BusinessGreen offers a five point guide for how progressive companies can shield themselves from volatile energy markets while still moving closer to their net zero goals
In October, the boss of frozen food chain Iceland, Richard Walker, took to the airwaves of Radio 4 to warn that customers would soon have to pay more for its products as the supermarket looked for ways to offset soaring energy bills throughout 2022. The company would be facing £20m of added electricity costs in 2022, he said, and had little choice but to pass on the costs.
Iceland is far from alone in facing some horrible choices in the coming months, as energy market volatility and surging gas prices combine with on-going Brexit-related supply chain challenges, the continuing pandemic, and global shortages of key materials to create a daunting operating environment. The huge increases in gas prices experienced over the past year may have triggered a wave of energy supplier bankruptcies and a cost of living crisis for millions of households, but businesses are also having to wrestle with the fast-rising costs and volatility that has resulted from the energy market’s continued reliance on fossil gas.
From large chains like Iceland to small outfits operating out of home offices, soaring energy prices could take a major chunk out of bottom lines while also putting turboboosters under wider inflationary pressures. As such forward thinking businesses will be urgently drawing up strategies for how best to insulate themselves from the current crisis and ensure they are better prepared for the next spike in energy prices. With the government yet to unveil a coherent plan for how it plans to protect households from April’s imminent increase to the energy price cap and respond to the wider economic pressures created by rising energy costs, savvy business leaders will not be painfully aware that there is only so much policymakers can do to ease the pressure.
The good news is there is a number of actions forward-thinking businesses of all sizes can take to shield themselves from rising wholesale energy prices over the coming months and beyond – and all of them will move them closer to their net zero goals and place them at the forefront of the clean energy transition. From energy efficiency and load management to clean energy procurement, there are solutions available that will enable firms to boost their profitability in the long-term and curb their carbon emissions, while reducing their energy bills and loosening their ties with chaotic fossil fuel markets.
Unsure about where to start? Here’s BusinessGreen‘s five point guide for those firms looking to get ahead and remain competitive during what promises to be a turbulent few months.
1. Embrace energy efficiency
The most sustainable and cheapest energy for a business is always the energy it doesn’t use. Energy efficiency improvements are the lowest cost and most effective means to reduce carbon emissions and shrink energy bills in the short-term. As such, actions that enable an organisation to optimise its energy use should be the first port of call for businesses looking to shield themselves from skyrocketing gas and electricity bills.
Energy efficiency improvements take a number of forms, ranging from no cost measures such as simply making sure the office thermostat is optimised, to more capital-intensive projects like wall insulation. The Energy Savings Trust counsels that all firms should undertake a thorough energy audit – focused on heating, lighting, and office equipment – to work out the areas where energy consumption can be tapered.
“We advise creating an emissions inventory for your organisation that lists each operation, service and product from most emissions to least,” said Inga Jirgensone, group head of business development at Energy Savings Trust. “This will allow you to see which areas use the most energy, whether its electricity, gas and oil to power an office, air conditioning maintenance, water or manufacturing.”
Solutions that can be tapped to improve an organisation’s energy efficiency range from the installation of energy efficient lightbulbs, double glazing, and draft excluders, through the optimisation of existing heating, lighting, cooling and computer systems through heating controls and regular maintenance, to the development of high spec passivhaus standard offices that require negligible amounts of energy to run compared to conventional buildings.
EnergyUK’s deputy director of policy Charles Wood said energy efficiency was the “simplest way” that firms could insulate themselves from high gas and electricity prices, and as such should be companies’ first priority.
“Fabric first’ is something we stand by,” he said, noting that all other clean energy solutions came hand-in-hand with energy efficiency measures. “Energy efficiency should be done regardless of whether businesses embrace other technologies, but it will also be done as part of going to those other options,” he added.
Full blown energy efficiency upgrades can come with a considerable upfront cost and disruption, but they invariably offer an attractive return on investment even before you consider the environmental, health, and productivity benefits. And while such projects can take time to deliver there are also steps firms can take right now to curb their bills, starting with the simple practice of reminding employees to save energy wherever possible.
2. Optimise energy use
Energy suppliers tailor their electricity rates to encourage customers to reduce their requirements during peak periods, and businesses that can should make sure they are taking advantage of such opportunities. Firms can significantly reduce their energy costs if they schedule energy-intensive activities for times when electricity prices are low by sidestepping exacting peak period rates. Factories, industrial plants, and some commercial businesses that operate outside of the regular working day in particular can benefit from so-called demand response services and the load management techniques that allow them to take advantage of the lowest cost and cleanest power. Companies based primarily during the regular working day will naturally have less flexibility over when they consume energy, but energy storage systems and evolving flexible grid services raise the prospect of all organisations being able to avoid the costliest peaks in power prices.
There is a growing number of ‘smart’ tools on the market that can automatically optimise load management processes and better match demand to periods when electricity prices are low, delivering significant emissions savings in the process. Firms embarking on this journey should ensure they have a smart meter installed to monitor their energy use, as well smart controls on energy-consuming equipment that can ensure devices are attuned to avoid high energy costs where possible.
Energy UK’s Wood said there was already a strong financial case for businesses to install smart controls on electric vehicles and heat pumps. “For larger buildings and businesses, the most effective way to operate a heat pump is to have those smart controls in place to ensure the right amount of heating but avoiding any spikes in cost,” he said. More on smart technologies later.
3. Unhitch your energy mix from fossil fuels
Perhaps the most blindingly obvious way for companies to protect their bottom line from surging gas prices is to sidestep the wholesale market altogether by securing their own source of clean energy, whether by installing on-site renewables or striking long-term clean energy offtake deals directly with power generators.
As Frank Gordon, director of policy at the Association for Renewable Energy and Clean Technology, put it: “The best way to insulate yourself from volatile international fossil fuel prices is to avoid using them entirely by switching to 100 per cent renewable energy supplies on site, and we would strongly urge businesses to make the transition sooner rather than later.”
On-site renewables are an increasingly economic proposition for companies, with technology costs continuing to fall and a range of financing instruments now available for firms looking to install on-site solar and batteries. Solar panels, in particular, are an increasingly economic option for many businesses, while the government is set to launch a Boiler Upgrade Scheme in the Spring that will offer considerable discounts on electric heat pumps.
“In the right locations, on-site solar panels now offer similar returns to the height of the Feed-in-Tariff days, so are an attractive investment in their own right,” said Gordon. “New support is emerging for clean heat installations as well with the Boiler Upgrade Scheme launching in the spring. Zero interest loans are also available in Scotland.”
However, there are limits to how much power a company can generate on site, so another option for firms looking to procure power at prices that are not undistorted by the surging price of gas is to secure corporate power purchase agreements (PPAs) with clean energy generators, which allow firms to pay a pre-agreed ‘strike’ price over a long period.
While the PPA market to date has been dominated by larger companies – consultancy giant EY, the City of London Corporation and supermarket chain Tesco are among the UK firms to have struck deals with clean power generators – there is a growing push to make PPAs accessible to a broader range of companies through aggregated deals which bring together coalitions of smaller firms.
“In terms of direct PPAs, this is still mostly a large business sector, but some innovative platforms are emerging to help enable this direct energy purchase for smaller companies, and trials are taking place in Cornwall, for example,” Gordon said.
With renewables costs continuing to fall and the UK committed to rapidly expanding its clean power capacity, PPAs offer a route for delivering new large scale wind and solar farms while providing businesses with competitively priced clean power. Moreover, 15 year contracts at a fixed price suddenly look more attractive than ever given widespread fears that the recent volatility in the gas market is here to stay. The financial benefits can be as attractive as the environmental ones.
4. Decarbonise your vehicle fleet
Gas prices have dominated the headlines in recent weeks, but oil prices are also ticking upwards as the global economy continues its messy recovery from the coronavirus pandemic. Petrol and diesel shortages at forecourts across the country last autumn also provided a stark reminder of how vulnerable critical supply chains can prove. Zero emission vehicles are not only cleaner and cheaper to run that their fossil fuel equivalents, but they will enable companies to rest assured that they can operate untouched by future oil-related disruptions.
Companies that accelerate the roll out of zero-emission fleets are poised to benefit from a raft of economic and enviromental benefits, and the move is likely to be popular among employees who want to avoid price shocks at the petrol pump and are keen to curb their environmental footprints.
Businesses can avail themselves of a number of incentives to beef up their electric vehicle (EV) stock. The Plug-in Car Grant scheme currently offers £1,500 off the price of eligible new electric cars, up to £5,000 off eligible large vans, and £2,500 for small vans. Each business can claim a total of 1,000 plug-in car grants per year. Zero emission vehicles also benefit from cheaper tax rates and Benefit in Kind incentives, as well as massively reduced running costs.
Companies that invest in EVs could ultimately be able to make money from their purchase by selling excess power stored in EV batteries back to the grid at times when demand is high through emerging vehicle-to-grid technology. The same goes for companies that invest in on-site energy storage.
While bi-directional charging technology is still a way off mass commericalisation, due in part to steep hardware costs, findings published last year from a government-backed vehicle-to-grid trial revealed that EV drivers could slice £725 off their annual electricity bills using the technology. The exponential savings for businesses with large fleets would be even more considerable.
Of course, another way to reduce transport emissions is to encourage use of car sharing, cycling and active travel among employees – more on that below.
5. Educate your employees
Employee engagement on energy efficiency should be a priority for companies looking to move ahead with clean energy investments and energy efficiency improvements over the coming years, not to mention their broader sustainability agendas.
This engagement exercise will become even more pertinent in April, when a record increase to the energy price cap is expected to send household energy bills skyrocketing. Growing understanding about household energy efficiency among staff is also a way that firms can help take the sting out of the hike, in particular for employees working from home.
There are many ways businesses can engage and educate their staff on how to save energy while working from home or at the office, according to the Energy Savings Trust. Measures can range from sustainability workshops or internal communications programmes that highlight the benefits of saving energy through to incentive schemes that help employees cover some of the cost of energy-saving technologies.
“Reminding [staff] to turn off lights or unplug their computer when they’re not working may seem relatively insignificant, but the savings add up with time and when every employee does it, savings could be significantly more than you think,” said Jirgensone. “We recommend sharing information which highlights how much energy, money or carbon employees could save at home with little more than some minor behavioural changes.”
Behaviour change initiatives such as cycle-to-work schemes, car-sharing, energy champions, and sustainability groups can also help reduce the impact of soaring energy prices on staff members’ lives.
“Businesses should really be in the role of just giving information and support, and checking in with staff, because we know that there’s going to be significant impacts over the coming year,” said Energy UK’s Wood. “April is particularly a potential time when costs will rise for a lot of your employees. Its about raising awareness, giving them the right information and pointing them in the right direction towards resources like the Energy Savings Trust.”
He added that employee engagement around sustainability, energy efficiency, and carbon could also help to precipitate the speed at which clean energy solutions and technologies are adopted by a company.
“A scenario we see quite frequently is one where an energy manager makes decisions or proposes different decisions, but the company culture hasn’t shifted to the point where reductions in emissions and the other benefits on offer are seen as worthwhile, either in terms of the investment and the required amount of resource that you have to put in to get these things in place,” he said.
Bonus tip: Explore your options
In normal times, it pays to shop around for cheaper and greener energy deals, but with the current difficulties in the energy market, it is probably best to stick with your current supplier, according to the Energy Saving Trust. However, there are a number of avenues firms can explore if energy costs are putting severe pressure on the business.
The organisation recommends firms contact their supplier if they are worried about paying their energy bills over the coming months, noting that some may be able to create a payment plan that is more affordable or suited to a firm’s particular needs.
There may also be pots of public funding available to support businesses who need extra support, according to Jirgensone. “The government provides grants and energy reviews to help businesses manage energy costs with their finance and business support finder,” she said. “Local councils might offer small sustainable business growth grants in your area, while some charities offer grant search services or access to business funds.”