Mitie Group plc SBE0093
Written evidence from Mitie Group plc
Mitie Group Plc is one of Britain’s leading facilities management (FM) companies, looking after a large, diverse, blue-chip customer base, from banks and retailers, to hospitals, schools, and critical government strategic assets.
Mitie delivers a broad range of services, including cleaning, security, engineering, waste management, landscaping, and front of house, to create and maintain efficient, safe, clean, secure and sustainable workspaces. We care for some of Britain’s most important buildings and landmarks.
Mitie has the most ambitious sustainability commitment in the UK FM industry, Plan Zero, through which the business has pledged to decarbonise its operational emissions by 2025. One of the three pillars of Plan Zero is to ‘enhance inefficient buildings’ by rolling out a series of energy optimisations and retrofits to its current estate of 53 commercial properties, while ensuring any future buildings it occupies meet the highest environmental standards.
The content of this submission is based on the Group’s experience both as a leading provider of energy management, sustainability, and building maintenance and engineering services, and as a large business with its own significant footprint of commercial buildings.
Initial view on the scope of the inquiry
We note that the scope of this inquiry is very heavily focused on the sustainability of new build and primarily residential properties, with little focus on the retrofit of existing commercial estates. With 80% of buildings that will be in use in 2050 already built (UK Green Buildings Council), retrofitting the existing building stock will play a central role in meeting the UK’s decarbonisation targets. In fact, as of the financial year 2020/21 Mitie has saved 353,000 tonnes of CO2 for customers through energy efficiency initiatives in the last decade, demonstrating the huge potential of focusing on improving the energy efficiency of the UK’s existing commercial properties.
Given this, and as discussed in our response below, we believe that significant reductions in energy consumption and carbon emissions can be achieved if government places greater focus on encouraging tenants and landlords of commercial properties to reduce their energy use.
What can the Government do to incentivise more repair, maintenance and retrofit of existing buildings?
As mentioned, part of Mitie’s commitment to reach net zero carbon emissions by 2025 includes a focus on making its 53 commercial properties more energy efficient. Similar to many organisations, Mitie leases the vast majority of these sites and for many of these our business is not the sole occupant of the site. As part of the benchmarking process of Plan Zero, we sought to understand our annual energy consumption for each of these sites and discovered that for more than half of our buildings the landlords were unable to provide us with a breakdown of our energy usage, for example due to individual metering not being available. In the majority of cases, we are charged a flat annual fee, irrespective of our actual energy usage.
Without the data regarding current energy use, even the most responsible business will struggle to justify capital expenditure to invest in retrofitting their buildings to improve energy efficiency, as they cannot quantify the likely payback of such measures. Similarly, individual metering helps businesses identify spikes in energy consumption which may be linked to issues with broken or inefficient equipment. Without this information, it can be more difficult for businesses to calculate the savings that investing in new equipment would bring.
By passing regulations which require all commercial landlords to provide energy consumption data for each individual tenant, businesses would be significantly more incentivised to take action to reduce their energy use.
Compulsory performance-based energy reporting, currently under consultation by the Department for Business, Energy and Industrial Strategy (BEIS), would play a significant role in accelerating the rollout of sustainability investments among UK commercial properties. Based on our experience as the UK’s leading facilities management company, supporting hundreds of businesses with their buildings, including energy optimisation and reduction, having regulations in place requiring businesses to report on energy usage, and penalising those with the highest levels, would see a rapid decrease in energy use. We support BEIS’s suggestion of performance-based energy reporting and would encourage government to put this system in place, including for buildings under 1,000m2, as promptly as possible.
Decarbonising heating systems is one of the great challenges regarding the sustainability of the built environment. Ground and air source heat pumps are currently the primary choice for achieving this goal. Heat pumps typically use around 25% of the carbon used by a gas boiler. When connected to renewable infrastructure on site these systems can be run at zero emissions, however most businesses will use the Grid to power their heating systems. With the current price of electricity four-five times that of gas, heat pumps are often significantly more expensive to operate, causing a major barrier to investment. Because businesses consider their operation and capital expenditures separately, this high electricity cost coupled with the need for upfront investment in the technology means it is difficult to make the business case for heat pumps. There are several ways that government could support their broader uptake.
3.1 Reducing non-commodity tariff costs
By transferring some of the non-commodity tariff costs from electricity to gas, businesses would be far more incentivised to invest in heat pumps. Due to the multiplier effect of the energy efficiency gains, even one pence per kWh would make a significant difference to the business case and could reduce operational costs of heat pumps to achieve operating cost parity with gas. Given that the Climate Change Levy accounts for some of the non-commodity tariff costs, transferring it from increasingly clean electricity towards carbon emitting gas would encourage businesses to move away from gas systems.
Many large energy users currently spend a similar amount on gas and electricity. Therefore, transferring the non-commodity tariff cost from one to the other would have no impact on their overall bill. Instead, it would incentivise and reward those who do transition away from gas heating systems by lowering their bills.
3.2 Renewable Heat Incentive
The Renewable Heat Incentive (RHI) is a key lever in supporting the business case to switch to low carbon heating systems. For example, the RHI halves the payback time of a ground source heat pump from 10 years to five years. We would call on government to either reinstate it or replace it with a similar scheme to support further decarbonisation of heating systems,
3.3 The UK Emission Trading Scheme
Some of our customers are registered with the UK Emission Trading Scheme (UKETS) and as such we factor the base price and anticipated trading price for CO2 emissions in to business cases for energy reduction investments, such as heat pumps. This base price is set by government.
If government increased the CO2 base price this would incentivise businesses to invest in renewable heat at a much quicker pace to avoid these costs. It would also make the business case for technology that uses electricity over gas much clearer, making it easier to secure approval for the investment.
3.4 Demonstrating the business case – Mitie client case study
Mitie supports a large UK finance organisation with its sustainability programme. This programme has included a full review and benchmarking exercise to develop a carbon reduction and sustainability plan, saving nearly 200,000 tonnes of carbon since 2015. As part of this programme, the organisation presented to its Board a proposal to invest £2 million in gas boiler replacements. Despite the organisation’s leading sustainability commitment and targets, this proposal was rejected by the Board due to the payback not being clear and not as strong as other applications for CAPEX funding in other areas of the business.
From our experience, this is far from an isolated incident. Indeed, this example is common among UK businesses, as even those with ambitious net zero plans must demonstrate the business case for all significant investments. Feedback from our customer was that two measures from government would help alleviate this issue. Firstly, an enhanced capital allowance for sustainability CAPEX investments would reduce the payback term for sustainability-focused retrofits and maintenance. Secondly, if government were to publish the predicted cost of carbon credits for the next 5-10 years this would quantify the cost of carbon offsetting, adding further justification to the business case for sustainable investment.
Many sustainable investments – including double glazing, solar energy infrastructure and air source heat pumps – require planning permission to be installed. This requires a significant amount of resource in order to submit planning applications and engage with the planning process to ensure businesses can invest in these energy saving and decarbonising measures.
A change to national planning regulations in favour of green technologies and solutions would reduce the administrative burden on businesses and enable the rollout of measures such as double glazing, heat pumps and solar PVs much quicker that it can currently be achieved.