The Order is expected to replace the current legislation by May, in time to implement revised rules for Phase 2 qualification and registration. The changes have been widely debated since their announcement last year; however, the accompanying documents indicate that final decisions may have only been made at the last minute.

The Impact Assessment document (title: Simplification options for the CRC Energy Efficiency scheme to help business : CRC (Amendment) Order 2013) states:

“During the period of consultation, there has been an agreement between DECC, DfE, HMT and the Devolved Administrations (DAs) to remove schools from the CRC in exchange for a GHG emissions reduction target. Consequently, in this final IA, the CRC baseline has been modified to remove schools from the scheme“.

An accompanying ‘Explanatory Memorandum to the draft SI’, however, says that:

“When the IA was originally published in December 2012 a decision by the Devolved Administrations to retain their schools CRC Scheme participation was still pending. In February 2013 all Devolved Administrations confirmed their schools would continue to participate in the CRC Scheme. Only English schools would withdraw from the Scheme“.

So, it seems that only schools in England will be withdrawn from the Scheme from the beginning of Phase 2, with schools in Scotland and Wales continuing to participate with their local authorities. We are not yet aware of any GHG emissions reduction target that may have been agreed for English schools, but we await this with interest.

This guidance contains a number of changes that take effect immediately, so we strongly recommend that you re-examine your energy supplies at the earliest opportunity. We expect that most participants will have to revise their list of included and excluded supplies and re-evaluate their annual budget for carbon allowances. Main changes to note include:

1. The scheme will only cover emissions generated from the consumption of electricity and gas
2. Gas will only need to be reported and allowances purchased when this fuel is used ‘for heating purposes’
3. There will be no distinction between core and non-core supplies

The first change means that you can disregard all fuels (even if you reported on them previously as part of your Residual Measurement List) except electricity and gas.

The second change allows you to also disregard gas where it is used for anything other than ‘for heating purposes’ (gas supplied to CHP plants is treated as being primarily used for electricity generating purposes and therefore outside the scope of the CRC, so it should not be reported).

The third change – to the definition of supply – means that you must now include:

• Electricity supplied through all meters except profile class 01 and 02 (so you must report profile class 03 and 04 supplies that you may have previously excluded as non-core)
• Gas supplied through a meter that measures 73,200kWh in any given compliance year (so you must establish whether each individual supply qualifies for inclusion at the end of each compliance year)

Please note that, although the Footprint Report and Residual Measurement List are no longer required, participants are advised to ensure that copies are kept in the Evidence Pack for the relevant year(s) for audit purposes.

Other changes to the Scheme that may be of interest to public sector participants include:

• Restriction of the circumstances under which Electricity Generating Credits (EGCs) can be used
• Extension of the CRC allowance surrender date
• Abolition of the Performance League Table from 2012-2013 onwards

The timetable for 2012-13 compliance activities is as follows: 

• 31st July – deadline for submission of annual report
• 3rd June-31st July – period when orders for carbon allowances may be placed
• 2nd-20th September – period when payment for carbon allowances may be made
• 31st October – deadline for surrender of carbon allowances 

The 216-page guidance document can be found on the EA website.

Following the meeting of the Environment Agency’s CRC Customer Operations Liaison Group (COLG) on Thursday 13 December, attended by Local Energy, please note the following points:

1. There is currently some uncertainty about Scheme coverage for the remaining two compliance years of Phase 1. Although it is the Government’s intention to introduce some simplifications immediately, the EA has identified discrepancies between the consultation response and the draft Order, and is currently seeking clarification from DECC.

   In particular, clarification is being sought on whether meter profile class 01 to 04 supplies should be reported in 2012-13 and 2013-14. Many of these non-core supplies were excluded from previous annual reports under the 90% rule, but it is not clear whether the 90% rule is to be scrapped immediately, which could lead to an increased reporting burden.

   Profile class 01 and 02 will be excluded from Phase 2; if this rule is implemented immediately, this will exclude some of the non-core supplies, but profile class 03 and 04 supplies would come into scope.

   As soon as a decision is known, we will update our briefing notes.

2. The 2011-12 Performance League Table (PLT) will be published in early 2013, most likely in February. Participants will be notified beforehand and will receive the PLT by email 2 hours prior to website publication.
    
3. Digital certificates will not be required for the purchase of allowances in 2013 or thereafter. A new system using one-time passcodes will be introduced. Participants who have bought three-year digital certificates will be refunded for the two unused years: the EA will issue further information in due course.
    
4. The registration period for Phase 2 is very likely to be delayed due to the time needed for the introduction of new legislation and guidance documents. The suggested registration period is September 2013-February 2014, subject to further agreement.

You will be affected differently depending on whether you previously included non-core supplies in your annual report.

If you included any non-core supplies (in an RML) in your previous annual reports (i.e. you were  required to include some non-core supplies because your core supplies made up less than 90% of your total footprint OR you chose to include some non-core supplies voluntarily):

1. If the non-core supplies you reported were any fuel other than electricity or gas, your costs will be reduced as these fuels are now excluded (i.e. gas oil, kerosene, waste);
2. If the non-core supplies you reported were gas supplies consuming 73,200kWh/year or less, your costs will be reduced as these ‘small gas supplies’ are now excluded;
3. If the non-core supplies you reported were electricity supplies through profile class 01 or 02 meters, your costs will be reduced as these meter types are now excluded;
4. If the non-core supplies you reported were electricity supplies through profile class 03 or 04 meters, you costs will increase as you must now report this consumption.

If you did not previously report any non-core supplies (i.e. your core supplies made up 90% or more of your total footprint):

1. There will be no change to any fuels other than electricity or gas; you did not report them previously and they are now excluded;
2. There will be no change to gas supplies consuming 73,200kWh/year or less; you did not report them previously and they are now excluded;
3. There will be no change to electricity supplies through profile class 01 or 02 meters; you did not report them previously and they are now excluded;
4. If you have any electricity supplies through profile class 03 or 04 meters, you costs will increase as you must now report this consumption.

Other changes that may affect your emissions:

1. If you have gas supplies that were classified in the footprint year as consuming 73,200kWh/year or less, but which have now increased their consumption to more than 73,200kWh/year, your costs will increase as you must now report them. The previous rules only required assessment during the footprint year of the Phase, with classification not changing during the Phase even if consumption went up, but the new rules require gas supplies to be assessed annually.
2. Conversely, if you have gas supplies that were classified in the footprint year as consuming more than 73,200kWh/year, but which have now decreased their consumption to less than 73,200kWh/year, your costs will decrease as you can now exclude them.
3. If you have gas CHP installations, the reporting requirements will change. Instead of reporting input fuel (gas) at a conversion factor of 0.1836kgCO₂ per kWh, you will report self-supplied electricity at a factor which is lower than the grid average factor (2010 figure 0.47916kgCO₂ per kWh). If any of the electricity generated is supplied outside of your CRC participant organisation, you may still exclude it as unconsumed supply.

Many participants will find they have some increases and some decreases in emissions as a result of the above changes; however, there are likely to be winners and losers. For example, a large rural county with many schools using oil may reduce its overall emissions because oil is now excluded from the Scheme. Conversely, a small city or unitary authority using exclusively electricity and gas may see a significant increase in reported emissions due to the inclusion of profile class 03 and 04 meters.

We recommend undertaking a review of your supplies and CRC emissions as soon as practicable, in order to prepare for any change in financial liability during the 2012-13 compliance year.

DECC has now published the Government’s response to the consultation on simplifying the CRC Energy Efficiency Scheme. This sets out in detail the changes that will be made to the Scheme from Phase 2, but there are also an unexpectedly large number of changes coming into force immediately. Changes to the scope of the CRC mean that Phase 1 participants must identify which supplies should be included in 2012-13 consumption data according to the new rules, prior to compiling and submitting the next annual report by the end of July 2013.

Many of the changes remain as originally proposed in the consultation, but some go further than initially suggested. Only two fuels (electricity and gas) remain in the Scheme, whilst schools are to be excluded entirely from Phase 2. Together with changes to the qualification criteria, it is likely that some local authorities currently participating will not qualify for Phase 2, each saving £350,000 or more on annual allowance costs alone.

Key simplifications affecting the public sector:

To be introduced immediately

• Reduce the number of fuels from 29 to 2 
  • Electricity
  • Gas, only when used for heating purposes
• Remove the 90% rule and associated compliance activities (footprint report, core vs non-core fuels, residual measurement list (RML))
• Abolish the performance league table (PLT)

Taking effect in Phase 2

• Restrict qualification criteria to supplies through settled half hourly meters only
• Withdraw state funded schools from CRC participation
• Expand the scope of unmetered supplies captured by the CRC (bringing all streetlighting into scope)

Phase 1 participants 

Reporting

For current (Phase 1) CRC participants using a wide range of fuels, there are some immediate benefits. You will not be required to report any supplies other than electricity and gas (when used for heating) in the remaining two years of the Phase (2012-13 and 2013-14 annual reports), so any other fuels that appear on your RML need not be included. All gas meters consuming 73,200kWh or less annually are excluded.

Many public sector participants will see little change, however, as electricity and gas make up the majority of CRC supplies under the current rules. Participants with CHP plant may benefit, though.

As the definition of gas used for heating does not include gas-fired CHP, this will become simpler to report. The input gas is no longer in scope, so only the electricity generated should be reported (according to the existing rules governing self-supply and/or unconsumed supply). There are, however, some potential complications associated with this change: Self-supplied electricity may not be metered and will therefore be more difficult to report accurately; and it may increase the carbon emissions reportable under CRC because participants must purchase allowances against a fuel with a higher carbon factor (output of self-supplied electricity) than previously (input gas).  In mitigation, the emission factor applied to self-supplied electricity will be revised, to recognise the greater efficiency of onsite generation (no transmission loss) compared to grid supplies.

Purchase and surrender of allowances

The single, retrospective sale of allowances will continue for the remainder of Phase 1. The deadline for the surrender of allowances is extended to the end of October; this allows for an extension to the deadlines for request, payment and allocation of allowances, but full details of this extension have not yet been made available. The price of allowances remains £12/tCO₂ for 2012-13 and 2013-14 emissions.

Recommendations

• For the remaining two reporting years of Phase 1 (2012-13 and 2013-14), some participants may see a significant reduction in reported consumption and therefore also in the total cost of allowances. Participants should carry out a forecast of revised CRC liabilities and communicate any significant differences to your CRC finance representative.

Phase 2

Qualification

As we are currently in the qualification year for Phase 2, many of these changes are immediately relevant even though the first Phase 2 annual report is not due until 2014-15.

The qualification threshold has been maintained at 6,000MWh, so changes to the qualifying supplies mean that some current participants will drop out of the Scheme at the end of Phase 1. Only supplies through settled half hourly meters will contribute towards qualification; this means that streetlighting, whether on passive or dynamic unmetered supply, is not included in the qualifying total.

The withdrawal of schools from the CRC means that their energy consumption should also be excluded for qualification purposes.

Without the energy consumption from the schools estate and streetlighting, it is likely that some local authorities who are Phase 1 participants will fail to qualify for participation in Phase 2.

Reporting

Only two fuels should be reported in Phase 2:

• Electricity supplies, excluding meter profile class 01 and 02
• Gas when used for heating purposes only
  • Excludes supplies through meters that consume an annual quantity of 73,200kWh or less
  • Although it is unlikely to be relevant to public sector participants, there is an organisation-wide 2% de minimis threshold for gas consumption (i.e. if gas consumption for heating purposes is equal to or more than 2% of overall electricity consumption in the first reporting year, then gas must be included for the whole of the Phase)
  • Participants may make an assumption that all gas used is for heating purposes. This reduces the administrative burden, although participants may choose to demonstrate that some gas is used for other purposes, and therefore excluded, if they wish

Purchase and surrender of allowances

There will be no cap on the number of allowances available and no auctioning will take place. Fixed price allowance sales will take place twice a year: one forecast sale at the start of the year and one buy-to-comply sale after the end of the reporting period. The price of allowances at the forecast sale will be lower to encourage emissions forecasting, but there is no confirmation of the price differential as yet.

Allowances may be carried over (‘banked’) between years within a Phase, but not between Phases. As announced in the Autumn Statement, the price of allowances in the first compliance year of Phase 2 (2014-15) will be £16/tCO_2, with prices rising thereafter in line with inflation (RPI).

Recommendations

• All current or prospective participants should forecast their energy consumption for the qualifying year (2012-13) according to the new rules, to determine their qualification for Phase 2. Those that expect to qualify should also forecast carbon emissions for the first compliance year (2014-15) to identify the potential cost implications (using the new, higher cost of allowances at £16/tCO₂)
• The combination of annual price rises and the price differential between the forecast and buy-to-comply sales mean it is likely that some allowance trading will take place. Phase 2 participants should consider a buying and trading strategy across the entire Phase to determine the most cost-effective method of compliance
• Plan to upgrade (or return) streetlighting to dynamic supply from 2014-15 to improve monitoring and controls
• Consider (additional) investment in CHP. There may be increased cost benefits associated with the reporting of generated electricity only, as the heat element is effectively ‘free’ in terms of CRC carbon allowances.

Future Phases

There is a commitment to review the effectiveness of the CRC in 2016, with the tax element introduced at Spending Review 2010 described as ‘a high priority for removal when public finances allow’. Therefore, any consideration of the Scheme beyond 2016 is somewhat speculative.

It is worth noting, however, that the simplified qualification criteria, whilst expected to exclude some current participants from Phase 2, is likely to result in increased participation from Phase 3 onwards.

Due to the current advanced meter rollout, and the proposal for advanced or Smart meters to be settled on a half-hourly basis from 2014 onwards, many more supplies would thereafter contribute towards qualification as settled HHMs.

Important note:

This briefing does not cover all of the simplification points. Current and potential CRC participants should familiarise themselves with all planned changes and evaluate any possible impacts on their own compliance and liability.

The Government response to the consultation on simplifying the CRC Energy Efficiency Scheme can be found on the DECC website, alongside the Impact Assessment and the original consultation documents.

Please complete the survey here as soon as possible; we’ll discuss the predicted results – and the actual results if the PLT is published! – at our events on the 6th, 7th and 10th December.

CSPS members: If you have not yet registered to attend the events, please visit our events page and complete the booking form.

If you are not a CSPS member but would like to attend one of the events, please contact me to find out whether you may be eligible for a free place.

But please don’t forget that you have not complied with all the requirements until you have surrendered the correct number of allowances. The deadline for surrendering allowances through the CRC Registry is the 28th September.

If you have not undertaken a CRC audit of this year’s data (either in-house or using external auditors), it is not too late. In fact, now is a good time to check that your annual report was accurate and that your evidence pack includes a full audit trail to back up your data. Carrying out an audit now will allow time to rectify any errors and purchase extra CRC allowances, if required, before the submission deadline, helping you avoid possible fines.

Please see our internal audit page for more information on Local Energy CRC audits, or contact us to discuss your audit.

It sets out requirements for those authorities to report on the measures they propose to take to significantly improve the energy efficiency of all the residential accommodation in their areas. The guidance links with the delivery of the Green Deal by local authorities.

The document explains in how to set up a carbon plan, gives examples of councils who are leading the way, and provides an outline example of a report. It also includes DECC’s offer to local authorities:

“The Memorandum of Understanding between DECC and the LGA envisages both parties working ‘together to help and encourage all councils to take firm action – underpinned by locally set ambitious targets and indicators’.

To support authorities in the early stages of the Green Deal/ECO DECC will, as far as it reasonably can:
• seek to use the Green Deal launch incentives in a way that supports local authorities’ offers to their residents which maximise street by street roll out;
• help promote local authorities’ identified plans to Green Deal Providers and energy suppliers – further reports and progress reports will be attractive to Green Deal Providers and businesses seeking to invest as well as energy companies seeking to deliver their ECO targets;
• provide some tools for authorities to meet their obligations under the Act, e.g. tracking their emissions levels over time and helping identify particular areas to target; and
• work with the LGA and the Department for Communities and Local Government (‘DCLG’) to provide good practice guidance for local authorities.

DECC will also continue to work with the local authorities’ national Carbon Action Network to support delivery through the Act”.

The guidance can be downloaded from the DECC website.