Energy efficiency: Forging the path from compliance to competitive edge
Transforming an organisation's energy management approach from 'tick-box activity' to 'money-generating competitive edge' is easier said than done. But for E.ON Energy Solutions strategic account manager John Walsh, climbing up the pyramid is a worthwhile journey if you get it right.
Energy managers have a lot on their plates. Long gone are the days where monitoring and analysing formed the crux of an energy manager’s routine. They are now expected to implement and streamline new forms of data management, engage and inform staff members and always keep one eye on legislative changes.
For those slightly more swamped by the job at hand, energy management is indeed at risk of becoming a tick-box exercise. A lack of boardroom buy-in is often cited as one of many factors that can lead a company into this state. But more recently, the way that companies interact with energy has undergone a radical shift to the point where the most competitive can now monetise their management methods.
A recent benchmarking survey carried out by edie in association with energy company E.ON has painted the scene as to how UK companies are now interacting with energy. The survey covered five tiers of the energy efficiency performance 'pyramid', with companies ranking themselves as 'Compliant', 'Knowledgeable', 'More efficient', 'Self-sufficient' and 'Generating revenue' when it comes to the current state of their energy management processes.
More than 70% of the survey's respondents placed themselves at the ‘Self-sufficient’ stage of the pyramid, while 44% claimed that their organisation – which ranged from SMEs to businesses with more than 5,000 employees – is now generating revenue from energy efficiency.
Just identifying your energy efficiency credentials can be a complex task. In fact, a recent edie webinar featuring energy experts from Costa Coffee, Hilton Worldwide and E.ON explained how businesses can cut through the complexity to drive energy efficiency in-house.
But the UK is actually a relatively enabling environment for those who want to move beyond compliance and gain a competitive edge in the transition to a low-carbon economy and energy grid. To thrive in this new market, moving up the pyramid is key. With this in mind, edie spoke to E.ON Energy Solutions strategic account manager John Walsh, who explained what frameworks and technologies will act as the key enablers to climb the efficiency ladder.
The ESOS 'Opportunity'
According to Walsh, the rate of change for energy managers – even the experienced ones – in the current environment is “increasing significantly”.
Policy changes to renewables tariffs, reforms and consultations aimed at the Renewable Heat Incentive (RHI) have kept energy managers on their toes over the past 12 months, but Walsh believes that the UK Government has introduced a largely enabling framework that allows companies to comply with energy efficiency needs; a framework that also allows companies to push beyond compliance through the Government's Energy Savings Opportunity Scheme (ESOS).
“ESOS is a real foot in the door,” Walsh says. “It is viewed as a piece of compliance; however, forward-thinking companies have spotted the 'Opportunity' with ESOS; they’ve already got the process sorted and they’ve got board-level sign off for it. Companies can take advantage by acting on the recommendations of ESOS.”
“However, what we need to understand is that to comply with ESOS all you need to do is generate that report; it’s a tick-box exercise. But we’ve seen customers that realise that if they act on the recommendations of ESOS, they can generate the savings that have been highlighted. If that ESOS report stays on a shelf, then it’s just money wasted. But, if you bring it into practice, energy managers can save a significant amount of both energy and money for their company.”
The Environment Agency's official document on ESOS enforcement and sanctions details that the maximum penalty for failing to undertake an energy audit ahead of the ESOS compliance deadline is up to £50,000, and up to £500 for each working day that the responsible undertaking remains in breach of the mandatory scheme, for a maximum of 80 working days.
Around 3,000 of the circa-10,000 ESOS qualifying organisations were unaccounted for in a mid-April headcount. Despite this, more and more companies are beginning to see the business case for ESOS. Analysis from the Carbon Trust suggests that a business with an average energy spend (£1.8m) and average reductions identified through ESOS would be in line for savings of £360,000. In short, the case is there for ESOS to be much more than just another tick-box exercise.
Manage what you measure
For Walsh, the monetary gains to be made from ESOS and other energy management compliance frameworks should be able to shape boardroom attitudes towards further energy efficiency measures. The monitoring and measuring of energy use and expenditure is key to “getting your house in order” and start striving towards becoming self-sufficient, Walsh says.
Auditing, sub-metering and transparency toolkits not only highlight areas in need of energy efficiency improvements, but also create the knowledge that can then be passed into boardrooms in order to invest in process and technologies such as LED lighting and HVAC systems.
“If a company needs to justify the spend, what they need to do is measure and audit,” Walsh explains. “If they can invest, or they have the skill to have monitoring in place, then it is a crucial first step on the company road to becoming energy-efficient. You need to understand where you are now if you want to understand where you want to be.
“Usually, after manpower, energy is the biggest single annual cost for all our customers, and is therefore a priority, and if you get energy efficiency right you will see the benefits. It’s a universal approach. Measuring and monitoring are the building blocks that are required if you want to go down this energy saving path.”
Data management is often heralded as the method to take both energy use and internal behaviour change to the next level. As a recent business example, travel and tourism company Thomas Cook explained to edie how data management has helped the company become more transparent and efficient.
Forward thinking efficiency
With a greater understanding of how a company interacts with energy, managers can pick the low-hanging fruits – these usually come with low, upfront costs – that will make operations more energy efficient.
As the aforementioned survey revealed, a lot of companies seem to identify with the 'Knowledge' tier, with many also implementing the “low-hanging fruits” of LED lighting to enter into the 'Efficient' bracket. However, beyond this point, there is a sense of friction between energy managers attempting to move the agenda forward, and boardrooms that are reluctant to increase capital spend.
In order to create a platform in which you can introduce new measures, Walsh suggests introducing incremental goals and targets that actively encourage board members to provide funds for the next instalment – providing the energy manager can articulate the business case for these measures beforehand.
“We need to move the conversation about energy from the plant room to the boardroom,” Walsh notes. “We need the key decision-makers in organisations to realise the potential of these areas and how the company can become much more competitive as a result.
“Target-setting will help to get senior manager buy-in. Usually you can quantify the targets to ascertain what the investment will return, from carbon saving to monetary. But it's good practice to get your house in order first, before you consider taking that next step change, and get a good feel of what your energy profile and consumption is.”
Energy managers and sustainability heads at the likes of train business Northern Rail and engineering firm Jacobs have previously explained to edie that engaging the boardroom can happen in numerous ways. For Walsh, once the boardroom is on-board, it is crucial that an energy manager scopes the correct technologies to start generating energy on-site.
When moving into the 'Self-sufficient' tier of the pyramid, a lot of companies are faced with decisions that can define how energy is utilised, stored and generated on-site. Solar arrays, battery storage and combined heat and power (CHP) are all viable options – depending of course on the legislative climate – to enhance energy efficiency.
Despite tumbling installation costs, companies looking to venture into on-site generation are still faced with large upfront capex. According to Walsh, this aspect of energy management is “significant step-change”, and one that companies will often put off due to the complexity and risks involved.
“On-site generation such as biomass, CHP and solar will help customers move from being more energy efficient to becoming self-sufficient,” Walsh says. “It can be a daunting step, and often companies will put this move on ice because it can be quite complex and risky and there’s usually some significant capital involved.
“You need to have an understanding of the technology as it could be something that is completely new to a business. Companies making plastic cups are unlikely to know much about biomass boilers, and why should they? But it’s an area of expertise for others.”
Walsh notes that E.ON is one of the companies that can help in this area. In one example, the firm recently helped Edinburgh City Council in installing CHP systems in nine public buildings, which looks set to reduce on-site energy costs by 24%.
According to Walsh, E.ON is “technology agnostic” and won’t favour one ideate over another in order to secure a better deal. Instead, E.ON will open up the conversation to cover the benefits of all technology choices.
But while having the right external partners is key, there are still pitfalls that companies can become trapped in. For Walsh, it is vital that companies follow the energy efficiency pyramid in the right order. Installing an on-site solar array before actually reducing energy use through other means has the potential to waste capital expenditure. Walsh notes that oversizing or undersizing the capacity on any on-site installation will lead to unnecessary upfront costs or a potential loss on returns.
Show me the money...
The survey highlighted a gap between companies that identified themselves as 'Self-sufficient' and those that are now able to monetise energy management. The National Grid’s increased focus on demand Response to incentivise the Capacity Market has opened the door for energy-efficient companies to turn their efficiencies into significant monetary gains.
One recent report from the Association for Decentralised Energy (ADE) suggested that businesses venturing into demand response initiatives could establish a 10-fold increase in revenue streams; on top of the £100m gained from the Capacity Market.
For Walsh, demand response represents a “game-changer” for energy managers that turns traditional “images of doom and gloom” into a reformed market that incentivises companies and creates new opportunities and innovative solutions for energy managers.
“Demand response creates the opportunity to reinvent relationships between customers and energy,” Walsh adds. “Traditionally the utility industry has been labelled with an image of doom and gloom and only sharing bad news such as tax increases, and that is often still the case. However, electricity market reform also offers opportunity for forward thinking innovative customers.
“Customers spend a lot of time tendering and procuring their energy supply, and they’ll turn to third parties who they pay to do it for them. But, if the company can see beyond that and look to widen the conversation to include new areas of discussion around energy [such as demand response]; and if the company is progressive and forward-thinking and willing to spend an equal amount of time in these new areas, then there is a significant opportunity for the customer to gain a disproportionate benefit.
“If they spend half the time that they do on procurement in this area it would have a much greater effect on the bottom line. How many more products would they have to sell to make that equal monetary contribution? This is a mindset change for the industry and we need to prioritise this area.”
Demand response is already paying dividends for companies willing to take the leap and embrace it. Publishing company The Herald and Times Group, for example, recently discovered a new revenue stream worth up to £250,000.
Energy management has many facets to it, but for those willing to venture down the path, the end goal is one that could significantly benefit the bottom line of a business.
The energy efficiency path can be a long and winding road, but cutting through it can be invaluable for the long-term success of a business.
Top tips: Moving from compliance to competetive edge on energy management
The energy efficiency path can be a long and winding road for businesses, but cutting through it can prove invaluable for long-term success. edie has compiled a list of 10 top tips to move from compliance to competitive edge’ on energy management, with the help and expertise of E.ON Energy Solutions strategic account manager John Walsh.