Guest Blog – Mervyn Bowden: Budgeting for energy is in your hands

It’s that time of year for putting your budgets together….. Certainly if your financial year starts in April, in line with the fiscal year, you’re probably now pulling your thoughts […]

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By Sumit Bose

It’s that time of year for putting your budgets together…..

Certainly if your financial year starts in April, in line with the fiscal year, you’re probably now pulling your thoughts together on how much of your organisation’s cash you’d like to/are going to spend next year.

Other than the “essential” spending categories within opex, like staffing costs, rent and rates, how do you categorise energy spend? Is it an essential or a discretionary spend? Is it a fixed cost or a variable cost? Does it represent a saving opportunity? It’s very likely that your organisation’s appetite for future energy cost certainty will go some way to explaining how much success you have when asking for capital funds to help reduce your energy bill.

Even if you’ve taken the decision to close out your forward procurement position you will still have had to consider how productive your energy saving schemes are going to be and how much capital expenditure you’ll have needed to effectively spend to achieve the revised position. In fact, closing out your forward position can be a very positive move in that you’ll know the rates you’ll be paying for energy so there’s a dose of Prozac for the accountants when assessing how much investment cash you’ll actually get.

The philosophies around securing savings from energy efficiency investment are interesting. Many of the bean-counters focus heavily on the cost of effecting a scheme, often penny-pinching and “value engineering” the capital, or in some cases revenue costs of effecting the schemes. This effectively delays your programme, results in lower than anticipated savings and perhaps cuts out the means to effectively measure and control schemes over the longer term.

Usually absent when going down this route are the quality of solutions, an integrated view of how this fits into the wider picture and a complete lack of thought about “whole life costing” which would most likely render the penny-pinching methodology a criminal offence. A few pence saved at the outset but meaning reduced savings for a long period, often up to 20 years, is just plain daft!

Energy efficiency investment should be part of a much wider and holistic plan which takes on board the long-term sustainability needs of the organisation, things like security of supply and a desire to take control of their own energy generation.

Part of the business case for energy efficiency investment should take on board not only the principles of whole life costing but the comparative returns from investing in other schemes. This is where the bean-counters can potentially cause serious damage through prevailing ignorance of energy matters.

Ask your accountant/finance person/bean-counter to explain to you how the Green Deal works in the Industrial and Commercial market and you’ll most likely get a very blank look. Next ask them how the Green Investment Bank is going to distribute some £3bn of lending in the energy space. You could even try asking them how enhanced capital allowances work?

If they display ignorance they are probably not worthy of involvement with your organisation.

My point is that you are the determinant of your energy management needs.

If you need someone to count your beans, that’s fine. But, if you’re responsible for producing and managing your organisation’s energy budgets, don’t expect the bean-counter to do more than count beans – they are very unlikely to be aware of all the prevailing incentives and issues around the wider energy picture, that’s what you, as the energy manager, are there for. Your continued existence will be based on managing budgets, efficiency spend, returns on investment – do you really want to put your future in the hands of a bean-counter?

Last, but by no means least, spare a thought for your energy services providers who deliver and maintain high levels of annual savings to you. Your priority, second only to maintaining your own on-going financial position, should surely be ensuring  that your suppliers are treated fairly, paid promptly and are going to be around long enough to keep your savings flowing.

Too many large companies arrogantly assume that they can increase profitability by effectively bullying suppliers of all sizes through extending payment terms, reducing margins to ridiculously low levels and not seeing the bigger picture about long term “sustainability” whilst crowing about how brilliantly they treat their supply base.

Dream on guys – short term aggressive profit targets and methodologies are in total conflict with longer term sustainability aims and raise all sorts of issues of hypocracy. Take a look at each of your suppliers in the current recessionary situation and be absolutely clear that your actions could mean many of them not being around for long if you persist in unsustainable ways of doing business…..think about it!

 

Mervyn Bowden is chair of judges for Telca and managing director of Intuitive Energy Solutions Ltd.