Should SMEs conduct an energy audit?

EIC explores the benefits that firms can reap from conducting an energy audit and how to maximise the value of its findings.

Information is power

Energy audits provide firms with a clearer picture of their energy consumption patterns. In addition, they can highlight existing points of weakness where wastage may be occurring as well as provide a foundation of knowledge for negotiating new energy procurement contracts.

As we approach the 2050 net zero deadline, clarity surrounding energy usage – the major driver behind office-based carbon emissions – will become increasingly valuable.

Small to medium enterprises in particular stand to benefit greatly from the help audits can provide. Especially in navigating information barriers that conceal opportunities to improve their energy efficiency.

While a review of an organisations energy portfolio can seem daunting, technology can help lighten the load. Smart meters can keep an ongoing, up-to-date record of energy usage across an entire site.

Employing one of these devices essentially automates the local data-finding necessary to perform an effective audit. Given how vulnerable long-term metering is to human error, this makes their installation a wise first step in the process.

Metering alone can provide average energy savings of 10% and comprehensive sub-metering can raise these savings by a further 30% according to the Carbon Trust.

An on-site walk around compliments the auditing process since it can identify sources of inefficiency missed by meter readings. Old equipment in need of replacement is one common example. Another being wholesale temperature regulation of buildings since this often does not reflect actual occupancy levels in individual rooms.

The fruits of an energy audit

With the audit complete, realistic energy efficiency targets become foreseeable and have a baseline for comparison of progress. Such a foundation is crucial for effective engagement with carbon compliance schemes like SECR and CCA.

Firms might follow up by installing site-wide building management systems that can provide further clarity on utility consumption.

Such a system can remotely govern space occupancy, dynamic temperature regulation and air quality from a single platform. The latter of these also affects the health and productivity of those within. Thus, intelligent air quality management can represent a twofold investment.

EIC understands the potential of informed utility management, hence why it provides all these services under a single banner.

Whether it be by supporting data collation with expert metering guidance or exploiting the discoveries that an audit yields with a single-platform building management system, EIC can provide the technical expertise needed for enterprises to maximise the benefit of an energy audit.

 

The end of fixed term energy contracts?

EIC expands on recent comments from industry professionals concerning the viability of fixed term energy contracts in an uncertain future.

The floodgates open

The impact of COVID-19 has been felt at all levels of commerce, whether it be the radical transition to remote working or exposing the fragility of the fossil fuel sector.

Many organisations have recognised the opportunity that remote communications technology like Zoom and Skype have presented. Building costs account for a huge portion of the average firms outgoings and by reducing the need for space, these costs can shrink as well.

‘The new normal’ it seems could be a boon for all businesses in terms of operation costs, not to mention time saved for their employees. However, as with any paradigm shift, this transition has a great deal of uncertainty attached to it.

A major challenge facing energy suppliers will be in predicting consumption patterns as more people start to work from home. Unpredictable fluctuation will make it more difficult for suppliers to mitigate risk on fixed term contracts. As a result, they will become greatly exposed to imbalance charges and ‘Take-or-pay’ penalties embedded in most standard fixed contracts.

Fixed vs flexible contracts

As a means to protect against these volatile shifts in the country’s energy demand, energy suppliers will increase the price of fixed energy contracts. Doing so will protect against uncertain consumption patterns. Suppliers may also begin to leverage the terms within those contracts to the cost of the firms they are supplying.

Chris Hurcombe, CEO of Catalyst Commercial Services, believes fixed-price contracts may ultimately disappear as suppliers struggle to predict consumption patterns and attempt to insulate themselves from risk.

Post-Covid, there are too many unknowns for suppliers to price them accurately, so they are doing everything possible to de-risk contracts. Credit requirements are going up and some suppliers are not pricing for certain industries without an upfront deposit or a significant price premium…”

-Chris Hurcombe, CEO of Catalyst Commercial Services

Currently, fixed-price contracts levy a 10% price premium compared to their flexible counterparts. Additionally, Hurcombe has predicted a 15-17% rise in 2021,  continuing to 20% the following year.

Non-commodity costs, expected to climb in the near future, now represent the lion’s share of energy bills. As such, they represent the largest risk factor for end-users/client procurement budgets. These ‘fixed’ contracts, which allow suppliers to pass through additional energy charges, may hold a costly surprise for the firms taking part.

Help on the inside

Fortunately, flexible contracts, which EIC specialises in procuring, offer means to reduce or avoid some of these charges. They also afford adaptability in a changing commercial landscape. As volume consumption forecast becomes difficult and budget certainty key for the survival of companies, flexibility will become crucial.

The UK commercial and industrial sectors consume 185TWh annually, approximately £27bn worth, so the potential savings here are gargantuan. Savings of such magnitude can’t be ignored in an economy approaching its deepest recession since 2008’s financial-crisis.

EIC can secure you a flexible energy contract to take advantage of these savings. The key markers that EIC looks for when engaging suppliers include contract features and functionality, transparency around price fixing mechanism and competitiveness of the supplier’s account management fee.

Using these criteria means EIC can effectively guide your market position despite the fluctuations that a post-COVID future promises.

Existing EIC clients were collectively under budget to the tune of £65.7m between 2014 and 2018 for electricity and gas. One pharmaceutical client enjoyed 78% in annual savings over a 36 month period.

Further information on how to recruit EIC’s expertise into your negotiations can be found at the EIC solutions page.

 

Budget 2020

The new Chancellor, Rishi Sunak, has delivered the first Budget since the UK set its 2050 Net Zero target last year. The previous Chancellor, Sajid Javid, had promised a “green” Budget, however the current health crisis caused by the spread of COVID-19 had cast doubts on how much time Mr. Sunak would spend on energy and the environment.

Below, we highlight key announcements:

Carbon reduction schemes

The government announced a Carbon Capture and Storage (CCS) Infrastructure Fund to establish CCS in at least two UK sites. One by the mid-2020s and a second by 2030. CCS is a technology that involves the capturing of carbon dioxide emissions created by fossil fuels during energy generation. The CO2 can then be transported and stored safely.  There are currently no operational commercial CCS facilities in the UK to date. However, there are a small number of pilot projects currently in development.

The Chancellor also announced a Green Gas Levy, designed to help fund the use of greener fuels. This is in effort to encourage more environmentally-friendly ways of heating buildings through a new support scheme for biomethane. In addition, the Budget stated that the government will increase the Climate Change Levy (CCL) that businesses pay on gas in 2022/23 and 2023/24 (whilst freezing the rate on electricity). It will also reopen and extend the Climate Change Agreement (CCA) scheme by two years.

Further announcements saw the Renewable Heat Incentive (RHI) scheme extended for  two years until March 2022. This is alongside a new allocation of flexible tariff guarantees to non-domestic RHI in March next year. The government said these efforts would “provide investment certainty for the larger and more cost-effective renewable heat projects”.

Electric vehicle infrastructure

Road transport is currently responsible for approximately one fifth of all UK emissions. To reduce this the government has announced investment in electric vehicle charging infrastructure with aims that “drivers are never more than 30 miles from a rapid charging station”.  The government will invest £500 million over the next five years to support the rollout of a fast-charging network.

The government is still considering the long-term future of incentives for zero-emission vehicles alongside the 2040 phase-out date consultation. In the meantime, £403 million will be provided for the Plug-in Car Grant, extending it to 2022/23, with a further £129.5 million to extend the scheme to vans, taxis and motorcycles. In addition there will be an exemption of zero emission cars from the Vehicle Excise Duty (VED).

Natural environment

The Budget has announced a Nature for Climate Fund, which will invest £640 million in tree planting and peatland restoration across England, representing the coverage of an area greater than Birmingham over the next five years. Additionally, the announcement of the Nature Recovery Network Fund and the Natural Environment Impact Fund will each provide avenues for environmental restoration and sustainable development.

Future reading

In the build-up to the COP26 Climate Summit, to be hosted in Scotland later in the year, HM Treasury will publish two reviews. One into the economic costs and opportunities associated with reaching Net Zero and the other into the economics of biodiversity.

In summary

Reactions to the Budget have been a mixed bag. It’s been cited as simultaneously the greenest modern Budget to date and a missed opportunity regarding the larger climate picture. The government has announced a number of positive policies that will begin to pave the way for the Net Zero transition. However, the decision to freeze fuel duty for the tenth year in a row and investment of £27 billion into new roads will be regarded as counter-productive to ambitious targets.

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Autumn Budget light on energy

During the Chancellor’s hour-long speech the overall focus was on tax and spending, with little said about climate change. What energy-related announcements were made?

 

Climate Change Levy

CCL is a tax on energy delivered to non-domestic users within the UK. Businesses participating in Climate Change Agreements (CCAs) can avoid up to 90% of this levy by investing in agreed energy efficiency and emissions reduction measures.

This latest Budget announced upcoming changes to CCL rates. The Government’s ongoing efforts to rebalance the main rates paid for corporate gas and electricity use will see the two prices brought more in line with each other.

The electricity rate will be lowered in 2020-21 and 2021-22, whilst the gas rate will be increased in 2020-21 and 2021-22 so that it reaches 60% of the electricity main rate by 2021-22. Other fuels, such as coal, will continue to be aligned with the gas rate.

 

The impact to your energy bills

The increase in revenue for the Treasury will come as a direct result of higher energy bills for businesses. An increase in the CCL for 2019 was already expected as a result of the closure of the Carbon Reduction Commitment (CRC).

 

Carbon Price

Carbon Price Support (CPS) is applied to the power sector in the UK, with the exclusion of Northern Ireland, and has been a key driver in the reduction of coal usage in the UK fuel mix.

The Government has decided to maintain the UK’s carbon tax at £18 per tonne of CO2, until April 2021. However, the budget provides plans for the Government to reduce the CPS from 2021-22 if the total carbon price remains elevated.

In addition to this, the Government has published plans for the implementation of a UK carbon tax in the case of a ‘no-deal’ Brexit. Under a ‘no-deal’ scenario, the UK would be excluded from participating in the scheme. This would mean current participants in the EU ETS who are UK operators of installations will no longer take part in the system.

In this instance, the Government will initially meet its existing carbon pricing commitments through the tax system. A carbon price would be applied across the UK, with the inclusion of Northern Ireland, starting at £16 per tonne of CO2, marginally less than the current EU ETS price, maintaining the level of carbon pricing across the UK economy post-Brexit. The tax would be applied to the industrial installations and power plants currently participating in the EU ETS from 1 April 2019.

 

A freeze on fuel duty

Already announced ahead of the Budget, the Government has promised that fuel duty will be frozen for the ninth year in a row. This will see the tax on fuel, currently 57.95p per litre of petrol, diesel, biodiesel, and bioethanol, remain fixed over the winter period.

 

Enhanced Capital Allowances

The Budget also included changes to Enhanced Capital Allowances (ECAs), which are designed to encourage UK businesses to invest in high-performance energy efficiency equipment. The Government plans to end ECAs and First Year Tax Credits for technologies on the Energy Technology List and Water Technology List, from April 2020. The Government believe these ECAs add unnecessary complexity to the tax system and that there are more effective ways to support energy efficiency.

There is no new funding in place yet, but savings will be reinvested in an Industrial Energy Transformation Fund, to support significant energy users to cut their energy bills and help transition UK industry to a low carbon future.

The Government will extend ECAs for companies investing in electric vehicle charge points to 31 March 2023. This is part of the Government’s ambition for the UK to become a world-leader in the ultra-low emission vehicle market.

 

What about renewable energy?

Despite the recent landmark ‘1.5C report’ from the Intergovernmental Panel on Climate Change (IPCC), the Budget was very light on details concerning climate change and the environment. There were no announcements within the Budget to encourage new investment in renewable energy in the UK, despite industry calls to support new onshore wind and solar.

Leading renewable developers have previously urged the Government to clear a path for subsidy-free onshore wind farms, allowing developers to compete for clean energy contracts. Cost projections, published by the Department for Business, Energy and Industrial Strategy (BEIS), show that onshore wind is currently the cheapest power source available.

 

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