Switching and funding for low energy street lighting

There are around 7.4m street lights in the UK and fewer than 10% of these are deploying low energy LEDs.  It is therefore little surprise that the Green Investment Bank (GIB) has published a market report (GIB Report) setting out the case for local authorities to consider converting their existing street lights to new, low energy technology and GIB potentially providing the funding for this technology. 

Media attention over recent weeks has highlighted links between an increase in the fear of crime and local authorities switching off street lights in order to save costs and reduce their carbon footprint.  Low energy lighting could, therefore, be a practical solution and cost effective solution for local authorities.

This alert sets out a summary of the GIB Report and how we can help you.

Green Investment Bank

GIB was formed as a public company in May 2012 and became fully operational in October 2012 when it was granted State Aid approval by the European Commission to make investments on commercial terms.  Its mission is "to accelerate the UK's transition to a  green economy and to create an enduring Institution, operating independently of Government" and its market report sets out a convincing case for local authorities to consider the possible savings that could be achieved from switching to low energy street lighting.

Why would you consider switching?

Rising energy costs are a concern – not just for households but for public sector organisations too.  The GIB Report stipulates that the annual spend on energy for street lighting in the UK is around £300m and modern street lights using LED, fluorescent lamps and induction lighting all offer potential savings when compared to conventional lighting solutions. 

Of the modern approaches, LED lighting has emerged as a favoured solution due to energy savings of up to 80% and longer maintenance schedules when compared to conventional lighting.  Looked at another way, up to 30% of a local authority's energy bill could be attributed to street lighting.  The savings that are to be achieved could, therefore, be significant at a time of unprecedented budgetary pressures for local authorities.

Further, as more manufacturers have developed LED solutions, the costs of the solutions have fallen as quality and output have increased – savings can be realised relatively quickly with shorter payback periods (around 5 years).  That said, take up has, so far, been relatively slow which is surprising given the potential for financial savings and the significant impact switching to LED street lighting could have on achieving 2020 carbon reduction targets. 

Crucially, GIB have also developed a package for delivering funding to this sector including loan documents and funding of up to £500,000 to support set up costs including a local authority's external advisers (which can be added to the value of the GIB loan).  The ethos of the GIB proposal is to encourage local authorities to consider a 'spend to save' approach.

Who could this benefit?

In reality, there will always be some local authorities that could stand to benefit more than others.  If you are a local authority that has already replaced your existing street lights with low energy alternatives, this scheme us unlikely to be of interest.  If, however, you have traditional street lights and you wish to cut your energy bills, address your carbon footprint and reduce ongoing maintenance costs then the GIB's Green Loan could be a very attractive proposition.  It should be noted that care will be needed where a local authority has an existing PFI arrangement – the impact of GIB's proposals should be carefully considered in the context of such long term arrangements.

 How Bevan Brittan can help you

Bevan Brittan has an enviable track record in the energy sector – advising on everything from ECO/Green Deal, CHP/ district heating to renewable energy projects for solar PV and wind.  We have also advised on a number of innovative solutions for street lighting and highways schemes.  For example, we advised the Hampshire, Southampton and West Sussex Councils on their combined £225m street lighting project - which included remote monitoring solutions to address concerns on energy costs.  We also advised Plymouth City Council on their street lighting project which includes LED lighting

On any low energy street lighting project, we will be able to assist you on:

• Procurement issues –what considerations do you need to take in to account when considering the viability of the GIB's proposal?
• Contract terms – what would be the most appropriate contract terms?  How would you incentivise delivery?  Can you use this opportunity to deliver wider added social value objectives?  How could you integrate this proposal in the context of longer term contractual arrangements such as PFIs?  How would you assess the GIB's lending terms (drawn up by their lawyers) and what are you risks under this pay to save model?
• Variations – can you vary existing contractual arrangements?  Are they short term or long term contracts?  Is there a set procedure?  Can you utilise this opportunity to drive greater efficiency through existing arrangements?
• Delivery Structures – how could you utilise this arrangement to deliver as part of a wider, more strategic approach to energy efficiency and energy generation in your area?  Could you use an ESCo or another arrangement to deliver this arrangement alongside other initiatives?