Power Efficiency regularly monitors energy markets and trends of future energy prices and recently conducted research looking at the long-term impact of energy prices. Their findings have surprised many UK business leaders, indicating that prices will continue to increase, possibly by as much as 81% by 2021. This points more than ever to the need for energy, and more specifically energy management to be a high priority on the boardroom agenda. Mark Callaway explains.
UK businesses are grappling with significant energy price rises, with official figures showing an increase in spend on electricity and gas for commerce and the public sector from £5.8 billion in 2004 to £10.3 billion last year. We came out of a long period of deceptively low energy costs stimulated by competitive markets and plentiful supplies to the combined effect of an escalating increase in fossil fuel prices since 2004 and the costs associated with the Government’s environmental policies.
The results of our research with independent market analysts, Waters Wye Associates show that volatile international energy markets will continue their upwards pressure on bills, and businesses will face substantial increases due to well-meant Government policies to cut emissions. The key conclusion of the research, based on the energy consumption of a typical commercial customer, was that we could expect energy prices to rise by as much as 81% - an additional £8.4 billion per annum- by 2021, unless operators take remedial action.
There are several factors that affect energy prices. In the UK, we now import nearly half our gas, which means we are exposed to volatile international energy markets, and we use the fuel we import to generate half our national power. The Government recognises this increasing cost volatility and, alongside the need to decarbonise our generation sector, has made it a major motive for its Electricity Market Reform (EMR) White Paper. EMR will reinforce the trend for the Government to tax energy use and make customers pay for an increasing number of subsidies offered to investors in low carbon energy sources.
The dilemma for businesses is how to can set an effective and sustainable energy-management strategy, what the targets should be and how can these be measured against the necessary investment? Financing deals are available but to ensure they are approved at the highest level, we recommend they are presented in the boardroom, preferably near the top of the agenda.
There are many factors to consider when developing a strategy, and each of the following are critical to a successful strategy:
- The impact of energy price inflation
- Managing the cost of compliance for the CRC Energy Efficiency scheme and other legislation/guidelines
- Choosing the right method of energy procurement for your business and energy strategy
- Give the right strategic and tactical talent and resources to implementing the strategy
- Operations and Maintenance departments have a direct impact on energy consumption and play an important role in implementing energy management strategies given the right resources and responsibilities, so plan accordingly
- Consider how the business will monitor and measure success
- Consider the imaginative ways in which energy can be used, and wastage cut.Schemes such as the CRC Energy Efficiency scheme whilst challenging, are an opportunity to do this.
- Explore outsourcing and risk transfer of the energy management strategy through an energy services company (ESCO)
Our advice is that to be sustainable and successful an holistic view of the energy issue must be taken by businesses at the boardroom level. This will help to develop and implement an effective energy management strategy to improve efficiency, reduce costs and cut carbon emissions. This is not about ticking a green agenda box, but addressing all the issues simultaneously for the long-term sustainability of the business.
Interested in the report? Be sure to read The Energy Price Challenge.