The provision of energy is evolving rapidly. For the existing major energy suppliers this evolution threatens their pre-eminence, but for commercial energy consumers it presents a real opportunity to drive down costs, while opening the door for new entrants to the energy services market.

Disruptive innovation is appearing and the UK energy market is undergoing a major transformation. We are seeing decentralisation of supply, on-site generation, energy optimisation developments and a digital revolution focussing on capturing the data allowing additional opportunities to be identified, developed and executed. Proactive management with consumers taking more control is creating a new breed of consumer – the prosumer.

This innovation has further to go and will centre around energy storage, aggregating/pooling distributed generation for market sales, peer-to-peer energy trading and blockchain (securely recording and tracking each kilowatt of power). The speed of change means regulation and government strategy is struggling to keep pace.

Acknowledging the growing importance and value of good data, Savills Energy has developed a full Energy Bureau and Brokering service, which captures and manages a user’s energy data to drive out inefficiencies in consumption and cost. The next logical step in this drive for efficiency and cost saving is the introduction of Energy Savings Companies (ESCO) Energy Saving Agreements, which offer third party funded energy efficiency/savings upgrades to clients. This is not just for owner occupiers, but also relevant to the landlord/tenant commercial space.

The development of this Energy Saving Agreement is desperately needed, particularly with the Minimum Energy Efficiency Standards (MEES) legislation coming into force in less than 12 months. This presents a real need to find a solution to upgrading F and G EPC rated property.

So how might this be put into practice? Take a commercial office tenant who is happy with the accommodation he is renting for his business but the lease is approaching a break clause point with five years left on 15-year tenancy. The landlord has identified a requirement for £2.5m of energy upgrade work to make sure the office achieves an acceptable EPC rating, as well as to upgrade what is becoming a slightly tired building.

Without an ESCO Energy Saving Agreement approach the tenant would be inclined to exercise their lease break clause rather than incur an unbudgeted £2.5m hit, knowing that they may only gain five years of benefit. With the ESCO Energy Saving Agreement approach, the £2.5m is funded by a third party, and the costs are smoothed over a 10-year contract period, enabling the tenant to allocate the cost as operational expenditure.

The landlord has a happier tenant, and there is no reason why discussions on extending the lease and possible landlord contributions could not take place leading to a win/win for the landlord and tenant.

Further information

Stuart Campbell will be speaking at the All Energy Exhibition and Conference 2017 (10-11 May, SEC Glasgow) on ‘Energy saving agreements: In the corporate built environment’ in the Business Energy Efficiency Seminar Theatre at 13.30 on Thursday, 11 May.