Strategic energy use
The start of 2020 saw a host of headlines that will directly, or indirectly, have significant effects on energy in the coming years. Since the start of the year, a range of companies and local authorities have pledged to go carbon neutral (reach net zero emissions), the ban on new internal combustion engine cars has been brought forward by 5 years to 2035, but it has been predicted that the UK is on course to breach its fifth carbon budget.
It can be difficult to distil how energy headlines translate into the impacts on businesses. However, Centrica’s Distributed Energy Future Trends, published at the end of 2019, looks into some of the key issues, including:
- Organisations that view energy as a strategic asset, rather than a cost, outperform their competition
- And businesses are placing heightened value on environmental sustainability, which is now a top 3 focus
In this Industry Insight, Powerstar will look at some of the key findings of the report, which highlights the importance of comprehensive and strategic energy management that provides flexibility, resilience, efficiency, and actionable insights for organisations, and how this can be implemented through smart energy solutions.
Energy as an asset, rather than a cost
Energy is an expense to most businesses; however, more and more are diversifying their energy assets to better meet the needs of sites and improve power quality, as well as minimise costs, and some organisations with installed smart energy systems earn revenue through selling surplus onsite generated energy via schemes such as grid contracts.
According to Centrica’s research, just under one fifth of organisations now see energy as an asset to be managed in order to generate revenue and gain a competitive advantage. More broadly, the proportion of businesses with an energy strategy containing specific targets, actions, or budgets is now 66%, having risen by 15% from 2017 to 2019, and this is likely to have grown even more in 2020 during the current climate.
Actions businesses are taking
In recent years the UK’s energy mix has changed drastically and this trend is set to continue, 7 in 10 businesses recognise the need to be more flexible in how energy is generated and used, similarly, 59% of the respondents for Centrica’s report agree that factories and workplaces will be the power plants of the future.
Whilst many businesses understand the change that will take place, a select group are already benefiting from pioneering smart grid integration as they begin to recognise the benefits available. In terms of the actions this group are taking, 66% of sustainable businesses are integrating energy technologies and assets together to maximise the commercial benefits and return on investment. Whilst there are a host of technologies that can work individually to improve energy optimisation, when utilising synergies through Internet of Things (IoT) connected technology, the benefits can be maximised.
Another measure that three quarters of leading sustainable businesses are intending to take, is the adoption of electric vehicles (EVs) into their fleets in the next 5 years, a change which requires the embedding of EV charging solutions into business energy infrastructure. Transport is seeing increasing regulation that businesses must comply with, including the combustion engine ban, and more urban ‘clean air zones’ being created. Implementing such a change can help businesses minimise their contribution to the UK’s highest emissions emitting sector, transport, improve fleet efficiency, and reduce outgoings on fleet running costs.
How businesses can benefit
The benefits of viewing energy strategically have been calculated by Centrica, those with the most advanced energy strategies are 2.5 times more likely to achieve strong financial performance in comparison to their competitors. They’re also 2.7 times better equipped to deal with marketplace risks and 6.7 times more likely to be operating a sustainable business model. As many industries are changing due to developments brought by Industry 4.0, the smart industrial revolution, external factors such as trade impact select businesses, and sustainability grows in importance, it has never been more important to safeguard financial performance through implementing actions such as taking a strategic view of energy management.
Environmental and economic sustainability; inseparable?
Without doubt there has been a significant amount of discussion on environmental issues recently, and with the UK hosting COP 26 in November 2020 (which still hopes to go ahead at present), scrutiny on the issues is likely to reach new heights. Despite good progress in decarbonising electricity generation, the UK is straying further from meeting its overall carbon emissions targets, which includes industry and services. This will likely spur Government and regulators to increase pressure to cut CO2 emissions, or play a more active role in the expansion of renewable energy.
Consumers coercing business
In addition to regulatory pressure, consumers are becoming more selective in their buying behaviours, increasingly choosing suppliers that have a lower environmental impact, this was undoubtedly a key factor in the decision that 36% of businesses have made in the last year, changing their brand positioning to be more environmentally friendly. As customers are becoming savvier than ever on environmental issues, businesses will need to take real action to avoid accusations of green-washing, and communicate the activities they are undertaking effectively to cut through the noise. The UK’s energy challenge provides businesses with an opportunity to play a part in the required change, and can also help ensure financial security. This is reflected by social and environmental responsibility rising into the top 3 organisational priorities of businesses in 2019.
Figure 1 – 2019 Organisational Priorities, Centrica
The cost of inaction
As a result of the changes to the energy market in the UK, the cost of energy has risen substantially in the last 5 years, due to the level of uncertainty regarding the future market it is expected to rise further in the future. This high cost of energy is one of the main barriers identified by businesses to achieving sustainable growth, particularly in energy intensive industries with fine margins, such as manufacturing.
To become more independent and future-proofed, many businesses have implemented renewable energy assets, such as solar and wind power, at their sites and two thirds of these businesses already generate more than 10% of their energy on-site, with 8 out of 10 anticipating they will increase use of on-site generation over the next 5 years, showing that it is a valuable, scalable investment.
Furthermore, 30% of businesses generating energy on-site are selling energy back to the grid. Schemes such as grid balancing contracts, demand side response (DSR) helps facilitate the expansion of renewables within the UK network, and maximise renewable energy assets. Through combining onsite generation with energy storage businesses can earn additional revenue through participating in these activities, and improve their energy flexibility.
Due to a combination of the discussed Government and regulator pressures, a shift in consumer attitude and actions, and the cost of energy affecting businesses, it is increasingly difficult to forge business success without due consideration and actions on sustainability, and businesses will need to implement new actions to meet energy targets, and prove to customers that they are a trustworthy and responsible organisation.
It is clear that the way we generate and use electricity is set to evolve in the coming years, and that businesses will face new energy challenges, including becoming more flexible to fit in with, and benefit from the energy networks of the future; balancing financial and environmental sustainability as the two become inextricably linked.
Strategic energy management looks to become a key route for businesses to drive efficiencies, operate more effectively, and establish a competitive advantage, for those that have not yet got a plan in place. However, it can be a daunting prospect. Powerstar recommends that businesses take a strategic view of energy management through holistically assessing the current and future energy needs of the business, evaluating the energy infrastructure of the site, and putting together a comprehensive plan to optimise energy through a staged or simultaneous roll out of improvements.
Viewing energy strategically can also help businesses to understand how actions to improve sustainability through improved energy management can be identified and implemented. Powerstar has a range of technologies that enable businesses to increase energy efficiency, and improve energy flexibility, helping businesses to develop an energy infrastructure fit for the networks of the future, and work towards net-zero targets. The Powerstar concept to completion approach evaluates the current situation of sites, and plots a pathway for businesses to improve energy management as a long term objective.
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01 July 2020
Unless otherwise referenced, all statistics sourced from Centrica Future Energy Trends 2019, available at: https://www.centricabusinesssolutions.com/distributed-energy-future-trends