With energy costs still a major source of concern to consumers, Alan Aldridge looks at some of the choices facing organisations
Each month, the Consumer Price Index (CPI) remains stubbornly high – twice as high in fact as the Bank of England’s target – and one of the main reasons is the continuing high price of energy. For all of us, energy is not a discretionary purchase – we cannot choose to forego energy this month in order to make savings.
The energy issue has been growing in importance and urgency over the last few years. In the political arena, debates about peak oil as well as the need to replace aging power stations and distribution networks have resulted in a raft of new legislation. Whereas security of supply issues were traditionally not something the UK needed to concern itself with, that has all changed with the reduced flows from the North Sea but also political worries about the security of our imports. We may be in the middle of summer but the memory of disputes between Russia and the neighbours through which its gas flows are all too vivid.
Against the background of rising prices and concerns about security of supply, what can the UK do? After several decades of lobbying, the Government has finally woken up to the fact that the cheapest megawatt of energy is the one we do not need to produce in the first place. Or to put it another way, optimising our use of energy – using less – is the first priority.
As an engineer and also the Director of an association of businesses, it has always struck me as extremely odd how difficult this message is to get across. Running an organisation as efficiently and productively as possible is a primary task of management. But traditionally this has not applied to energy where the bill seems to be regarded as an uncontrollable overhead rather than a resource to be managed like everything else.
Well, the Government seems to have finally heard the message and measures such as the Green Deal and the smart metering programme should provide consumers with the ability to tackle some of these issues. It has to be said though that there is still a significant time lag between the legislation being framed and business seeing the benefit. The Coalition Government was elected a year ago but it will be another year before the first grants are made under the Green Deal. And the smart metering programme is not due for completion before 2020.
Yet the essential point is there – energy efficiency is the first step towards controlling and minimising consumption and therefore the bills to be paid. In the larger picture, the lower the total aggregated demand from UK plc, the lower the cost of providing a new generation of power stations and the smaller the amount of imported energy we need. At the level of the individual business or public service provider, reducing demand will cut the bills and can also reduce the size (and cost) of onsite facilities like boilers and air conditioning.
The Green Deal
The Green Deal will allow energy users to access energy efficiency measures – such as improvements to insulation and the installation of new heating systems, but also control systems – without having to find the money upfront. And one of the key points is that the projected savings on consumption should mean that the bills drop immediately, even allowing for the repayment contribution on the new installed measures. The Green Deal will be available for all businesses, not just residential properties, and is likely to be most attractive to Small and Medium sized businesses (SMEs). We believe this will prompt major investment in the nation’s existing buildings and contribute to improved competitiveness in British business.
It has to be said though that this option is already available to many businesses. There are specialist energy services companies, several are members of ESTA, who already provide just this type of offering – and have been doing so for many years. These specialise in sharing the commercial risk in implementing programmes and, like the Green Deal, the resulting agreements usually involve no capital outlay by the client. Clearly, the robustness of the programme and the client itself affect the terms but it is worth looking into Contract Energy Management, or Performance Contracting as it is also known, if you do not want to wait for another year or more.
The thinking behind the nationwide roll out of smart (and advanced) meters is that all consumers will have access to current information about consumption and will be able to make informed decisions about energy use. The implication is that those decisions will drive down consumption and save money. Every home and business in the country will have smart meters installed by the energy supplier sometime between now and 2020. The vast majority of domestic and smaller SME consumers will have to wait till 2014 at the earliest as this is when the Government is planning the start of the ‘mass rollout’. However, for larger organisations, the new metering will come earlier.
‘Advanced’ metering has slightly different functionality but is, in ESTA’s view, more useful for non-domestic customers. It has the same advantage of giving realtime or Day + 1 readings of consumption (much more useful to both energy managers and financial controllers than the estimated readings we often have to put up with, even today). The data available from advanced metering or Automatic Meter Reading (AMR) can be integrated into commercial energy management and automatic Monitoring & Targeting (aM&T) systems.
All electricity users with Load Profile 5 or above will receive advanced metering and gas users with an annual demand of 73.2 MWh or above – currently about £4,000 electricity spend and £18,000 gas spend at the site. Significantly, this metering has to be installed by the end of March 2014.
In our view some good decisions have been made about non-domestic properties. Users will still have the right to choose how their data will be collected (while there is a single central mandate for residential). This allows them to integrate fiscal and sub-metering data in the way they want in order to manage energy. There is no mandate for a dedicated in-house display but in fact we believe the vast majority of businesses will want to use the internet to see and act on metered data. Finally, there is no mandate within the regulations for remote disconnection of gas supplies, although there is still some consideration about remote disconnection of non-domestic electricity – something we strongly oppose. In order to retain market share, several energy suppliers are rolling out smart meters earlier than the legal requirement – so you may get a good deal by enquiring earlier rather than later.
When first envisaged, the CRC Energy Efficiency Scheme was designed to incentivise large, nonenergy- intensive energy users (like large companies, health service installations, universities, etc) to save energy and so reduce carbon emissions. The emphasis though was firmly on improving energy efficiency.
The incentive was that the money spent on emissions allowances was to be recycled to participants – but in proportion to efficiency improvements. So the larger improvement, the higher the position in the annual league table and the more money that flowed back into the bank account. The league table was also supposed to provide a ‘reputational’ encouragement. Early adopter measures like the installation of aM&T systems or membership of the Carbon Trust Standard (or equivalent) also entitled those in the scheme to a higher place in the table with consequent financial benefit.
However, the incoming Government decided that the money generated was needed to help tackle the deficit, so it goes straight into the Exchequer’s coffers. The CBI concluded that the CRC had become a simple carbon tax.
Be that as it may, it is still a financial issue to be addressed by all those included in the scheme. Energy consumption has to be reported and soon allowances will have to be purchased to cover them. The good news is that the Government is proposing significant simplifications to the scheme, including keeping the price of emissions at £12 per tonne for Stage 2 in 2013 (it had been planned to move to a cap-and-trade arrangement like the EU Emissions Trading Scheme).
Further, the number of fuels included under the scheme will be reduced – from 29 to just four. The vast majority of energy use is from grid-supplied electricity and gas after all.
While such moves are to be welcomed, it does not change the main challenge is still to cut consumption. It should also be noted that reducing consumption by one tonne of carbon emissions may save £12 in carbon allowance charges, but that amount of energy will cost almost 15 times that amount to buy (Figure 1), so the focus needs to remain on consumption in general, not just carbon abatement.
The need to identify potential savings wherever they occur necessitates an effective Monitoring & Targeting system. aM&T will make the process simpler and the return on investment is very good for almost all but the smallest organisations. With the impending requirement for nearly all buildings with significant public access to produce Display Energy Certificates (DECs) there is an added incentive to adopt aM&T now (most of today’s systems can generate DECs automatically).
The cost savings are out there. Although the energy regulation landscape may look patchy and disjointed, it is possible to chart a path through it that maximises savings for a relatively small outlay.
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