Tackling energy efficiency is the cheapest solution to meeting the UK’s energy security needs and emissions reductions targets – and for keeping businesses competitive.
But the past two decades of cheap energy and the ‘dash for gas’ (ENDS Report 424, pp 15-16) have left industry and commerce ill-prepared to meet the challenges of the next two. The threats come from rising and unstable energy prices and increasing compliance costs from energy and climate legislation.
Most government effort is focused on energy-intensive business within the EU emissions trading scheme (EU ETS) and in carbon-cutting climate change agreements which provide relief from the UK’s climate change levy.
For sectors whose costs are dominated by fossil fuel bills, energy efficiency is crucial to competitiveness and survival, with EU ETS compliance costs adding further imperative.
But the message has not filtered down to many firms in less-intensive sectors and to small and medium-sized firms (SMEs), leaving huge potential energy, emissions and cost-savings untapped.
The British Standards Institute (BSI) knows from experience that companies could cut energy use by 30% without heavy investment. The Carbon Trust stresses a 20% cut is equal to a 5% increase in sales for many companies. It also estimates that associated greenhouse gas emissions, mainly carbon dioxide, could be cut by more than 20% – holding out the prospect of a huge twin dividend for firms making the effort.
An energy management survey by BSI in 2009 covered a wide range of UK companies, dominated by private sector manufacturing, but also construction, professional and scientific activities. It found 20% had no one dealing with energy management and only 5% had dedicated energy managers.1 Only a third had developed energy management systems and an up-to-date energy policy, and rated awareness-building highly. Some 60% did not benchmark performance against peer companies.
So why is there such a gulf between energy saving potential and action? For many mid-range and large organisations where energy is a small part of overall costs, there has been little incentive. And there is a bewildering array of strategies and technologies that could achieve greater energy efficiency. SMEs often lack the time, resources or management culture to select the most cost-effective options, so do not prioritise them.
But a key driver in mainstream business outside the EU ETS now comes in the shape of the government’s Carbon Reduction Commitment (CRC) Energy Efficiency Scheme, launched on 1 April 2010.
It covers 3,000 large organisations such as supermarket chains and councils with half-hourly meters, using more than 6,000 megawatt hours a year (ENDS Carbon Reduction Commitment special report, March 2010).
Larger organisations have already ratcheted up energy efficiency efforts in readiness, but there is now great uncertainty for business over current and proposed changes to the CRC (ENDS Report 429, p 7).
October’s comprehensive spending review made the scheme much more expensive for business. It was originally intended to be ‘revenue neutral’ but will now take almost £1bn a year from those organisations that must participate in the scheme.
Under the CRC, organisations with half-hourly meters must identify themselves. Those using more than 3,000MWh a year also need to disclose their energy usage to the scheme’s regulator, the Environment Agency. It is possible that within a few years they could be included in the scheme.
Whether that does or does not happen, some companies will find themselves under pressure to improve their energy efficiency from suppliers, peers and customers. Furthermore, the government could use powers under the Climate Change Act 2008 to force companies to report emissions.
The recession is another driver towards improved energy efficiency. Laura Timlin, a senior adviser at the Carbon Trust, says it has made action more urgent as a relatively easy way to cut costs.
“The area got more focused,” she says. She points out that companies tended to shift to quicker, cheaper solutions while larger, more innovative and complex energy saving projects have been shelved. But she notes many of these schemes are being revived.
And there are deeper changes going on. While progress is still uneven, the Carbon Trust has noticed a cultural shift in the past two to four years in many organisations.
Energy efficiency was primarily an internal matter for industrial plants and energy managers, with the service sector lagging behind. But it now has a higher profile in a wider range of businesses. And there is a much greater understanding and a willingness to engage and communicate on energy goals and actions. More effective governance and reporting structures have emerged in businesses such as retail outlets, seeking involvement by staff at all levels.
And these changes are facilitating more effective action. Within retail, “all the major players are doing a lot around energy and carbon and communicating”, notes Ms Timlin.
In chains such as Morrisons supermarkets (see p 9) energy efficiency and carbon management are increasingly embedded throughout the organisation. Effective communication, both internally to staff and externally to shareholders, customers, suppliers and the public, is becoming more important. In comparison, industry tends to lag behind on external communication.
Whatever the barriers to action on energy efficiency, a lack of advice and publications on the subject is not among them. Many organisations offer help, much of it free (see box, p 7), and some offer funding support for selected energy saving projects.
Government spending cuts and reorganisation could radically change the energy efficiency advice and funding landscape in the next few months and years. It remains to be seen whether the forthcoming Green Investment Bank (ENDS Report 429, pp 5-7) will lend for energy efficiency investments in larger companies, let alone SMEs. The more adventurous might try European Commission sources such as the Intelligent Energy Europe Programme.
At an introductory level, Business Link, funded by the business, innovation and skills department offers advice regionally, face to face or via its website. More specialist low-carbon and energy efficiency advice is available through the Manufacturing Advisory Service, part of the Department for Business, Innovation and Skills’ Solutions for Business portfolio, accessible through Business Link.
Regional development agencies (RDAs) and local councils often provide further support too varied to mention here, apart from Business Link itself. But RDAs are to be abolished within two years and there is uncertainty over how these varied support networks will continue as the regional growth fund and local enterprise partnerships replace them.
By far the largest source of free or low-cost specialist advice on energy efficiency principles, solutions and funding is the Carbon Trust, also working with Business Link. It provides a free helpline and a wide range of straightforward and specialised, free advice and documents through its website, by sector and technology.
There is help for smaller organisations on action plans, carbon footprints and easy-to-use tools such as an energy management assessment matrix, and a wide range of case studies and reports. Key publications include an introductory guide to energy efficiency, strategic and practical guides to energy management.1,2,3 There is also a guide on staff awareness campaigns.5
The Carbon Trust’s free on-site energy survey and energy and carbon consultancy service, now available only to medium-sized firms, follows a set of broadly applicable principles, together with those defined by the needs of the CRC.
Every site is different, but the journey typically begins with a walk-through survey, which includes use of a checklist. There is also an assessment of energy use and emissions sources. That in turn enables the setting of a baseline, development of a tailored strategy based on opportunities identified, setting of targets, implementation of recommendations, and measurement of performance.
But Ms Timlin stresses the final stage of the journey – reporting progress internally to shareholders and externally to customers and the public – is crucial. Committing publicly to cutting energy is often the best assurance it will happen and be sustained, even when committed personnel leave.
The Carbon Trust has extended its operations beyond straightforward efficiency measures such as lighting in buildings to more challenging industrial process improvements.
One of the most successful one-to-one collaborations between an industrial firm and the Carbon Trust has been that with Heinz (ENDS Report 429, p 13). This has led to a 13% cut in annual energy costs over the past two years at its two UK sites in the north-west. At least 80% of this came from Europe’s largest canned food factory near Wigan; the rest was achieved at its Kendal plant producing infant foods and dry cereal.
Due to the programme, CO2 emissions also dropped by 17,600 tonnes over four years – about 40% of total reductions achieved for the period. The main savings came from installing a wastewater heat recovery system, which paid for itself in just two years. Heat recovery was also applied to the sterilisation process and to flue gas heat recovery on a boiler house.
The trust also prompted Heinz to claim back £700,000 in enhanced capital allowances that it was unaware it was entitled to (see box).
The Carbon Trust also focuses on sector-wide approaches to accelerate energy savings. This approach can tackle sectors with obsolescent technology that cannot be tackled cost-effectively by any one company, but take more effort and resources.
The trust’s multisectoral four-year Industrial Energy Efficiency Accelerator programme was launched in 2009, at a cost of £15m (see p 10). It aims to shave £500m off annual energy costs and three million tonnes of CO2e off UK annual emissions (ENDS Report 418, p 10). It operates on a call-for-interest basis with project costs shared with the Carbon Trust, which covers up to 60%.
Another area ripe for sectoral collaboration is in commercial buildings where large-scale refurbishment of property holdings by investment funds provides opportunities for adoption of common solutions at scale. In March 2010, the trust teamed up with property investor Threadneedle and developer Stanhope to launch the Threadneedle Low-Carbon Workplace Trust.
This fund aims to raise £350m over three years to invest in green refurbishment of shops and offices, yielding savings for occupiers and enhanced rents for investors. Crucially, the refurbished commercial buildings will be let to tenants with ongoing technical support to maintain energy reductions.
The Carbon Trust also provides interest-free loans for SMEs, though recent cuts may affect these and other programmes. Free site surveys are now limited to medium-sized firms. It operates an interest-free loan scheme for energy-efficient equipment such as highly efficient boilers and low-energy lighting, of up to £100,000 for SMEs with a maximum £40m turnover. This is paid back through lower energy bills.
An on-site survey service is also free for companies with an energy spend of £50,000 to £500,000 annually, provided they can supply a year’s worth of energy bills and data. It covers a general audit, yielding an action plan, and a full cost estimate for installation and likely savings. The company, typically a pub chain, small manufacturer or chemical company, must then invest based on the business case provided. More than 2,600 SMEs received a free on-site survey in 2008/09, typically leading to 20% savings.
The trust also operates a large company team able to assess and help improve carbon and energy management status. This is now a paid for consultancy service in England for companies with an energy spend of at least £500,000, but is free for Scotland, Wales and Northern Ireland applicants up to £3m. This is a bespoke service offering one-off or ongoing advice, coordinated through a dedicated Carbon Trust account manager.
The government’s Enhanced Capital Allowance scheme, managed and advised on by the trust, provides 100% tax relief on approved energy technology (see box), with no upper limit.
The Carbon Trust has yet to assess the implications of the comprehensive spending review’s cuts for its advisory and funding roles. But it now charges larger companies and is looking to increase co-funding opportunities.
In October 2010, it teamed up with the Society of Motor Manufacturers and Traders (SMMT) and the Retail Motor Industry Federation to help cut CO2 emissions from car dealerships by 5%, or 50,000 tonnes a year, saving the industry about £6m per year in energy bills.
Energy efficiency is a combination of good housekeeping, such as switching off unneeded lights and equipment, but also spotting opportunities to upgrade equipment at low cost such as when replacing kit. Larger sites may also look at higher cost solutions such as on-site power generation from combined heat and power plant.
But good energy management can also be seen in the wider context of an environmental management system (EMS). These provide a framework for action, based on the discipline that comes from meeting a requirement for continual improvement, particularly when subjected to external verification.
External audit, together with focus on continual improvement and clear commitments in an EMS helps prevent firms from slipping back into old ways. EMS with systematic carbon reporting was often proposed as an alternative before the CRC was launched.
ISO14001 certification can take anything from three months to two years to complete, depending on a company’s resources and starting point. This involves initial review of impacts and relevant environmental and energy efficiency policy, establishing baselines, setting of objectives and targets, development of an environmental management programme and an environmental policy. Following an initial audit, implementation involves staff training, operational and management controls, communication, documentation, monitoring, evaluation, corrective action, management review and further internal and external audits.
Mark Fraser is global portfolio manager for sustainability at BSI. He points out that while many smaller firms focus on quality assurance through the ISO9001 standard, ISO14001 is popular worldwide with medium and larger firms, with more than 9,000 sites certified in the UK alone.
FirstGroup, with 20 bus and six train companies in the UK, providing 6.5 billion passenger journeys a year, is one of the best examples of what can be done through the standard. Apart from the wider environmental benefits, including heightened awareness among staff, the energy use by its UK bus divisions’ commercial buildings has fallen 31% since 2000, mostly since it adopted the standard.
Mr Fraser adds that the newer European BS EN 16001 energy management standard launched in 2009 is rapidly gaining traction with firms already certified to ISO14001, where energy use is a key concern as it treats the issue in more depth. Firms already working within the EMS discipline of ISO14001 are finding they can make large additional savings from the new standard.
Camfil Farr, a global manufacturer of air filtration equipment and services, whose UK base is in Haslingden, Lancashire, has worked with BSI on the evolving BS EN 16001 standard to cut energy costs and prepare for the CRC. A key feature of the standard involved establishing a baseline and continually assessing progress against it, backed up by independent verification against best practice.
As a result, with minimal capital outlay it has developed a clearer energy policy and objectives, cut gas usage by 35%, electricity by 22% and diesel fuel by 19%. And annual energy bills have fallen by 20%. Wider benefits include an energy-aware and continuous improvement culture among staff and public recognition as a sustainable company.
Morgan Lovell, a leading UK office interior design and fit-out refurbishment specialist and consultancy with offices in London, the south-east and Birmingham, also progressed onto the standard from ISO14001. It did so to prepare for the CRC, but also to demonstrate energy efficiency best practice to its clients.
The company has cut head office electricity costs by 30% and improved its energy management through various initiatives. Smart metering, monitoring of internal and external temperatures, energy saving devices on desktops, and timers on lighting systems were key to success. Morgan Lovell was named the 14th greenest UK company in the Sunday Times in 2009.
BSI has now taken the European standard further by launching a BSI Kitemark scheme for energy reduction verification (ERV) based on it in 2010. This is now accepted by the Environment Agency as an ‘early action metric’ within the CRC, alongside the Carbon Trust’s own Carbon Trust Standard – the market-leading certificate recognising energy efficiency improvements.
As with the European standard, ERV provides a structured way to identify major uses of energy, develop an action plan, train staff, test the outcome of proposed investments against the plan, and monitor implementation of that plan year by year. That allows better targeting of investments by purchasing departments.
But the ERV Kitemark has been refined further for CRC, providing the necessary detailed independent verification and certification of energy management, use and energy-related emissions required by the scheme, and increasingly by shareholders, customers and other stakeholders.
To gain certification, a company needs to cut energy by at least 2.5% a year based on two years of data for the Kitemark and three years’ data for use in the CRC. A list of regularly updated reduction opportunities must also be kept for annual review.
Mr Fraser points out that while BS EN 16001 is a less globally recognised European standard, its adoption, and that of ERV, will give companies a head start once the international ISO50001 standard is approved in 2011.
Not all agree that the cheapest solutions such as turning off unneeded lighting will do much for performance. Paul Merrick chairs the process industries division of the Institution of Mechanical Engineers, with extensive experience in the pharmaceutical sector.
The biggest opportunities for cutting electricity use came from better management of heating, ventilation and air conditioning systems, with fans alone accounting for 18% of energy use in UK industry, he points out. Many electrically powered systems provide heating, humidity management and fluid transport for a variety of industries, both for processes (for example bottling or controlling air quality in clean rooms for semi-conductor production) and for comfort in retail stores. Minor adjustments to settings could achieve cuts of 20-70% and save 14MtCO2 a year with little impact on performance.
Mr Merrick also notes that voltage optimisation (ENDS Report 423, pp 9-11) has major potential as most equipment has a significant tolerance range: “A 5% reduction in voltage [about 20 volts] can achieve a 3% energy saving typically [without much impact on processes].”
He points out: “It’s unfortunate that the majority of companies don’t have people purely on energy reduction.” Responsibility is often divided, so that energy efficiency can slip in priority with the focus purely on buying cheaper energy, he adds.
Mr Merrick points out that dedicated energy engineers can and often do make savings equivalent to ten times their salary in the first year, though “sustaining the change is always a challenge”.
Professor Philip Taylor is chair of energy at Durham University’s School of Engineering and Computing Sciences. He stresses that smarter meters will provide better awareness of on-site use, more control over on-site generation from microrenewables and combined heat and power, and cost-effective load-following through more favourable tariffs as wind energy generation rises.
“You need intelligent devices that can respond to market conditions and also grid conditions such as frequency and voltage on the grid.”
But one of the most unusual, technologically focused approaches to energy efficiency and carbon reduction has been developed by Royal Mail Group (RMG).
Dr Martin Blake has just stepped down as group head of sustainability at the company. Over the past seven years he has built a successful strategy around marginal abatement cost (MAC) curves. These show how much energy individual low-carbon and energy efficiency measures can save a business, and at what cost per unit of energy saved. They help to uncover the solutions with the best payback for given levels of investment. At RMG, theoretical MAC curves have been turned into practical management tools for cost-effective purchasing strategies.
He told ENDS: “The beauty of the MAC curve is that it’s a superb mechanism for giving complete clarity and objectivity. Royal Mail was able to identify £20m [annually] of savings through this process which over the period have been developed at net zero cost.”
Dr Blake adds that a low-cost option such as boiler optimisation “can reduce oil and gas consumption by anywhere between 20% and 30%”, yet with a payback period of as little as six weeks.
Despite an increasing range of internal energy efficiency options and sources of free advice, there is also a major role for consultancies providing businesses with energy saving advice.
Indeed, amid the gloom cast by public spending cuts, ENDS’ research has shown that a third of consultancies look to the energy management market for growth (ENDS Green Consultancy Review 2010, pp 11-13).
And with the advent of CRC, the role of energy consultants is changing. Outsourcing of energy procurement is a long-standing practice among larger firms. But a new breed of contract management company such as London-based Breathe Energy now analyse energy use and guarantee delivery of energy efficiency savings and better rates in its long-term contracts. Some 80% of its clients are covered by the CRC.
Energy efficiency is once again rising up the corporate agenda in mainstream business, driven primarily by high and unstable fossil fuel prices, competitive strategy, environmental management systems and to varying degrees corporate social responsibility.
We have been here before during earlier oil price shocks. But a plethora of new energy and climate legislation should ensure there is no let-up on waste this time round.