Efficiency is back in the spotlight

Apr 17 - Works Management

Thirty years after the government's first publicity campaign for saving energy, a combination of fiscal and regulatory pressures is throwing the emphasis back squarely on reducing energy consumption. Paddy Baker reports

The tide has turned. For several years, the trend on energy prices has been downwards, so it was a relatively straightforward matter for companies to save money on their bills by negotiating with suppliers. However, over the past year, electricity prices to industry rose by 17% and gas prices by 8% - and the trend looks set to continue over the long term. If companies are looking to continue to reduce their bills, they need to turn at least some of their attention back to cutting consumption. So three decades after it was first used as a slogan in a government publicity campaign, 'Save It' is the order of the day once more.

So what's behind this rising trend? Green pressures, for one thing. To reduce carbon dioxide emissions, we need to burn less fossil fuel, which means being more energy efficient and developing renewable energy sources. To help fund this activity, a number of financial measures have been put in place. The Climate Change Levy, for instance, has already put a premium on energy from renewable sources. From January next year, the European Emissions Trading Scheme will start to have an effect when the most intensive users of energy - around 15,000 installations across Europe - will have a cap put on their carbon dioxide emissions. Investment bank UBS Warburg predicted last year that, mainly as a result of the costs of the scheme, wholesale electricity prices would rise by over 80% by 2010.

If that wasn't enough for British businesses to deal with, the situation has been exacerbated by the UK having unilaterally set itself a carbon reduction quota higher than its commitment under the Kyoto agreement. This move has attracted criticism from a number of quarters - for example, EEF director general Martin Temple has commented: "By setting the targets for reducing emissions higher than those in our competitor countries, government will simply add to the cost of manufacturing in the UK and potentially drive business away to other more competitive but less efficient parts of the world, unconstrained by the Kyoto protocols."

Buildings

But it's not just the intensive energy users who are likely to have to deal with regulations in the area of energy efficiency. The Energy Performance of Buildings Directive has to be enacted into EU member state legislation by 4 January 2006; although there will then be a three-year period while the different countries put in place the energy rating systems that the directive requires, it's clear that buildings will have to become more energy efficient over time.

Catherine lredale, representing the NEMEX show* (which runs this month), comments: "Construction companies will have to build to higher standards of energy efficiency, incorporating more technologies such as intelligent heating, air conditioning, fuel- efficient boilers and improved insulation, thereby boosting the sector's spend. Businesses will also benefit from reduced fuel consumption."

Occupiers of existing buildings will be affected too, she adds. "Inefficient buildings will be penalised and the owners may be required to trade carbon permits, thereby increasing the cost of their energy which will, the government hopes, act as an incentive for businesses to spend on improving their building efficiency. The costs here are likely to be significant."

And even before the European legislation begins to bite, Part L of the Building Regulations for England and Wales, which deal with energy efficiency of buildings, are due for their next revision next year. Changes are likely to encourage the use of low-carbon solutions such as solar water heating and photovoltaics.

All of this adds up to a situation where sticking to the status quo isn't an option - improvements in energy performance will be increasingly expected, and the fiscal environment will reflect this. However, those who can still recall the time of the original 'Save It' campaign can take some comfort from the fact that the solution isn't to move to a three-day week: there is a lot of advice and assistance available, much of it from government-backed sources. And very few companies are so efficient that there are not more savings to be had.

"Even organisations that have already made considerable savings in energy consumption can make further savings. We find that most can cut energy bills by at least 10% - often by introducing a number of fairly inexpensive measures." So says Future Energy Solutions (FES), an organisation with over 25 years' experience working with government and businesses to reduce energy consumption. FES works with companies in all sectors to show them how to reduce energy bills, make operations more energy efficient, and reduce carbon emissions.

Its solutions can involve innovative use of technology to reduce energy use and carbon emissions - and in many cases, government incentives make the technology more financially viable. FES recently worked with a high energy-using print company to assess the application of on-site windpower as a means of achieving its commitment to a 12% reduction target under a Climate Change Agreement. This option would also enable the company to sell Renewable Obligation Certificates for additional revenue.

What if a company has no budget for energy projects? SMEs in England, Wales and Northern Ireland can apply for interest-free Action Energy loans to pay for more energy-efficient equipment. The loans soon pay for themselves, and savings after that point go straight to the bottom line.

Companies that have taken up these loans have saved an average of 18,000 in this way. And let's not forget Action Energy's other services, which include free surveys of energy usage, and its management of the Enhanced Capital Allowance scheme, which provides tax breaks for companies that purchase energy equipment from an approved list of products.

But it's not only government-backed organisations that can help manufacturers to take the risk out of energy programmes. Companies such as utilities consultants or contract energy management companies, which identify potential savings for clients and then realise them, offer a win-win: the client saves money, while the company providing the advice and implementation makes its profit from taking a share of the savings it has created.

Some utilities specialists can help companies to get the best of both worlds - reducing energy consumption and price. Stalybridge, Cheshire-based extrusion company Stamford Group turned to McKinnon & Clarke to highlight any potential savings that could be made at its sites in Park Road and Bayley Street. Through a series of negotiations, implementations and improvements, the company was able to cut 20% off the gas bill at Bayley Street, and save 78,000 on electricity and 4,300 on water at Park Road - saving the company over 85,000 in total.

Uncomplicated

A new player in contract energy management (CEM) is facilities management company George S Hall (GSH), which is offering customers guaranteed savings with its new CEM service, Energyplus. As GSH's group energy managing director Chris McLain explains, this has been designed to eliminate many of the drawbacks and complications associated with traditional CEM arrangements - such as long-term contracts, a change of ownership of the energy plant, and significant termination payments. It does this by making its margin from efficiency reductions, which have to be above 5% - the level of savings that GSH will guarantee on its clients' bills. The company has been offering this service for some time to its maintenance clients in various sectors (including industry), but has now formally announced it as part of its facilities management portfolio.

The starting points of the service are a review of the customer's last 12 months of billing data and a site survey. The billing data is important because the structure of the tariff will affect the site's optimum pattern of energy use. The site survey looks to find savings, either by eliminating inefficiencies in the current pattern of use or by installing energy-saving devices such as controls and building management systems. Sometimes, relatively simple measures can make a difference - such as staggering the start times of motors so that the peak power demand is flattened.

GSH also promotes energy awareness among its customers' employees, using presentations, information boards and a high- profile awards scheme to get the energy-saving message across. All of this is at no cost to the customer-and as the basic 5% savings are guaranteed, the risk is minimal.

Is it too much to expect that industry will sit up and take notice of the need to save energy? One could argue that the situation doesn't change quickly enough to prompt action: energy bills creep up over time, and even the sudden impact of the Climate Change Levy a couple of years ago didn't provoke a massive surge of interest. But maybe the combination of schemes and support on the plus side, and new regulations and financial instruments on the minus side, will spur industry to grasp this issue. Colin McNaught, a consultant with Future Energy Solutions, comments that there is an advantage in moving first to adopt energy-saving measures: "For those that don't respond t\o the carrot, there is always the stick. Legislation and regulations will ultimately force these changes - but the rewards, and the competitive edge, will go to the companies that take early action."

"By setting the targets for reducing emissions higher than those in our competitor countries, government will simply add to the cost of manufacturing in the UK, and potentially drive business away to ... parts of the world unconstrained by the Kyoto protocols"

Martin Temple, EEF

"Legislation and regulations will ultimately force these changes - but the rewards, and the competitive edge, will go to the companies that take early action"

Colin McNaught, Future Energy Solutions

* NEMEX, the national energy management exhibition and conference, runs from 30 March to 1 April at the NEC, Birmingham. See www.nemexenergy.com

Copyright Findlay Publications Limited Mar 2004