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Mark Williams, government finance expert at PA Consulting

PFI is no barrier to more energy efficient schools

PFI needn't stand in the way of making schools energy efficient, says Mark Williams, government finance expert at PA Consulting

Posted by Hannah Vickers | March 01, 2017 | Sustainability

A Private Finance Initiative (PFI or PF2) contract or wider Public Private Partnership arrangement should not stand in the way of making your school energy efficient.

RE:FIT is the Mayor of London’s award-winning building energy efficiency programme that allows public organisations to undertake projects to achieve substantial guaranteed annual cost savings, identify income generation opportunities, improve the energy performance of their assets and reduce their CO2 footprint.

The RE:FIT procurement framework provides a mechanism for schools and public sector organisations to achieve guaranteed energy savings from energy efficiency works carried out by approved service providers across their building portfolio. 

Currently, the programme saves organisations approximately £7million a year by reducing between 15-25% of their energy costs 

To date, more than 690 of London’s public sector buildings are being retrofitted through the framework. Typical energy measures include replacements and upgrades to heating, lighting and controls through to renewable energy installations. Currently, the programme saves organisations approximately £7million a year by reducing between 15-25% of their energy costs.

An attraction of RE:FIT is the standardised contract, the framework selected service providers and Programme Delivery Unit (PDU) arrangement. The PDU enables public sector bodies to have benchmarking, technical advice and business case support completed at no cost in London, and under part-subsidy outside the capital.

In education, RE:FIT was initially focused on London, reflecting the capital’s unique challenges in decarbonising its building stock. 80% of London’s carbon emissions are from buildings, so energy efficiency is critical in hitting emissions reduction targets. On average, the programme’s saved participating schools a quarter on their energy bills. 

Since the programme started, RE:FIT has supported for retrofit 215 number of schools, saving 3,800 tonnes in CO2 and £680k per annum across 15 Boroughs, including Hounslow, Brent and Harrow.

More recently, RE:FIT was opened up to schools across the country. In Cambridgeshire, the project started with 38 interested schools. 14 energy retrofits have been completed to date, with the rest being delivered this year and next. In Birmingham, the city council estimates that 500 schools are potentially eligible. Technical assessments are now underway on the first 14. 

As the programme has scaled up, we have learned to adapt the programme to help schools support their eligibility. Now, when individual schools approach us or their council to join RE:FIT, we cluster them together with others in the borough. It doesn’t matter if they are infant, primary or secondary schools, academies or colleges. We seek to establish a ‘package’ that is sufficient in scale to stimulate competitive bids from suppliers. This strategy is paying off for schools.  For example, following a successful procurement through the RE:FIT framework last July, the Royal Borough of Greenwich, is currently working to design and deliver energy retrofitting projects to 92 schools within the borough.

There’s no doubt that PFI has attracted criticism for inflexibility and value for money

We’ve also evolved RE:FIT to work with schools that have PFI (or similar) contracts in place. There’s no doubt that PFI has attracted criticism for inflexibility and value for money. It’s led some schools to publicly complain that they are less able to address the impact of budget cuts or invest in teaching and the curriculum. Understandably, some heads worry about how they can make PFI work for energy efficiency improvements. 

The good news is that PFI represents no barrier to schools accessing RE:FIT. A full due diligence can be carried out to ascertain the suitability of PFI contractors and whether they adhere to the methodology that we have in place for all energy service companies. This is a tried and trusted seven step process, which has resulted in over £100 million of investment into energy retrofit projects across the London public sector to date. At its heart, PFI contractors and energy service companies take part in a mini-competition where a preferred service provider is selected. Schools find out how much they will save, which leads to the installation of energy-saving measures. These are measured and verified throughout the lifetime of the project to guarantee that energy and cost savings are made.

We can help guide schools through the RE:FIT process on PFI estate, thereby helping to mitigate issues.  In our view PFI contracts do not run on ‘autopilot’ for their duration and RE:FIT is an example of driving efficiency and improvement. With PFIs running for 25 years, we are now seeing a whole raft of schools who are 10 to 15 years into their PFI contract where the contract needs to tackle degrading plants and machinery. In our experience, there’s not a single private sector partner that is not looking for amendments and changes that will improve the joint outcome; energy efficiency measures are a genuine saving for both sides. However, schools must be agile: value-for-money from a PFI does not come on contract signing, but across the lifetime of the deal and this needs active management. 

There are three elements to this: improved routine contract management; enhanced utilisation; and financial interventions.

Good contract management is low-hanging fruit 

Good contract management is low-hanging fruit. Teams need to be trained up so they understand the basis for all key performance indicators and can take action on energy efficiency measures through RE:FIT, where due.

Considering whether there are opportunities to enhance the utilisation of the assets underlying a PFI arrangement is a more strategic exercise. Provided that the relationships between the school and private sector partner are aligned, the motivations of each party are broadly understood and returns are maintained it is possible to better manage energy assets underlying a PFI.  It is important to have a view on the future utilisation of an estate prior to progressing a RE:FIT project.

Financial intervention is a more open-ended area, relying on the relationships, understanding motivations and returns. There are a wide range of actions that can be taken to re-engineer the PFI.  

The PDU can help schools to understand what a PFI contractor can deliver under RE:FIT. Headteachers can take further reassurance that a third of our approved service providers are PFI contractors. In addition, there’s transparency in the RE:FIT programme which means that, with the right interventions, significant energy savings and improved performance can be made in operational PFIs.  And, of course, such gains are far more desirable than the alternative of frontline service cuts.

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