The UK hosts the COP26 climate conference in Glasgow in November and leads the way in declaring its commitment to net zero greenhouse gas emissions by 2050. But what does this mean for British businesses?
Going green and profit maximisation were once considered mutually exclusive, but times have changed. It now makes complete financial sense to consider the options to satisfy power and heat requirements from renewable sources.
Rising wholesale energy costs
The cost of grid-supplied electricity and gas is increasing. This is because the cost of wholesale electricity and gas, bought by retail energy suppliers on forward contracts has doubled over the last 12 months, a staggering increase. These wholesale cost increases, coupled with double-digit non-commodity cost inflation (the costs of delivering the energy and the government’s levies) and price volatility are priced into the tariffs offered by the retail energy suppliers.
Factors driving these price increases are outside any organisation’s control. Whilst energy prices are volatile (retail electricity costs have on average risen by over 10% per annum over the last ten years) with no telling when these price increases will stop. Undoubtedly, sterling’s relative weakness, rising crude oil prices and system outages are all contributory factors that ultimately hit a business’ bottom line, market competitiveness or both.
The good news is that it is possible to limit the impact of increases to grid-supplied electricity, gas and other fossil fuels. Cost savings of up to 60% can be achieved with the correct mix of onsite renewable generation even before reducing consumption through energy efficiency measures.
What practical steps can be taken to mitigate the risk of rising energy prices and volatility?
There are three key stages to reduce the risk of energy price increases that will also reduce the greenhouse gas emissions of energy provision.
- Energy Efficiency Measures – reduce your energy consumption
Investing in energy efficiency measures such as LED bulbs and lighting controls are often a sensible place to start and provide paybacks in under one year.
- Onsite Renewable Energy Generation – generate your own energy
Generating electricity and heat at the place it is needed could reduce grid-supplied energy costs by up to 60%. This requires an investment in suitable onsite renewable technologies, ideally using latent energy in free feedstocks such as sun, wind and the earth.
The business case for onsite renewables has never been more compelling, the key is to size a renewable technology (or combination of) with energy storage to meet the energy demand on the site.
- Green Energy Supply Contract – buy residual electricity from a supplier offering a green tariff
Many energy suppliers offer green tariffs for any additional grid-supplied power and gas. But beware – not all green tariffs mean the energy supplied has originated from a renewable source.
Consider the generous tax breaks available
Companies can obtain relief against corporation tax through maximising capital allowances on capital expenditure.
In the March ‘21 budget, a new corporation tax super deduction was announced lasting for just two years to encourage UK businesses to invest in technology that will help the economy build back better. This includes investments in onsite renewables and energy efficiency measures.
The financial benefits of being energy resilient can be just as important as the financial benefits from being energy efficient
For some organisations, particularly those involved in expensive batch manufacturing processes, the need for energy resilience underpins investment in onsite generation and battery storage.
A loss of power or even a voltage drop at a critical juncture within a manufacturing process can result in tens or hundreds of thousands of pounds of loss. Avoiding a couple of these events through investment in a battery can represent a one-year payback alone even without the benefits of price arbitrage and energy cost avoidance.
Will investment in energy efficiency deliver wider business goals?
Reducing carbon emissions feeds directly into an organisation’s corporate social responsibility (CSR) strategy which can boost brand reputation and help to attract and retain new customers and staff.
As the UK moves towards a low carbon energy future, more legislation is being introduced to encourage businesses to become as energy efficient as possible.
If your organisation is required to comply with the Energy Savings Opportunity Scheme (ESOS) and Streamlined Energy & Carbon Reporting (SECR) requirements, or as a landlord, the minimum energy efficiency standards (MEES) onsite renewables and energy efficiency should be firmly on the agenda to improve a buildings energy performance certificate (EPC) rating.
The CSR strategy is often the driving motivation for an organisation to consider energy with no greenhouse gas emissions, but the reality is, the business case also needs to stack up by choosing the right technologies for your business's energy needs and sizing the technologies correctly.
Where to begin?
The process of assessing the options to reduce energy consumption and onsite renewable energy generation can seem daunting (and expensive) and is the key reason many businesses have not explored this yet.
That is exactly why organisations like OnGen were founded, to remove these hurdles, and cost-effectively demonstrate the return on investment based on the specific energy requirements of a property and estate based on the unique demand profile of the energy user. See OnGen's free on-site renewable energy guide for more.