Decarbonising operational PFI projects: the move to net zero

It is estimated that 42% of the UK's carbon footprint stems from the built environment, with large-scale and energy intensive PFI assets making a significant contribution to that footprint.

PFI assets were largely designed and constructed in an era in which preventative climate change measures were less of a priority. Now, with far more robust (and legally-binding) net zero objectives in existence, reducing the carbon emissions generated by operational PFI projects has quickly become part of the net zero agenda.

The Infrastructure and Projects Authority (IPA) has recently published guidance for decarbonising operational PFI projects. The guidance was produced with input from the IPA's Net Zero Working Group (whose membership comprises key project stakeholders, including investors and facilities management contractors) and is designed to establish a standardised, best practice approach for contracting authorities to follow when seeking to improve the energy efficiency of PFI projects throughout their lifecycle.

The guidance sets out the following sources of greenhouse gas emissions which arise on operational PFI projects:

• Scope 1: Direct emissions generated from sources owned and controlled by contracting authorities (such as on-site fossil fuel heating systems).
• Scope 2: Indirect emissions generated from purchased electricity, steam, heating or cooling.
• Scope 3: Indirect emissions generated by the public sector's full supply chain.

It is recommended that parties focus first on decarbonisation measures on Scope 1 and Scope 2 emissions because they are easier to manage by project parties.

The pathway to reducing emissions will then involve two key stages – (1) preparing a Decarbonisation Plan and (2) delivering the "Net Zero Change".

Part 1: Devising a Decarbonisation Plan – The Key Principles

The guidance sets out a number of important principles for project parties to consider when preparing a Decarbonisation Plan:

1. Data first: Contracting authorities should obtain reliable data on the emissions generated by the relevant PFI project in the ordinary course of its operations. That data will inform a baseline position against which decarbonisation progress can be effectively monitored and benchmarked.
2. Know your contract: Not all PFI contracts are aligned in their approach to energy efficiency, risk and variation. Contracting authorities should therefore take care to understand the details of the relevant project agreement and plan accordingly. For example, variations may require lender consent and lenders may be concerned where experimental technical solutions are proposed. Contracting authorities should also consider each relevant contractual change mechanic.
3. Engage stakeholders: Collaboration amongst project partners and wider stakeholders is absolutely pivotal to implementing effective, technically-sound carbon reduction solutions. Parties with the relevant technological expertise and knowledge (such as facilities management contractors) could be in a position to propose energy efficiency measures which operate successfully in practice and contracting authorities should tap into that private sector innovation.
4. Prioritise: There may be no "one size fits all" approach across projects. Solutions will be more effective if tailored to the specific asset and/or site in question. Parties should consider the size and age of the asset, repair and maintenance cycles, site-specific design limitations, budgetary constraints and the length of the asset's remaining operational period.
5. Make a plan: Project partners should work together to produce a short, medium and long-term plan for reducing carbon emissions which allows for progress to be monitored over time in order to maintain momentum.

Part 2: Delivering a Net Zero Change – Varying the Project Documents

Once a Decarbonisation Plan has been prepared, attention must then turn to the practicalities of its implementation. In the event that this would involve varying contract documents, further guidance recommends that a standardised, five-stage process is followed. There are also a number of key technical and legal considerations set out in the guidance which are relevant at each stage of the process.

No quick fix

There is no quick fix for reducing the carbon footprint of large, complex PFI projects. With tailored preparation, knowledge sharing and commitment from project partners and stakeholders alike, effective decarbonisation plans can be implemented to ensure PFI projects contribute to the achievement of wider net zero objectives for the remainder of their operational lifespan.

Should you require advice on navigating carbon reduction measures in the context of the PFI contractual framework, please get in touch with Stuart Murray, Partner in our Infrastructure Projects team.