Regulatory outlook

The UK energy system requires rapid and radical change to reach the Government’s target of net zero carbon emissions by 2050. A smarter grid, new energy storage, charging infrastructure and better energy efficiency will all be needed as fossil fuels are phased out of the power, heating and transportation sectors and more activities are electrified.

The pace of change is set to rise. In December 2020, the Government announced it would target a 68 per cent reduction in emissions by 2030 (relative to 1990 levels) up from the previous 57 per cent target. Over the course of the year, it has also announced several initiatives promoting decarbonisation across the economy. These have the potential to create new opportunities for Calisen.

Smart meter roll-out

The Government has announced plans to accelerate the roll-out of smart meters with a new four-year policy framework set to begin on 1 July 2021. This targets 100 per cent coverage by 2025 with individual energy suppliers mandated to install a minimum number of smart meters each year.

The Government recently consulted on setting each energy supplier an individual target obligation, subject to annual tolerance levels that apply across the industry as a percentage of their customer base. The Government believes the regulatory certainty provided through this process will drive consistent long-term investment.

The wider success of the smart-meter installation programme is highly dependent on consumer acceptance, which has been a key hurdle to the roll-out so far. To address this challenge, the Government plans to change the way household tariffs are set alongside a broader set of market reforms. This will see the energy industry shift to half hourly price settlement – allowing consumers to access prices for every 30-minute period of the day.

These smart tariffs will reward consumers for using less electricity when demand is high or for using more when overall demand is low and there is surplus generation available, for example on a sunny or windy weekend. OFGEM estimates this will save consumers between £1.6 billion and £4.6 billion by 2045.

A Green Industrial Revolution

Smart meters are just one part of the Government’s plan to reshape the UK’s energy landscape. Its broader proposals for a Green Industrial Revolution may also create opportunities for Calisen.

The Government has committed to invest £9.2 billion to improve the energy efficiency of homes, schools, and hospitals – which will be supported through a new Heat and Buildings Strategy set to be published in early 2021. This includes an extension to the Green Homes Grant, which subsidises domestic energy efficiency improvement, in addition to £1 billion to support the installation of 600,000 heat pumps by 2028.

The transport sector is also set for rapid change with the sale of new petrol and diesel cars and vans banned by 2030 and hybrids banned by 2035. To facilitate this shift several measures have been announced to promote the uptake of EV, including £1.3 billion to accelerate the roll-out of the charging network, grants to subsidise the purchase of zero or ultra-low emission vehicles and funding to assist with the development and production of EV batteries. Completion of the smart grid – enabled by the meters Calisen installs – will facilitate this process by supporting smart EV charging.

Seizing the opportunity

Calisen has already begun assessing the opportunities created by the transition to a low carbon economy through a Board level annual strategy review process. For example, over the last year, the Company has assessed the EV charging market and other areas consistent with its focus on small-scale, high-volume energy infrastructure assets.

The Company has developed a plan to further enhance the identification and management of climate-related opportunities and risks. As part of this process, it has established a steering committee of functional experts from across the Company, chaired by CEO Bert Pijls, to lead the development of an emissions reduction plan and appropriate targets alongside the Company’s broader sustainability strategy. The Company will further define accountability for climate action at Board and management level in 2021 and further integrate climate change into its strategic business and financial planning.

Tackling Calisen’s emissions

Calisen’s business is aligned with the targets of the UN Sustainable Development Goal 7 which aims to promote access to affordable, reliable, sustainable, and modern energy. In particular, Calisen’s smart meter business supports the UN’s targets relating to modern energy services, increasing the share of renewable energy, and doubling the global improvement in energy efficiency by 2030.

Calisen already plays a role in reducing the UK’s greenhouse gas emissions. Analysis by BEIS suggests that the average smart meter helps reduce household energy use from electricity by 3 per cent and gas by 2.2 per cent.

Using this analysis as a guide, our carbon consultant, Green Element, has estimated that Calisen’s installed smart meter portfolio as at 31 December 2020 is anticipated to contribute towards a total lifetime carbon emissions reduction of 3.5 million tonnes by 2035 resulting from household energy savings alone (excluding emissions from manufacture, installation or end of life).

Calisen is also committed to reducing its own emissions and continues to work with Green Element to map its carbon footprint. The Company has disclosed its Scope 1 and 2 emissions this year for the first time – consistent with the UK’s Streamlined Energy and Carbon Reporting requirements – and is completing an audit of its Scope 3 emissions. This work will inform the development of emissions reduction targets for all three scopes in the next 12 months consistent with the goals of the Paris Agreement. As part of this process, the Company will examine all aspects of its operations and supply chain – working with external parties where necessary to address emissions hotspots and promote broader change in the energy industry.

Calisen’s carbon emissions and energy use fell in 2020 as meter installation activity was curtailed by COVID-19-related restrictions and this was the primary driver of the change in energy intensity over the year. The Group closed three depots and reporting centres within the Lowri Beck business which also reduced energy use relating to buildings and transport.

Calisen also began to take actions which will sustainably reduce its carbon footprint within the ongoing business. For example, Lowri Beck began to switch to renewable energy tariffs at its major sites and adopted a centralised logistics process which will reduce energy use in the Company’s buildings and vehicles. It has also refreshed its telematics system and trained teams in how to access driver data to promote fuel efficient driving and identify excessive fuel use.

The Company has changed its policies to favour lower emissions company cars and plans to begin a commercial trial of full electric and hybrid vehicles in 2021 to assess their potential to reduce the carbon footprint of its fleet.

Over the course of 2020 Calisen also decided to improve its environmental disclosure, in keeping with the longstanding ISO 14001 certifications of the operational businesses. Further details on its plans to comply with the recommendations of the Task Force on Climate-related Financial Disclosures (“TCFD”) standards are set out later in this section.

Smart meters – lifetime carbon savings

This table represents Green Element’s calculations of the carbon savings associated with the revenue generating meters installed in the Group’s portfolio. It includes household energy savings due to the installation of smart meters and associated energy consumption behavioural changes.2

Electricity GasGas
Annual per meter consumption (kWh)3,550112,0001
Weighted3 average energy saving (%)3.0%21.9%2
Annual per meter energy reduction (kWh)106.5225.2
Annual per meter annual carbon reduction – energy saving (tCO2e)0.030.05
Total annual carbon reduction – energy saving (tCO2e)96,178117,947
Total lifetime4 carbon reduction – energy saving (tCO2e)1,442,6741,769,201

Assumptions:

  1. Obtained from the 2020 average UK household energy consumption: Source, Ofgem (2020): Typical Domestic Consumption Values.
  2. The 3.0% and 1.9% figures represent the average household energy savings resulting from changes in consumer behaviour after switching to smart meters for electricity and gas respectively. These figures were reported by BEIS in the “Smart meter Roll-Out Cost-Benefit Analysis” published in 2019 and take account of the proportions of credit and prepayment meters in use in the UK.
  3. The number of smart meters in prepayment mode is assumed to be 19%. Source: BEIS’s 2019 Q4 Smart Meters Statistics Report.
  4. Illustrative lifetime based on prudent estimate consistent with the Group’s smart meter depreciation policy, whilst assuming meters are installed and operational during the full depreciation period.
  5. Calculation focuses specifically on the household savings benefit of a smart meter versus a traditional meter excluding certain carbon costs such as emissions from manufacture, installation and end of life.

Task Force on Climate-related Financial Disclosures

The Group is committed to implementing the recommendations of the TCFD, recognising that better reporting helps sustain stakeholder confidence in the business and its strategy.

Calisen’s purpose is to develop a clean, more sustainable energy sector. This has informed its strategy of focusing on small-scale high-volume energy infrastructure and the development of its smart meter business. The Board has considered the risks and opportunities created by the transition to a low carbon economy in this context and in 2020, the Group entered the EV charging market consistent with this approach.

During the year Calisen established a Sustainability Steering Committee (“SSC”), chaired by the Chief Executive Officer, whose purpose is to assist the Board with the development, delivery and reporting of the Group’s sustainability strategy and targets, the oversight of social and environmental risks and its compliance with both mandatory and appropriate climate-related voluntary disclosures, including but not limited to TCFD and SECR reporting.

The SSC has engaged special advisers to assist the Group in developing climate-related financial disclosures consistent with the TCFD recommendations. It has also developed an action plan to enhance its climate governance, risk management and strategy and will introduce appropriate metrics and targets accordingly – including a science-based emissions reduction target.

In 2021, the Company plans to further enhance its governance defining responsibility for climate change at Board level and enhancing its processes for identifying both physical and transition risk. This process will allow the Company to factor climate issues more holistically into its strategy, business and financial planning.

Calisen’s SECR for 2020

2020 global (all UK)2019 global (all UK)% Difference
Energy consumption used (kWh) 
Electricity515,411623,615-17%
Gas25,84730,470-15%
Transport fuel10,789,40516,588,333-35%
Emissions (tCO2e)1
Scope 1
Emissions from combustion of gas5.37 6.33-15%
Emissions from combustion of fuel for transport purposes1,141.551,774.55-36%
Emissions from other activities which the Company owns or controls including operation of facilities2.7149.90-95%
Scope 2
Emissions from purchased electricity – location based120.16 159.40-25%
Emissions from purchased electricity – market based114.93152.17-24%
Scope 3
Emissions from business travel in rental cars or employee vehicles where the Company is responsible for purchasing the fuel1,523.442,426.04-37%
Emissions from upstream transport and distribution losses and excavation and transport of fuels – location based668.831,038.49-36%
Emissions from upstream transport and distribution losses and excavation and transport of fuels – market based667.661,036.78-36%
Total location based3,462.075,454.71-37%
Total market based3,455.605,445.77-37%
Intensity (kg tCO2e/£m turnover)
Revenue £m248.1208.819%
Intensity ratio: kg tCO2e from Scope 1, 2 and 3 (fuel for business travel only)/£m
Market based
13.93 26.08-47%
Average number of FTE1,448 1,5042-4%
Intensity ratio: tCO2e from Scope 1, 2 and 3 (fuel for business travel only)/FTE
Market based
2.4 3.6-34%
MethodologyGreenhouse Gas Protocol Corporate Accounting and Reporting Standard
External verificationGreen Element Limited and Compare Your Footprint Limited external verification process

Notes:

  1. tCO2e is tonnes of carbon dioxide equivalent gases.
  2. 2019 FTE count represents the year end numbers and not average FTE as is the case in 2020 since the Lowri Beck business joined the Calisen Group part way through 2019.

Calisen has been awarded the LSE's Green Economy Mark. The Green Economy Mark recognises companies that derive 50% or more of their total annual revenues from products and services that contribute to the global green economy. The underlying methodology incorporates the Green Revenues data model developed by FTSE Russell.