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June 2022

Meeting the Challenges of Net Zero in Multi-sector Contracts

net zero blog image

Vercity is working with the ICW to develop its collaborative capability to offer the optimum solutions to its stakeholders on their route to net zero, managing the effects of climate change and the effective handover of the built estate managed under PFI/PPP arrangements.

There will be multi-stakeholder contractual structures in many large estates in the UK, with PFI, PPP and prime contracting typical examples. Long-term contracts established in the late 1990s and the 2000s, they do not easily lend themselves to flexibility.

Structured collaboration underpinned by an evolved collaborative capability is an essential resource for helping the various stakeholders work together to operate these estates during their lives effectively and as they approach their final years. This is particularly relevant given the legal targets set for attaining net zero carbon emissions relative to 1990 levels, by 2050, through the Climate Change Act 2008, as amended in 2019.

Who is Responsible for Net Zero Targets?

It is often impossible to fully assign full emission responsibility to a single party within the built environment. Asset owners often have limited control over occupant energy usage and subsequent carbon emissions, and occupants often have limited control of the systems installed.

A rapidly developing legislative environment means the onus to set and achieve net zero targets often falls upon occupants. The contracting authority, particularly in the public sector, often needs to account for its emissions and set realistic decarbonisation goals.

At the other end of the building chain, the owners often have a requirement to capture and calculate their emissions and footprint for reporting upstream to investors and lenders. This dual responsibility for the same asset can lead to double (or triple) counting. In this scenario, the emissions of one party are counted as those of the other when it comes to the built assets themselves and their scope 1 and 2 emissions.

Owner vs Occupier Responsibilities 

Some existing methodologies can give quick data that allow for assessments, including current reporting such as display energy certificates (DECs). However, these are blunt tools for determining energy consumption and subsequent emissions, capturing data as a whole, baseload, and operational use.

To separate owner and occupier responsibilities, establishing an effective dialogue between the asset owner and the asset user is essential. This means that data capture is accurate, reporting figures are accurate, set targets are realistic, and effective decarbonisation strategies are developed. The process is not straightforward, but the correct apportioning of emissions is achievable with effective collaboration. A goal which is especially important when offsetting is under consideration to avoid the undue cost to the occupants. 

If parties try to approach the decarbonisation strategy for the asset and its systems individually, the situation becomes equally complicated. A typical example is where a public sector body establishes what it determines as realistic targets for decarbonisation. However, achieving such goals requires changes to systems outside of its control.

In many contractual and lease arrangements, there is no clear obligation for the building owner to engage to reduce the emissions of the facility. In fact, the liability seemingly sits solely with the occupier, with base-load equipment data being part of the users’ consumption. Often the occupier will establish surveys and investigations and bid for funding. These deliver interventions into the systems to reduce energy and emissions, whether budgetary or grant funding.

The Benefits of Working Together

There are opportunities where, working together, the route to achieving net zero and decarbonising an asset can deliver mutual benefit. Feeding into equipment replacement cycles and programmes, these advantages see equipment replaced with more efficient, less carbon-intensive equipment.

The equipment replacements will generally be modelled into the long term budgets on a percentage replacement and like-for-like basis. This means that if the equipment requires replacement, there is no obligation to replace it with the least carbon-emitting technology (noting that improvements in energy efficiency do not necessarily map directly to corresponding carbon emission reductions).

A collaboration between owner and occupier can map against the equipment replacement points to keep emissions reductions central to thinking.  This allows both parties to contribute to achieving lower carbon solutions through contributions by the asset owner in line with expected expenditure and contributions by the occupant to help bridge the technology gap.

The technology gap can be significant in certain systems, including heating. Here, lower carbon technology may require substantial alterations to existing systems to facilitate.

Early Engagement

Alignment to equipment replacement cycles may have a detrimental impact on aspirational decarbonisation target dates. This is because the task of system decarbonisation happens over many phases rather than a single intervention. However, this is likely to be the most realistic and cost-effective route.

The potential risk to decarbonisation targets highlights the need for early engagement and joint working. This means that integrated measures can be programmed, risks mitigated, opportunities exploited, and a clear understanding of the benefits and needs of each party are understood. Seeking this alignment requires collaborative leadership implementing a structured approach that identifies and addresses the causes of friction and inertia.

Effective collaboration between parties allows for an approach to these replacement decisions that offer mutual benefit. For example, the owner may benefit from a reduction in their own emission and potentially through more efficient equipment. This has the potential to require lower maintenance or have a longer life.

Line-of-Sight

When assessing decarbonisation targets and pathways, it is essential for collaboration to be at the core of the strategy. Doing so ensures that all decision making has a clear line of sight to these strategic aims. Furthermore, all interventions on equipment or the asset as a whole have the strategic goals at heart.

Achieving this collaboration within the UK’s extensive PFI and PPP landscape is not always straightforward. As these long-term contracts move towards their expiry, there will be a renewed need for all parties to collaborate. This will give consideration to how best to position the managed assets for the next phase of their life. Meeting the challenges of net zero will be a significant component of that, which no one party will achieve in isolation.

When looking to progress decarbonisation plans in complex assets and estates, it is not efficient or even feasible to approach the process as a lone entity. Deriving the origins of climate change was a collaborative effort. Therefore the mitigation of climate change should be equally collaborative. Establishing suitable collaborative models and capability needs careful and experienced planning.

Ready to start your journey towards net zero? Click here to start planning a realistically paced route for your business today. 

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