2409 FEY esco rep 1-x (Website)

The Low Carbon Economy:
A delivery framework for
local authorities

1 FOREWORD 4
2 EXECUTIVE SUMMARY 6
3 BACKGROUND 8
4 INTRODUCTION 10
5 ENERGY SERVICE COMPANIES 12
5.1 Southampton Council - Utilicom Partnership 14
5.2 Kirklees Energy Services 16
5.3 Mill Energy Services 18
5.4 Toronto Better Buildings Partnership 20
6 FRAMEWORK DEVELOPMENT 23
7 PROPOSED DELIVERY FRAMEWORK FOR LOCAL AUTHORITIES 25
- Local Strategic Body 26
- Energy Advice Centres 26
- Energy Efficiency Funding 26
- Renewable Energy Special Purpose Vehicles 26
- Strategic Body - Joint Ventures 26
8 ADDITIONAL CONTENT 27
This document is a summary version and does not contain the legal advice given by
Brodies on establishing a delivery framework. However, access to the full report is
available at www.fey.org.uk/escos
A summary of the Additional Content is shown on page 27.
FEY Future Energy Yorkshire
CERT Carbon Emissions Reduction Target
CHP Combined Heat and Power
CIC Community Interest Company
CRC Carbon Reduction Commitment
ESCo Energy Service Company
JV Joint Venture
LLP Limited Liability Partnership
RES Regional Economic Strategy
SPV Special Purpose Vehicle
TAP Technical Advisory Panel
Acronyms Contents
2 3

1 FOREWORD 4
2 EXECUTIVE SUMMARY 6
3 BACKGROUND 8
4 INTRODUCTION 10
5 ENERGY SERVICE COMPANIES 12
5.1 Southampton Council - Utilicom Partnership 14
5.2 Kirklees Energy Services 16
5.3 Mill Energy Services 18
5.4 Toronto Better Buildings Partnership 20
6 FRAMEWORK DEVELOPMENT 23
7 PROPOSED DELIVERY FRAMEWORK FOR LOCAL AUTHORITIES 25
- Local Strategic Body 26
- Energy Advice Centres 26
- Energy Efficiency Funding 26
- Renewable Energy Special Purpose Vehicles 26
- Strategic Body - Joint Ventures 26
8 ADDITIONAL CONTENT 27
This document is a summary version and does not contain the legal advice given by
Brodies on establishing a delivery framework. However, access to the full report is
available at www.fey.org.uk/escos
A summary of the Additional Content is shown on page 27.
FEY Future Energy Yorkshire
CERT Carbon Emissions Reduction Target
CHP Combined Heat and Power
CIC Community Interest Company
CRC Carbon Reduction Commitment
ESCo Energy Service Company
JV Joint Venture
LLP Limited Liability Partnership
RES Renewable Energy Strategy
SPV Special Purpose Vehicle
TAP Technical Advisory Panel
Acronyms Contents
2 3

As a nation, we are responding by setting challenging
targets for renewable energy and carbon emissions
reductions and backing these up with policies and
measures to drive through a transformation in the way
we generate and use our energy resources.
The Renewable Energy Strategy sets out an
unprecedented challenge for the UK, stating that 15%
of all the UK’s energy should come from renewable
sources by 2020; in 2006 our capacity was believed to
be 1.5%. If we are to meet our 2020 target, we require
billions of pounds to be invested in new energy
projects over the next 12 years. As a region, Yorkshire
and Humber has set its own target of a 20-25%
reduction in greenhouse gas emissions by 2016 and
has identified minimum targets for renewable energy
capacity at local authority (LA) level.
Local authorities are uniquely placed to provide vision
and leadership in taking forward emission reduction
projects. It is estimated that they directly contribute
approximately 1% of national CO2 emissions and have
influence over much greater levels of emissions in their
communities from business, transport and
householders. According to DEFRA, 100 out of 150 top
tier authorities have set targets to reduce CO2
emissions from their communities by 4-15% as part of
the new Local Area Agreements which apply from
April 2009.
National Indicators 185 (percentage CO2 reduction
from LA operations), 186 (per capita CO2 emissions in
the LA area), 187 (tackling fuel poverty) and 188
(planning for climate change) are the key performance
measures affecting authorities. LA’s are putting in place
strategies and delivery plans to ensure success. This
report draws on the experience of a number of LA’s
and views from private sector businesses in developing
a framework for the delivery of sustainable and
renewable energy projects, key to delivering CO2
emission reductions and helping authorities to achieve
their objectives under the indicators.
These new challenges may at first appear daunting
and complex; however, there is a definite case for LA’s
to see climate change and decentralised energy as
opportunities for economic growth, in terms of new
businesses, job creation and longer term stability.
Climate change has been
described as the greatest ever
threat to society.
Urgent action is needed if we are to reach our targets
and deliver the maximum improvement to our
communities. We believe that our proposals in this
report represent a robust framework within which LA’s
can bring forward projects for development, leverage
private sector finance and ensure that LA’s and their
communities can benefit from the investment in
renewable energy over the coming decade.
Joanne Pollard
Managing Director
The Yorkshire and Humber Sustainable Futures Co. Ltd.
1 Foreword...
4 5
© Denzil Watson/BBC South Yorkshire
Brightside Lane, Sheffield, June 2007

The aim of this report is to provide
guidance and advice to Yorkshire and
Humber’s local authorities in
establishing frameworks for the
development and ownership of low
carbon energy initiatives. It is designed
to explain the reasons for and
practicality of local authorities
employing Special Purpose Vehicles,
Joint Ventures and Energy Service
Companies (ESCo’s) for delivering low
carbon projects.
The report presents a number of practical case studies as
well as summarising the work undertaken by Future Energy
Yorkshire (FEY) in partnership with the region’s local
authorities, via an ESCo steering group. The purpose of
this group was not only to encourage knowledge transfer
but to determine common themes and aspirations,
enabling the development of a LA framework for project
delivery.
The findings of this research suggest that it is possible for
LA’s to adopt delivery frameworks for project development
and deployment. Given the importance of the energy/low
carbon agenda, a focused vehicle for taking forward and
implementing strategy and policy in those areas is seen as
advantageous.
It was found that a strategic body should not implement all
of its projects through a single procured private sector
partner as it would be likely to result in a loss of control and
ownership at local authority level. Also, relying too heavily
on a preferred partner may restrict the variety of projects
which might be proposed by the strategic body.
Findings suggest that the strategic body should be
established as a private company limited by guarantee and
with an asset lock to ensure that income generated by a
strategic body will be ploughed back into further initiatives.
Public procurement law is likely to apply to a strategic body
and probably also to special purpose vehicles (SPV’s)
which it may establish for specific projects. Where the
strategic body or SPV is providing utility services the
utilities procurement rules may apply.
Expert advice has shown that the legal/corporate structures
for any subsidiaries of a strategic body are for the strategic
body to determine. However, funding considerations and
relevant levels of expertise are likely to result in joint
venture approaches, with the private sector being used for
individual projects.
The practicality and legality of the proposed delivery
framework is discussed under Additional Content (page 27)
which is supplementary to this report.
While there are likely to be services which FEY may be able
to provide to strategic bodies, its most important role may
well be that of bringing together, coordinating and
facilitating the region-wide panel. That panel should act as
an interface between the various public sector strategic
bodies and private sector partners in the region, so that
that knowledge and expertise is shared about possible
opportunities for the private sector.
Can you tell me what
an ESCo actually is?
Energy Service Companies (ESCo’s)
An ESCo is a company that provides a customer
with energy supply solutions (such as heating and
lighting) rather than simply gas and electricity. An
ESCo could provide a customer with a
combination of energy-saving advice and
equipment, renewable generation, planned
maintenance, fuel and finance. The Government
recognises that ESCo’s offer a useful model for
market delivery of its energy objectives, as they
can bring together different areas of expertise,
skills and investment to facilitate the cost-effective
development and implementation of distributed
energy systems.
2 Executive Summary...
6 7

FEY is a business unit within the
Yorkshire and Humber Sustainable
Futures Company, a company limited by
guarantee and a wholly owned subsidiary
of Yorkshire Forward, the regional
development agency.
Future Energy Yorkshire has been established to secure the
economic opportunities arising from new and renewable
energy technologies and projects across the Yorkshire and
Humber region and to deliver greenhouse gas emissions
reductions to meet regional targets.
Future Energy Yorkshire establishes commercial partnerships
with private and public sector organisations to fill knowledge
gaps, bridge market failures and bring to fruition renewable
energy projects that will deliver significant greenhouse gas
savings and economic benefits to the region.
Brodies LLP is a commercial law firm which provides legal
guidance to both public and private sector organisations.
Brodies’ core business areas comprise of real estate,
corporate, banking and finance, IT, employment, litigation
and private client law.
Brodies won the tender to evaluate the legality of the
proposed delivery framework for local authorities.
Brodies demonstrated extensive experience on the legality
of public sector delivery vehicles, ESCo’s and
public/private partnerships, some specific examples are as
follows:
• London Energy Partnership;
• Renew Services Limited;
• Wycombe District Council;
• Nottingham Energy Partnership;
• Plymouth City and Southwark Borough Councils;
• Aberdeen Heat and Power Company.
3 Background...
8 9

The climate change and low carbon
agenda is quickly gathering pace.
The Government is keen to create local
accountability for carbon emissions
and encourage the deployment of
renewable/low carbon technologies.
The obligations and expectations placed upon LA’s can be
found in greater detail in each of the following key strategy
and policy documents:
• Climate Change Bill;
• Carbon Reduction Commitment;
• Energy White Paper;
• Local Government White Paper;
• Supplementary Planning Policy Statement 1;
• Building a Greener Future; and
• Code for Sustainable Homes.
As a region, Yorkshire and Humber has set its own
challenging targets to reduce greenhouse gas by 20-25%
by 2016 (Regional Economic Strategy, see diagram below)
and has identified minimum targets for renewable energy at
a local authority level.
The Climate Change Bill puts into
statute the UK’s targets to reduce
carbon dioxide emissions through
domestic and international action by at
least 80 per cent (once 60%) by 2050
and at least 26 per cent by 2020
(currently under revision), against a
1990 baseline.
From January 2010 the Carbon Reduction Commitment
(CRC) will apply mandatory emissions trading to large
commercial and public sector organisations, including
LA’s, with annual electricity use above 6,000MWh. The
scheme will feature an introductory phase of three years,
during which allowances will be sold at the fixed price of
£12/tCO2.
In the Local Government White Paper, the Government
committed to implementing a new streamlined
performance framework. “The backbone of the new
framework is the 198 indicators against which local
government will begin to report its performance from April
2008. The national indicator set is designed to measure
progress against agreed national priority outcomes in local
area agreements. From 2008 this will become a much more
powerful framework for devolved governance, with local
areas better able to determine how to coordinate and
deliver services in their area. Pooled funding, for example,
will enable delivery partners to work together towards
shared outcomes for their citizens.”
Action by LA’s will be critical to the achievement of the
Government’s climate change objectives. Local authorities
are uniquely placed to provide vision and leadership to
local communities by raising awareness and influencing
behaviour change. In addition, through their powers and
responsibilities (housing, planning, local transport and
powers to promote well-being) and by working in
partnership, LA’s can have significant influence over
emissions in their local areas.
Local authorities and their communities have an
opportunity to be sustainable energy pioneers, as set out in
Planning Policy Statement 1. Local authorities are
significant purchasers of energy services and can therefore
act as a catalyst for energy projects. Leading by example
LA’s also have the potential for their portfolio of buildings to
provide long-term supply contracts, ensuring security for
community energy projects.
More homes are needed to meet the rising demands of a
population that is both increasing and ageing. The
Government has set a target to provide three million more
homes in England by 2020 which will include more
affordable homes to rent or buy. The Government has
stated that all new homes should be zero carbon by 2016;
these targets cannot be delivered by energy efficiency
improvements alone, constituting a huge challenge for
both the developer and the local authority.
Local authorities are now at the forefront of the low carbon
agenda; most are feeling the pressure to act strategically,
deliver lower cost energy and reduce carbon emissions.
The issues are complex and there is growing need for
action. FEY invites LA’s to consider the use of locally based
strategic bodies to interpret local and wider policy
requirements and manage delivery mechanisms, such as
Energy Service Companies (ESCo’s).
4 Introduction...
10 11
100
90
80
70
60
50
40
30
20
10
0
MillionTonnesCO2Equivalent
Year
1990 2000 2010 2020 2030 2040 2050
Target
Emissions
RES Target
20-25%
Reduction
National
Target 85%
Reduction
National and Regional CO2
Targets

The climate change and low carbon
agenda is quickly gathering pace.
The Government is keen to create local
accountability for carbon emissions
and encourage the deployment of
renewable/low carbon technologies.
The obligations and expectations placed upon LA’s can be
found in greater detail in each of the following key strategy
and policy documents:
• Climate Change Bill;
• Carbon Reduction Commitment;
• Energy White Paper;
• Local Government White Paper;
• Supplementary Planning Policy Statement 1;
• Building a Greener Future; and
• Code for Sustainable Homes.
As a region, Yorkshire and Humber has set its own
challenging targets to reduce greenhouse gas by 20-25%
by 2016 (Regional Economic Strategy, see diagram below)
and has identified minimum targets for renewable energy at
a local authority level.
The Climate Change Bill puts into
statute the UK’s targets to reduce
carbon dioxide emissions through
domestic and international action by at
least 80 per cent (once 60%) by 2050
and at least 26 per cent by 2020
(currently under revision), against a
1990 baseline.
From January 2010 the Carbon Reduction Commitment
(CRC) will apply mandatory emissions trading to large
commercial and public sector organisations, including
LA’s, with annual electricity use above 6,000MWh. The
scheme will feature an introductory phase of three years,
during which allowances will be sold at the fixed price of
£12/tCO2.
In the Local Government White Paper, the Government
committed to implementing a new streamlined
performance framework. “The backbone of the new
framework is the 198 indicators against which local
government will begin to report its performance from April
2008. The national indicator set is designed to measure
progress against agreed national priority outcomes in local
area agreements. From 2008 this will become a much more
powerful framework for devolved governance, with local
areas better able to determine how to coordinate and
deliver services in their area. Pooled funding, for example,
will enable delivery partners to work together towards
shared outcomes for their citizens.”
Action by LA’s will be critical to the achievement of the
Government’s climate change objectives. Local authorities
are uniquely placed to provide vision and leadership to
local communities by raising awareness and influencing
behaviour change. In addition, through their powers and
responsibilities (housing, planning, local transport and
powers to promote well-being) and by working in
partnership, LA’s can have significant influence over
emissions in their local areas.
Local authorities and their communities have an
opportunity to be sustainable energy pioneers, as set out in
Planning Policy Statement 1. Local authorities are
significant purchasers of energy services and can therefore
act as a catalyst for energy projects. Leading by example
LA’s also have the potential for their portfolio of buildings to
provide long-term supply contracts, ensuring security for
community energy projects.
More homes are needed to meet the rising demands of a
population that is both increasing and ageing. The
Government has set a target to provide three million more
homes in England by 2020 which will include more
affordable homes to rent or buy. The Government has
stated that all new homes should be zero carbon by 2016;
these targets cannot be delivered by energy efficiency
improvements alone, constituting a huge challenge for
both the developer and the local authority.
Local authorities are now at the forefront of the low carbon
agenda; most are feeling the pressure to act strategically,
deliver lower cost energy and reduce carbon emissions.
The issues are complex and there is growing need for
action. FEY invites LA’s to consider the use of locally based
strategic bodies to interpret local and wider policy
requirements and manage delivery mechanisms, such as
Energy Service Companies (ESCo’s).
4 Introduction...
10 11
100
90
80
70
60
50
40
30
20
10
0
MillionTonnesCO2Equivalent
Year
1990 2000 2010 2020 2030 2040 2050
Target
Emissions
RES Target
20-25%
Reduction
National
Target 85%
Reduction
National and Regional CO2
targets

The precise role and responsibilities of
an ESCo are tailored to meet the needs
of the specific project or initiative. In
general, ESCo’s are used to deliver the
following objectives:
• CO2 reduction;
• Renewable energy projects;
• Energy savings;
• Energy efficiency services;
• Energy advice; or
• Tackling fuel poverty.
However, this list is not exhaustive and
one of the main benefits of an ESCo is
its flexibility.
The use of the word ‘company’ in the title can sometimes
be misleading. In fact the organisation need not be a
company formed under the Companies Act. Usually an
ESCo is a company limited by shares or by guarantee, but
in some cases it may instead be an industrial and provident
society or a trust.
ESCo’s may be used to oversee the financing,
construction, operation and maintenance of the system.
However the precise responsibilities of the ESCo will be
tailored to meet the needs of the individual scheme.
An Energy Service Company (ESCo) is not a magic wand
that makes an unviable project viable, however, an ESCo
may take a different view on acceptable rates of return and
risk than other companies.
The structure of an ESCo will depend on the specific
details of the project or purpose, and/or be influenced by
the attitudes towards funding and risk. As with most
businesses, the organisation’s structure can also be
influenced by the degree of experience and knowledge
within the ESCo’s ownership or by the sheer scope of the
project or service.
An ESCo may be 100% privately owned or 100% publicly
owned, or a public/private partnership where shared
funding, risk and expertise come together to present the
best solution for all parties.
“Traditionally, energy
companies have prioritised
financial benefits over other
objectives. Their need to
deliver shareholder value
obliges them to require
financial returns that
marginalise technical options
which could provide lower
carbon impacts and better
energy services to end users.
Over the years various
communities – either groups
of residents, housing
associations or local
authorities, sometimes in
partnership with energy
companies – have sought to
develop new models that
re-balance these priorities in
favour of the public good.
Generically, these models
have come to be known as
Energy Service Companies
(ESCo’s).”
Energy Service Companies...5
12 13
ESCo
When delivering
technically
complex solutions
Project not
mainstream
business
Lack of skills
and
resources
Project requires
rapid delivery
Project may require
operational
responsibilities
Returns may be
long term
Project may be
capital intense
Why use an ESCo?
Michael King
Associate Director, CHPA
Chairman, Aberdeen Combined Heat & Power Co.

5.1
Aim...
A competitive price for businesses and
an affordable price for householders,
whilst making significant reductions in
the city’s carbon emissions.
Southampton City Council intends to
advocate sustainable development,
through demonstrating its commitment
to energy efficient services and
sustainable energy solutions.
Structure...
Mechanism...
Southampton Geothermal Heating Company Ltd was
created through a co-operation agreement between
Southampton City Council and Utilicom (a specialist
energy management company). The ESCo is solely owned
by Utilicom so as to minimise risk for the local authority.
Utilicom’s obligation was to finance, construct and operate
the scheme’s initial development, and it had a reciprocal
obligation to co-operate with the Council in later, wider
development. For its part, the Council made available very
valuable city centre land for a well, wellhead equipment
and a sizeable heat station building. It granted licences and
wayleaves for laying distribution mains and assisted with
the planning processes. It also established a
multi-disciplinary project team to assist in the development,
and made bids to the European Union for financial support
for the scheme.
Outcome...
A geothermal well is used alongside a CHP generator to
provide energy to local residents and businesses. 11,000
tonnes of carbon emissions are avoided annually and the
council benefits from a profit share arrangement which is
reinvested into other energy programmes.
Southampton Council and
Utilicom Partnership...
14 15
ESCoSouthampton
Geothermal Heating
Company Ltd.
Gas CHP
Finance
Energy
Efficiency
Geothermal
Energy
Southampton
City Council
Private
Sector Partner
ESCo
Customers
Heating, Cooling
& Electricity

West Yorkshire
Housing
Partnership
Other
Local
Authorities
Aim...
The key areas of work are housing,
small businesses and renewable
energy. The principal objectives are:
reducing greenhouse gas emissions,
alleviating fuel poverty, raising
awareness of energy and
environmental issues and creating
local employment opportunities.
Mechanism...
Kirklees Energy Services (KES) was established in May
2000 by Kirklees Council to deliver quality services to local
households as part of the European Union SAVE II
programme. Kirklees Energy Services is a not for profit
company limited by guarantee, in effect a social enterprise.
During its initial years KES has successfully delivered a
wide range of initiatives and projects on behalf of the public
sector, equating to over £10 million spend.
In July 2008 KES was successful in obtaining the
prestigious Energy Saving Trust Advice Centre contract to
provide independent and impartial energy advice to
households in South and West Yorkshire over the next
three years.
Outcome...
The approach of Kirklees Council demonstrates that a
proactive local authority can support the development of
fledging companies for the benefit of the local community.
This approach has proven to be such a success that KES
was awarded the EU ManagEnergy award for 2008.
Kirklees Energy Services are strong advocates for the
partnership approach, minimising risk to public sector
organisations, whilst focussing on delivering the most cost
effective solutions for a low carbon society.
Kirklees Energy Services...
16 17
Structure...
ESCoKirklees
Energy Services
CORE SERVICES
• Project management
• Advice centre
• Information maps
• Energy surveys
• Energy certificates
Kirklees
Metropolitan
Council
Approved
Contractors
“Hard to
heat”
Free insulation, gas
connection, solar thermal,
ground source.
“Warm
zone”
Free loft and/or
cavity insulation.
“Affordable
warmth”
Free central heating for
households in fuel poverty,
free gas connection.
“Energy
loans”
Interest free loans
for energy efficiency
improvements.
HOUSEHOLDERSHOUSEHOLDERS HOUSEHOLDERS HOUSEHOLDERS
The diagram below shows only a fraction of the
current programmes KES is delivering, for more
information please visit the KES website
www.energy-help.org.uk
5.2

Lowry
Renaissance
Ltd
Aim...
To meet the commitment of the
developer to ensure that the
refurbished apartments are net zero
carbon and that carbon emissions from
ground floor commercial properties are
minimised.
Mechanism...
Lowry Renaissance created an ESCo (wholly owned by the
residents and tenants of the building) to operate and
maintain the renewable energy assets and to create
revenue to cover ongoing costs including plant
replacement. Lowry partnered with ESD (a specialist
energy consultancy) to determine the most cost effective
solution. European grants support the installation of solar
PV and UK grants support the biomass CHP project;
however the majority of investment risk is borne by Lowry
Renaissance.
Outcome...
All occupants are currently served by a 50kWp photovoltaic
system, a private wire grid connection, communal gas
boilers and water from an on-site borehole. Biomass CHP
is due to come online in the near future to provide heating
and electricity. This will result in approximately a 600 tonne
reduction in CO2 emissions annually. Various energy saving
measures, including high specification windows, insulation
and mechanical ventilation heat recovery were also
installed. ESD have gone on to develop subsequent ESCo
schemes principally in the residential market.
Mill Energy Services...
Structure...
ESCoMill Energy
Services Ltd
Solar PVBiomass
CHP
Borehole
Water Supply
Finance
Energy
Efficiency
Titanic Mill
Management
Company
ESCo
Customers
Heating, Drinking
Water & Electricity
5.3
18 19

Energy
Efficiency
Office
Vestar
BESTo Group
Ameresco
Canada
Aim...
The City of Toronto, Canada’s largest
municipality, was committed to
promoting and implementing energy
efficiency, building renewal programmes
and other initiatives in order to address
the challenge of global warming and its
climate change impact. In January 1990
an official commitment was made to
reduce the city’s net CO2 emissions by
20 per cent, relative to 1988 levels, by
the year 2005. The newly amalgamated
City of Toronto reaffirmed its goal,
readjusting the base year to 1990 to
align itself with the Kyoto Protocol.
Mechanism...
In 1996 the city authority and two Canadian energy supply
companies formed the Toronto Better Buildings Partnership.
The partnership employed several contractors to install new
technology (boilers, air conditioning, lighting etc.), renovate
buildings, increase energy efficiency and provide training.
The City of Toronto began by retrofitting its own buildings. In
1996 the first non-government building of the BBP pilot
project (Metro Toronto YMCA) was retrofitted with these new
technologies. The first major private sector building - First
CanadianPlace - was retrofitted in 1997. The full-scale BBP
project began in 1999, with the participation of the Toronto
Dominion Centre.
• Interest-free loans were offered to public and non-profit
building owners;
• The programme incorporated innovative financial strategies
beyond traditional energy service financing to enhance the
attractiveness of the programme to building owners, the
energy service community and the financial community;
• Prequalifying of energy management firms facilitated the
process;
• Loan repayment insurance removed a barrier to obtaining
financing;
• Participation was also encouraged by guaranteeing
savings.
Outcome...
636 existing buildings are now part of the scheme, which has
led to operational savings (energy use etc.) of $19 million per
year. The measures implemented have resulted in reducing
carbon dioxide emissions by 200,500 tonnes per year.
Structure...
Toronto Better Buildings
Partnership...
20 21
Finance
Canada
Infrastructure
Works Programme
ESCo
Customers
10 Year Energy Contract,
Ventilation, Glazing
& Insulation Training
Energy
Efficiency
Renewable
Fuel Use
Building
Renovations
Atmospheric Fund
Private
Sector
Partner
Private
Sector
Partner
ESCoBetter Building
Partnership
5.4

6 Framework Development
“In my opinion delivering a district
energy scheme does not require a
partner or a partnership, however, it
does make life a lot easier and the
probability of success,
I think, is much greater.
Delivery can be complex and the
partnership route is one that works
and works particularly well.”
In autumn 2007, FEY conducted a
series of workshops for local authorities
within the region and subsequently
formed the regional ESCo steering
group.
In running the workshops and forming the steering group it
became clear that different local authority members have
different drivers for the development of strategic bodies
and see differing ownership structures and roles for
strategic bodies.
The main aims of the ESCo steering group are as follows:
• Development of model(s) to deliver the functions
required of ESCo’s by LA’s. This may include models for
the ownership of other energy assets (e.g. wind
developments) that deliver revenues to support ESCo
operations;
• Development of appropriate structures for delivering
ESCo’s, ensuring integration with other related activities
of LA’s;
• Identification of services and support required by LA’s to
bring forward projects and development thereof;
• Development of a procurement strategy for ESCo
services.
The group discussed developing a common approach to
developing legal frameworks and it was recognised that
there were benefits in authorities working together even
when local priorities differed. A generic structure was soon
developed, however a number of legal and practical
questions remained unanswered and required the
appointment of a specialist service.
Acting on behalf of the steering group members, FEY
tendered legal support services and appointed Brodies LLP.
Consultation...
Brodies attended an ESCo steering group to identify and
address each authority’s key questions in adopting a
delivery framework, common topics included:
• their views on the establishment of an arm’s length
strategic body;
• their respective level of participation in that entity;
• any concerns about on/off balance sheet treatment;
• any issues in relation to possible trading activities;
• attitude to risk; and
• the potential role of FEY in delivery.
Mike Smith
Commercial Director, Utilicom
Former Executive Director for Southampton City Council
22 23

Further consultation with the steering group identified
some specific issues for local authorities, these are listed
below:
• There was general agreement with the concept of
establishing a local authority strategic body, but one
concern was expressed that this body should not be
given a remit which could put it at odds with council
policy and activities;
• There was general agreement, on the local authority
level of participation, that substance rather than form
should prevail in terms of the level of local authority
influence, control and financing;
• There was an even split of views on whether
membership should be restricted to the local authority
alone or extended to other public and voluntary sector
bodies;
• There was no view that the impact of the introduction of
International Financial Reporting Standards to the public
sector would necessarily impact on preferred structures;
• When considering SPV’s, risk and the apportionment of
risk as between the public and private sector would be
assessed on a case by case basis;
• On the possibility that certain projects might involve the
local authority in commercial trading, the view again was
that this would be assessed on a case by case basis;
Continued...
• If a portfolio of activities and projects were built up over
time underneath the strategic body, there would be
concerns about these projects potentially being on the
balance sheet of the local authority. There were views
that this could not be assessed at this stage, that off/on
balance sheet issues would be only a secondary
consideration or that they would be only one
consideration;
• There were a number of differences in the nature of
officer (as opposed to elected member) buy-in that
would be required for the setting up of a strategic body,
but nothing that was considered unachievable;
• On the role of FEY, all agreed that it is a potential source
of technical and commercial support and that it could
have a role in sharing information and best practice
across strategic bodies on a regional basis, while there
was an even split on whether FEY should be a member
of an individual local authority strategic body.
These concerns are discussed by Brodies in some depth
within the Additional Content (see page 27).
24 25
Energy
Advice
Centres
Energy
Efficiency
Programme
Funding
Renewable
Energy
Project
(SPV) (POSSIBLE JV’S)
ESCo
JV
Regional
Panel
LA Strategic Bodies
Board, Steering Group,
FEY, TAP Members
Technical
Advisory
Panel
LA Strategic Bodies
Board, FEY,
Private Sector
Local
Authority
Other Public
Sector
Stakeholders
SPV - Special Purpose Vehicle. JV - Joint Venture
RECYCLING REVENUE£££££££ £££££££££ £££££££££ £££££££
£££
£££
£
£££
£££
£
Private Sector
Partner
Local
Strategic
Body
(SPV)
7 Proposed Delivery Framework
for Local Authorities

Further consultation with the steering group identified
some specific issues for local authorities, these are listed
below:
• There was general agreement with the concept of
establishing a local authority strategic body, but one
concern was expressed that this body should not be
given a remit which could put it at odds with council
policy and activities;
• There was general agreement, on the local authority
level of participation, that substance rather than form
should prevail in terms of the level of local authority
influence, control and financing;
• There was an even split of views on whether
membership should be restricted to the local authority
alone or extended to other public and voluntary sector
bodies;
• There was no view that the impact of the introduction of
International Financial Reporting Standards to the public
sector would necessarily impact on preferred structures;
• When considering SPV’s, risk and the apportionment of
risk as between the public and private sector would be
assessed on a case by case basis;
• On the possibility that certain projects might involve the
local authority in commercial trading, the view again was
that this would be assessed on a case by case basis;
Continued...
• If a portfolio of activities and projects were built up over
time underneath the strategic body, there would be
concerns about these projects potentially being on the
balance sheet of the local authority. There were views
that this could not be assessed at this stage, that off/on
balance sheet issues would be only a secondary
consideration or that they would be only one
consideration;
• There were a number of differences in the nature of
officer (as opposed to elected member) buy-in that
would be required for the setting up of a strategic body,
but nothing that was considered unachievable;
• On the role of FEY, all agreed that it is a potential source
of technical and commercial support and that it could
have a role in sharing information and best practice
across strategic bodies on a regional basis, while there
was an even split on whether FEY should be a member
of an individual local authority strategic body.
These concerns are discussed by Brodies in some depth
within in the Additional Content (see page 27).
24 25
Energy
Advice
Centres
Energy
Efficiency
Programme
Funding
Renewable
Energy
Project
(SPV) (POSSIBLE JV’S)
ESCo
JV
Regional
Panel
LA Strategic Bodies
Board, Steering Group,
FEY, TAP Members
Technical
Advisory
Panel
LA Strategic Bodies
Board, FEY,
Private Sector
Local
Authority
Other Public
Sector
Stakeholders
SPV - Special Purpose Vehicle. JV - Joint Venture
RECYCLING REVENUE£££££££ £££££££££ £££££££££ £££££££
£££
£££
£
£££
£££
£
Private Sector
Partner
Local
Strategic
Body
(SPV)
7 Proposed Delivery Framework
for Local Authorities

Local Strategic Body...
FEY proposes that the main purpose of a strategic body
will be to provide the local authority with a focused vehicle
for interpreting, prioritising and overseeing the delivery of
local authority low carbon energy policies.
The strategic body’s main objective would be providing a
mechanism by which funds can be invested in
economically attractive low-carbon energy projects, with
revenues recycled to support less attractive projects and
to assist in funding the development of future projects.
It is proposed by FEY that each participating local authority
establishes a strategic body, responsible for the delivery of
energy related activities.
Additionally, FEY also hopes that by establishing a
common vehicle, private sector partners will be
encouraged to partner local authorities in individual project
development. FEY also believes that there may
be possible procurement benefits through the
establishment of framework agreements with
strategic private sector partners.
Energy Advice Centres...
Some steering group members have indicated they wish to
operate Energy Advice Centres and FEY believes that
these could be managed and funded by the related
strategic body. However, FEY considers that such services
do not fall within its support activities remit.
Energy Efficiency Funding...
FEY considers that the strategic body could provide the
management support for the delivery of energy efficiency
funding support. FEY believes that the existence of the
strategic body would provide a useful focus for
establishing relationships with energy suppliers required to
deliver energy saving and micro-generation solutions in
terms of their Carbon Emission Reduction Targets as
regulated by OFGEM.
FEY considers that its remit does not currently extend to
energy efficiency but it sees a potential role for itself in
developing relationships between strategic bodies (and
the steering group) and supplier partners for the delivery of
such measures.
Renewable Energy Special
Purpose Vehicles...
FEY anticipates that the strategic body may wish to
develop stand-alone renewable energy projects. These
projects may require the establishment of a separate SPV
or ESCo in order to obtain any necessary project financing
from lenders.
Strategic Body -
Joint Ventures...
The strategic body may also wish to create joint venture
(JV) companies with renewable energy project developers,
for example, in the development of heat networks and the
supply of heat. Such operations invariably require long
term contracts, with the local authority entering into a
related off-take contract in order that finance can be
secured for the development of the network.
8 BRODIES PRACTICAL AND
LEGAL OVERVIEW
8.1 Introduction
8.2 Local authority strategic body
8.3 Possible alternative structures
8.4 Objectives of LA strategic body
8.5 Legal form of the strategic body
8.6 Companies limited by shares
8.7 Companies limited by guarantee
8.8 Limited Liability Partnerships (LLP’s)
8.9 Community interest companies
8.10 Industrial and provident societies
8.11 Trusts
8.12 Unincorporated associations
8.13 Recommendation
9 STATE AID
9.1 Introduction
9.2 De minimis exemption
9.3 Other exemptions
9.4 Commission guidelines on state aid
and environmental protection
9.5 Private investor test
9.6 Practical considerations
10 PUBLIC PROCUREMENT LAW
10.1 Introduction
10.2 Would the strategic body be subject to
public procurement law?
10.3 Impact of public procurement law
10.4 Frameworks
10.5 Service provision
10.6 Procurement – utilities
11 PARTICIPATION BY LOCAL
AUTHORITIES IN ESCo’s
12 LEGAL/CORPORATE STRUCTURES
FOR STRATEGIC BODY SUBSIDIARIES
13 CONTRACTUAL ARRANGEMENT WITH
PRIVATE SECTOR PARTNER
14 THE ROLE OF FEY
15 SUMMARY
APPENDICES
Appendix 1 - Useful links
Appendix 2 - Questionnaire on ESCo structuring, local
authority participation and finance issues
26 27

Local Strategic Body...
FEY proposes that the main purpose of a strategic body
will be to provide the local authority with a focused vehicle
for interpreting, prioritising and overseeing the delivery of
local authority low carbon energy policies.
The strategic body’s main objective would be providing a
mechanism by which funds can be invested in
economically attractive low-carbon energy projects, with
revenues recycled to support less attractive projects and
to assist in funding the development of future projects.
It is proposed by FEY that each participating local authority
establishes a strategic body, responsible for the delivery of
energy related activities.
Additionally, FEY also hopes that by establishing a
common vehicle, private sector partners will be
encouraged to partner local authorities in individual project
development. FEY also believes that there may
be possible procurement benefits through the
establishment of framework agreements with
strategic private sector partners.
Energy Advice Centres...
Some steering group members have indicated they wish to
operate Energy Advice Centres and FEY believes that
these could be managed and funded by the related
strategic body. However, FEY considers that such services
do not fall within its support activities remit.
Energy Efficiency Funding...
FEY considers that the strategic body could provide the
management support for the delivery of energy efficiency
funding support. FEY believes that the existence of the
strategic body would provide a useful focus for
establishing relationships with energy suppliers required to
deliver energy saving and micro-generation solutions in
terms of their Carbon Emission Reduction Targets as
regulated by OFGEM.
FEY considers that its remit does not currently extend to
energy efficiency but it sees a potential role for itself in
developing relationships between strategic bodies (and
the steering group) and supplier partners for the delivery of
such measures.
Renewable Energy Special
Purpose Vehicles...
FEY anticipates that the strategic body may wish to
develop stand-alone renewable energy projects. These
projects may require the establishment of a separate SPV
or ESCo in order to obtain any necessary project financing
from lenders.
Strategic Body -
Joint Ventures...
The strategic body may also wish to create joint venture
(JV) companies with renewable energy project developers,
for example, in the development of heat networks and the
supply of heat. Such operations invariably require long
term contracts, with the local authority entering into a
related off-take contract in order that finance can be
secured for the development of the network.
8 BRODIES PRACTICAL AND
LEGAL OVERVIEW
8.1 Introduction
8.2 Local authority strategic body
8.3 Possible alternative structures
8.4 Objectives of LA strategic body
8.5 Legal form of the strategic body
8.6 Companies limited by shares
8.7 Companies limited by guarantee
8.8 Limited Liability Partnerships (LLP’s)
8.9 Community interest companies
8.10 Industrial and provident societies
8.11 Trusts
8.12 Unincorporated associations
8.13 Recommendation
9 STATE AID
9.1 Introduction
9.2 De minimis exemption
9.3 Other exemptions
9.4 Commission guidelines on state aid
and environmental protection
9.5 Private investor test
9.6 Practical considerations
10 PUBLIC PROCUREMENT LAW
10.1 Introduction
10.2 Would the strategic body be subject to
public procurement law?
10.3 Impact of public procurement law
10.4 Frameworks
10.5 Service provision
10.6 Procurement – utilities
11 PARTICIPATION BY LOCAL
AUTHORITIES IN ESCo’s
12 LEGAL/CORPORATE STRUCTURES
FOR STRATEGIC BODY SUBSIDIARIES
13 CONTRACTUAL ARRANGEMENT WITH
PRIVATE SECTOR PARTNER
14 THE ROLE OF FEY
15 SUMMARY
APPENDICES
Appendix 1 - Useful links
Appendix 2 - Questionnaire on ESCo structuring, local
authority participation and finance issues
26 27
8 Additional Content
To download this
additional content visit
www.fey.org.uk/escos

Future Energy Yorkshire
Victoria House, 2 Victoria Place, Leeds, LS11 5AE
t 0113 237 8436 e email@fey.org.uk www.fey.org.uk

2409 FEY esco rep 1-x (Website)

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (9)

Similar to 2409 FEY esco rep 1-x (Website)

Similar to 2409 FEY esco rep 1-x (Website) (20)

2409 FEY esco rep 1-x (Website)