Energy buying plan to unlock investment for growth
Energy for Growth, a new initiative using government buying power to boost the UK energy industry and save money, has been announced.
10 December 2012
CAB 126/12
Energy for Growth, a ground-breaking new initiative using government buying power to boost the UK energy industry and save taxpayers money, has been announced by Francis Maude, Minister for the Cabinet Office.
The Government Procurement Service (GPS), part of the Cabinet Office Efficiency and Reform Group, is the UK’s largest energy customer, spending £1.5bn a year on gas and electricity. GPS buys energy for 75% of the entire public sector which accounts for 3% of total UK energy demand. In the New Year it will open a pilot to diversify 2% of its demand, worth £25m a year.
For the first time ever, contracts will be offered direct to renewable generators for a set proportion of their capacity for up to 25 years. This will appeal to new projects which can bank on the guaranteed business to attract investment. We are aware of at least 150 projects which are currently stalled and may need finance. A small 10MW generator is estimated to return £5m a year to the local economy as well as creating jobs in the energy and construction industries. This pilot is for non-intermittent power such as biomass and energy from waste.
As well as helping renewable generators, the pilot will save taxpayers around £155m over fifteen years by agreeing the very best price in return for the financial security offered. Also, diversifying suppliers, contract duration and pricing mechanisms will protect taxpayers from volatile prices.
Today’s announcement is just the first step. If the pilot is successful, over the next five years GPS will diversify up to half its entire energy portfolio, currently worth £750million, greatly increasing potential benefits. This could significantly increase generating capacity and help drive down bills for everyone through increased competition.
Francis Maude said:
Energy for Growth will use the government’s clout as the biggest energy customer to shape the market for the good of the country. The UK is in a global race and that’s why we are working to attract investment into our energy industry to create jobs, develop technology and secure clean and diverse supplies for the future.
This pilot will take us a step further towards our goal of hedging more of our energy needs against future price fluctuations - protecting the taxpayer. And because we will be increasing competition in the energy market there could be a downward pressure on everyone’s bills as well.
My department’s Efficiency and Reform Group is striving to make sure every taxpayer pound works as hard as it can. It’s not glamorous work but Energy for Growth shows the huge impact it can have.
Michael Grubb, Chair of Energy and Climate Policy, Cambridge University; and Senior Advisor, UK Office of Gas and Electricity Markets (Ofgem) said:
UK energy policy has for too long assumed the consumer to be a passive bystander in the low carbon transition. The Cabinet Office leadership on Energy for Growth is a welcome initiative to wield the power of a major energy consumer government procurement. This sets a standard that many other large consumers could, and should, consider following.
Government energy buying is one of the most successful examples of aggregating spending to get the best deal. In 2010 all central government departments were mandated to source energy through GPS, saving £51million. By acting as one customer buying IT, travel, property, energy and other commodities, central government saved £357m in 10/11 and £422m in 11/12.
Energy for Growth takes centralised buying to a new level, getting the best deal for tax payers and shaping the market to meet this country’s needs. Other parts of the public sector including NHS Trusts and Local Authorities are not mandated to purchase through GPS however most choose to because of the savings it generates.
The Cabinet Office will continue to work with the energy industry to develop innovative approaches for later phases of the Energy for Growth strategy. This is part of the government’s broader energy strategy to increase energy efficiency and create the right conditions for investment in diverse, secure and sustainable energy production in the UK.
Notes to editors
1. For further information on the Government Procurement Service, please see: http://gps.cabinetoffice.gov.uk/
2. Contracts for the Energy for Growth pilot will be published on the Official Journal of the European Union (OJEU) early in the New Year.