The role of energy service contracting in delivering energy efficiency measures for local authorities in the UK

Energy service contracting is a niche activity in the UK, encompassing a variety of approaches that allow organisations to tap into underexploited energy efficiency, cogeneration and increasingly also renewable energy generation potentials. It involves outsourcing of one or more energy generation, conversion or management process(es) by sharing, spreading and/or transferring risk, which may involve funding investments through savings in energy costs. The last point is of particular relevance to local authorities in the UK as tightening budgets resulting from austerity measures imply that both investment backlogs and the need to comply with carbon reduction commitments are rarely addressed.

Several public procurement and delivery frameworks for energy service contracting have been established in recent years to address these issues, most notably the RE:FIT programme in London, and their popularity and increasing diversity point towards an increasing acceptance of their capacity to deliver energy efficiency benefits at a local level.

Drawing on qualitative research findings from a market mapping exercise, this paper analyses the development and governance of these frameworks, their significance for local authorities, their success in encouraging the implementation of energy efficiency measures, their replicability and diffusion and their wider role in delivering energy services locally.

The results indicate that energy service contracting and energy performance contracting in particular are rapidly gaining recognition as a means for UK local authorities to establish links between long-term contract payments, equipment performance, engineering expertise and financial services without the need for significant up-front investments. In some cases this trend is fostering the emergence of local energy companies with the intention of combining the delivery of energy efficiency measures with renewable energy generation to address a wide range of challenges such as offshoring of profits, rising energy prices and fuel poverty.