the electricity supply chain.
There are many benefits that energy efficiency can deliver to a company. Despite these benefits however, it can be difficult to get the level of senior management support that is required to resource and support energy efficiency improvement. It is important to present energy efficiency as a means of managing risk as well as delivering business opportunities. Although your audience may not be senior managers themselves, many are likely to present the importance of energy efficiency to senior people in their organisation. That is why a ‘strategic risk’ perspective is presented here.
Electricity prices have increased by about 43% in NSW over the last three years.1 Prices are expected to rise by about this much again over the next 3 years.2 Most of this impact will occur next year. Under current arrangements it is possible that prices for some customers could increase by up to 27% from 1 July 2011 alone.Figure 2.2 shows the movement of prices in each State and the Northern Territory since 2001/02. It shows that in 2000/01, NSW had the lowest electricity prices of any state. NSW prices are becoming relatively more expensive and while not the highest are now above the national average. NSW Electricity Network and Prices Inquiry Final 2010 http://www.dpc.nsw.gov.au/__data/assets/pdf_file/0005/118904/NSW_Electricity_Network_and_Prices_Inquiry_Report.pdf
Apart from ‘known’ influences on electricity prices, future price increases will also be affected by less predictable factors. These include the introduction of a two stage carbon pricing mechanism comprising a fixed price carbon period commencing 1 July 2012 transitioning to an emissions trading scheme commencing 1 July 2015. Such a scheme will almost certainly result in increased wholesale energy costs and electricity prices. This may be partially offset by the market having already started to factor in the current uncertainties about the introduction of an ETS into its investment decisions. The impact of the introduction of an ETS on electricity prices will also be lessened if that is accompanied by the phase out of existing sustainable energy schemes. The trends in fuel costs over time are also uncertain. Coal prices are predicted to decline in real terms over the long term, despite the current spike in export prices. The trend in gas prices over time is uncertain given the large scale expansion of coal seam methane production, although there are current forecasts suggesting sizeable increases in prices. The impact on electricity prices in NSW will depend on whether and how quickly there is a shift in the mix of fuels that supply generators in the National Electricity Market (NEM). The Minerals Resource Rent Tax is also scheduled to be introduced from 1 July 2012 at the same time as the extension of the existing Petroleum Resource Rent Tax. The details of how these taxes will be implemented are still being developed. Specific impacts on wholesale energy costs and electricity prices may not be significant in an internationally competitive commodities market especially since the tax is profit based. However, any regulatory change that materially increases the cost of fuel used for electricity generation will place upward pressure on electricity prices.
Discussion (time permitting)
Business outcomes are different from financial benefits. Identifying business outcomes helps understand what behaviours / business practices need to change.......
1. Introduction toEnergy EfficiencyModule 1
2. Disclaimer This material has been developed as part of the UTS Business School and Ernst & Young „Leadership & Change for Energy Efficiency in Accounting & Management‟ project. The project is supported by the NSW Office of Environment & Heritage as part of the Energy Efficiency Training Program. For more information on the project, please go to: http://www.business.uts.edu.au/energyefficiency/. This presentation is for educational purposes only, and does not contain specific or general advice. Please seek appropriate advice before making any financial decisions.2
3. Agenda► Introduction► What is Energy Efficiency?► Importance of Energy Efficiency► Clean Energy Carbon Pricing Policy► Role of the Accountant and Manager► Introduction to Change Management ► Fundamentals of Change Management ► Identify the Change/Business Outcomes ► Change Planning3
4. Outline 5.0 Contr ol 1.0 Define and monitor ener gy ener gy baseline Ener gy Efficiency 2.0 Measur e 4.0 Implement 2 ener gy data Oppor tunities 3 3.0 Analyse efficiency oppor tunities4
5. Learning objectives for this session:► Describe the importance of energy efficiency and sustainability practises in today‟s business environment► Identify the key risks and opportunities associated with energy efficiency programs► Identifythe barriers to implementing energy efficiency and sustainability practises within the organisation► Describe the role of the accountant and business advisor in integrating sustainability practises across an organisation► Introduce the importance of communication skills, teamwork skills, problem-solving skills in the role of the accountant in driving energy efficiency and sustainability measures► Discuss the fundamentals of change management and how one can be a successful agent for change within an organisation 5
6. Over to you► How would you define energy efficiency?► What are the main sources of global energy and their contribution to overall energy usage percentages?► What does energy efficiency mean to your organisation?6
7. Energy Efficiency
8. What is energy efficiency?► Energy efficiency primarily refers to end-use efficiency.► It involves delivering equal or greater levels of “energy services” with less energy supply.► Energy services include cooling, heating, lighting, driving motors, operating equipment and appliances.8
9. The boundaryThe electricitysupply chain9
10. The boundaryEnergy efficiency example End-use energy efficiencydelivers benefits across the electricity supply chain 1
11. Why is this important?11
12. Business risks► Managing rising costs► Carbon pricing► Compliance with legislation► License to operate12
13. Rising electricity costs 13
14. Managing rising costs► Think about impacts to future electricity costs: ► Carbon scheme ► Uncertain fuel prices supplying electricity generators ► Minerals Rent Resources Tax ► Extension of the Petroleum Resource Rent Tax 14
15. Clean Energy carbon pricing systemCore design elements► Carbon price from 1 July 2012 fixed at $23 ► Growing at 2.5% real terms in 2013 and 2014 ($24.15 and $25.40)► From 2015 a flexible price determined by market (cap and trade) ► Price floor established - $15 (growing) ► Price ceiling established - $20 above the International carbon price 15
16. Clean Energy carbon pricing systemCore design elements► Carbon price from 1 July 2012 fixed at $23 ► Growing at 2.5% real terms in 2013 and 2014 ($24.15 and $25.40)► From 2015 a flexible price determined by market (cap and trade) ► Price floor established - $15 (growing) ► Price ceiling established - $20 above the International carbon price ► Increased costs in the supply chain ► = flow through impact on your business ► Energy efficiency is the most cost- effective way of reducing the impact of a price on carbon 16
17. ComplianceSome relevant current legislation:► National Greenhouse and Energy Reporting Act 2007► Energy Efficiency Opportunities Act 2006► Renewable Energy (Electricity) Bill 2009► Building Energy Efficiency Disclosure Act 2010► Energy and Utilities Administration Act 1987 No 103► NSW Water and Energy Savings Action Plans► Competition and Consumer Act 2010 (formerly Trade Practices Act 1974)► And other accounting, reporting, and auditing standards 17
18. Compliance► Exposure draft ISAE 3410 Assurance Engagements on Greenhouse Gas Statements► Environmental Claims in Advertising and Marketing Code► ISO and other quality assurance guidelines 18
19. Business Risk: Licence to OperateSome stakeholder perspectives:► Investors – Can energy efficiency provide a proxy indicator of good management?► Community – Why isn‟t this organisation acting on cost effective opportunities to reduce greenhouse gas emissions?► Regulators – Perceived market failures justify intervention 19
20. How are leading organisations responding? 20
21. Industry Case Studies► NAB – achieved carbon neutrality in Sept 2010, this has driven their energy efficiency & GHG reduction programs► Rio Tinto Iron Ore – At Yandicoogina the business case for metering was developed over a 6 month period by the site electrical engineer► Foster‟s – energy efficiency projects have been driven by a 10% target to reduce energy consumption per unit of production by 2011 compared to a 2007 baseline 21
22. The role of the accountant and businessmanager
23. Your role:You are key to effecting and supporting any change withinan organisation towards becoming more energy efficient.► What energy efficiency initiatives exist within your organisation?► What do you see as the barriers to implementing more energy efficiency measures?► How can your role support your organisation adopting a more sustainable business strategy and implementing more energy efficiency projects?► What additional skills do you believe you need to effect such measures? What does it mean to be a ‘change agent’? 23
24. What is change management?Change management is a structured approach to shifting /transitioning individuals, teams, and organizations from a current stateto a desired future state.It is an organisational process aimed at helping employees to acceptand embrace changes in their current business environment.Not to be confused with:In project management, change management refers to a projectmanagement process where changes to a project are formallyintroduced and approved (e.g. change requests to project scope orfunding).Hiatt, Jeff. "The definition and history of change management". http://www.change-management.com/tutorial-definition-history.htm.Filicetti, John (August 20, 2007). "Project Management Dictionary". PM Hut. http://www.pmhut.com/pmo-and-project-management-dictionary. 24
25. Why is change management needed?1. Simple change....The Group Property function in an organisation changes all light-bulbsto energy efficient light-bulbs.2. More complex change....Individuals are asked to reduce their stand-by consumption fromappliances at work and business units are asked to purchase energyefficient equipment (which is more expensive than other choices)? What is changing for individuals and how much assistance is needed to help them embrace / embed this change? 25
26. Many theoretical approachesKotter (2006) eight stage processStage 1: establishing a senseof urgency Stage 2: creating the guiding coalitionStage 3: developing a visionand strategy Stage 4: communicating the change visionStage 5: empowering broad-based action Stage 6: generating short- term winsStage 7: consolidating gainsand producing more change Stage 8: anchoring new approaches in the culture 26
27. Many theoretical approachesGalpin (2006) the change management process modelStage 1: establish the need for Stage 6: pilot test recommendations changeStage 2: develop and disseminate a Stage 7: prepare recommendations vision of the change for rolloutStage 3: diagnose / analyse the Stage 8: roll out changes current situation Stage 9: measure, reinforce andStage 4: generate recommendations refine changesStage 5: detail recommendations27
28. A simple approach to Change Management 2 Change Execution Communications 3► Change Strategy Deployment ► Communications► Impact Who is comms Plan Assessment impacted and► Change Plan what is the plan for change? Stakeholder comms What are the Are business outcomes that leaders and ► StakeholderStarting Point: are sought from sponsors Engagement the change? engaged? Plan Business Outcomes Stakeholder Planning Engagement 1 4 28
29. Starting Point: Identify the desired businessoutcomes?Starting point for your Change Management activities:► Identify the business outcomes desired from the project or the change. Desired Future Current State State Describe in terms of: Discussion: how would you describe ► Business KPIs the future state if you are asking individuals to switch off their appliances ► Operational KPIs instead of using stand-by? ► Behaviours 29
30. Business outcomes versus benefitsrealisation?Changes in Operational Organisation-wideindividual‟s business benefits:behaviour: outcomes / changes in ► Lower emissions► Individual business practices: chooses to turn ► Lower energy off computer at ► Lower energy consumption night technology is► Individual adopted chooses to drive ► Fuel efficient Focusing only company vehicle practices are on the financial more efficiently adopted business case will not deliver ► Computers are change turned off at night 30
31. Business outcomes also help promote thechangesBusiness outcomes should be the starting point for yourchange planning.Additionally, they…► Promote the case for change► Turn cynics into supporters► Build momentum► Can pay for the investment in any change► Create a unified cause – brings people together under a common objective► Maintain focus and help guide away from disruptive interventions 31
32. Change PlanningChange Planning typically involves three steps and threeformal outcomes: Change Change Impact Strategy Change Plan Assessment (IA)► Typically required ► Critical document ► Defines all the for large change ► Describes for all activities to help projects where impacted processes each impacted cost estimates for what the change will process change activities be for that process transition from are required as a the current to the part of project desired future funding request state 32
33. Discussion....(i) Individuals are asked to reduce their stand-by consumption from appliances at work; and(ii) Business Units are asked to purchase energy efficient equipment (which is more expensive than other choices)?What should be considered in the Change Impact Assessment?► What behaviours need to change? How do you make the change sustainable?► What enforces / encourages these changes in behaviours?► What benefit is there for individuals / the Business Units?Who needs to take action to make this change happen?► Who is best to drive / lead this change, and why?► Who would be the most appropriate Change Sponsor and why? 33