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Energy efficiency: nice to have or need to have?

Date October 3rd 2018 by in Categories Energy, Energy and carbon

Did you know that the jellyfish is the most energy efficient animal on the planet, swimming three and a half times more efficiently than its closest rival (which is the salmon, in case you wanted to know)!

Humans could learn a lot from this creature’s lean use of energy. If you manage a business you will be aware of how much energy costs have steadily risen in recent years. This trend shows no sign of abating; a variety of political, economic and environmental factors will continue to affect the volatility of the energy market, none more so than Brexit, which is now just around the corner.

What makes up your energy bill?

Did you also know that the cost of your business electricity does not just simply involve a wholesale cost? There is also the non-commodity element to consider. The wholesale or commodity cost is based on the price of oil and we foresee that, at best, this element will stay the same over the coming years. The non-commodity cost, however, covers government levies and taxes for the associated infrastructure and whilst currently making up around 50% of the unit rate, is forecast to rise to about 70% in the next four years. This means that UK organisations are set to see significant increases in their electricity bills as a result.

Non-commodity costs have already been impacted by a number of levies, taxes and charges in the last couple of years and this is set to continue. For example, the Climate Change Levy (CCL) is due to double in 2019.

How can you offset these price increases?

So, what can be done to mitigate the risk of price hikes on your energy bill? Too often businesses chase ‘cheap energy prices’ but in the future that will only account for 30% of the bill making the ‘price-broker’ approach less relevant. The other 70% of the costs can only be reduced with energy efficiency, but the main objection is always the assumed amount of up-front capital expenditure required.

If you firstly ensure you optimise your existing energy infrastructure and contracts, costly investment is not always necessary. When, however, investment in more efficient low carbon technology and equipment is needed, many organisations simply see energy efficiency as a ‘nice to have’ and do not focus on the long-term benefits of employing this strategy.

The wider effect of energy efficiency can take on a number of different guises; the government’s strategy is to increase levies and costs until businesses are forced to make energy efficiency a priority due to commercial pressures. There are reporting requirements which add further costs, but those organisations that grasp the opportunity and recognise the whole of the UK economy is being committed to reducing carbon output, see not only reductions in costs but improved customer engagement. In recent years buyers have been more discerning in choosing products that have the least impact on the environment. Companies are therefore mindful of maintaining an environmentally friendly reputation, more employee engagement and long-term profit increases when they become more streamlined in their processes and systems.  

How can your business implement energy efficiency?

For those businesses that commit to improving their energy efficiency, the first stage is an effective energy management strategy, which starts with understanding the rationale behind the company’s need to improve efficiency and the measurement of existing processes, functions and consumptions. This can be done through the ISO certification route but commonly, simply involving and engaging all stakeholders in the strategy will work. The next step is to optimise the existing infrastructure and resources and prioritise those initiatives that will reap the best reward for the least investment. For this you need data to give visibility of your opportunities. Once changes are identified and implemented, the final stage is to continually review and monitor their success.

As part of this strategy, gaining visibility of energy across the organisation is important. Finance will require a simple review of existing electricity contracts to monitor performance over their lifetime and choose an appropriate strategy - ‘headline rates vs overall costs’. Once again, taking the longer-term view on this will ensure unnecessary costs are eliminated and that efficiency is optimised.

There are so many reasons for businesses to become more energy efficient. Taking into account the unpredictability of non-commodity prices it makes sense to take the lead from the jellyfish and become more energy efficient sooner rather than later. If you could be three times more efficient than your closest rival and secure a competitive advantage, surely energy efficiency becomes a ‘need to have’, not a ‘nice to have’.


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