The lights are flickering…
Comments made by Alistair Buchanan, the outgoing chief executive of Ofgem, have been all over the press this week. “We are in a near crisis situation,” he has said in interviews and a speech he gave on Wednesday, talking about our energy supply.
I’ll say one thing about working in the energy market – life is certainly never dull. We started the week with concerns about the plummeting value of carbon on the EU Emissions Trading Scheme, and whether taking steps to limit the supply of carbon allowances would make any difference (although since a positive vote in favour of doing so, the ETS carbon price has ironically dipped further still). Then Buchanan sets the cat among the pigeons with stark warnings of energy shortages and high prices to come.
We know that some of our older power stations are due to go off supply shortly – and plans to encourage investment in new generation to replace this capacity through the Government’s Energy Bill are yet to be finalised.
Of course, some companies like npower have already been investing in new generation. And while securing the additional £110-billion in energy infrastructure we need will be challenging, it shouldn’t happen at any cost. The real concern here is that guarantees are hastily put in place to rush through new nuclear build and other generating plant that leaves the energy consumer with a very high bill to pay for many generations to come.
So if you’re a business trying to make a success of things in an already challenging economic market, should you just turn the lights off and go home now?
My advice is to stay calm and take control. In the recent Energy Bill, the government highlighted Energy Demand Reduction (EDR) as a key component of our future energy strategy. And this is what allows businesses to have greater certainty over their future energy requirements. Essentially, by being more energy efficient and investigating demand-side innovations such as SmartSTOR – not to mention the potential to develop on-site generation – you can invest in a more secure energy future.
In a report released by DECC last year on capturing the UK’s full energy efficiency potential, the forecast for electricity demand by 2030 was expected to reach around 411 terawatt hours (to provide some context, in 2010 it was 355 terawatt hours). But that Energy Demand Reduction potential was identified at around 155 terawatt hours – or 40% of this total future demand.
How much difference can this really make to individual businesses? A pretty considerable one. The Carbon Trust, for example, found that in a review of 1000 energy efficiency projects among businesses, the average rate of return was a staggering 48%. Among the retail sector, this jumped to a massive 82%.
Our own energy efficiency team has found similar savings among the business customers they’ve been working with. One of these – an owner of more than 350 garage forecourts – found that simply by switching from incandescent bulbs to LED lighting delivered savings of 90% in energy costs, or £260,000 a year. And there are many similar success stories.
So if you are concerned by the recent headlines, my suggestion would be to look at all the ways you can minimise your energy use to safeguard your business from an uncertain future – and get expert advice to support the best outcome. But whatever you do, don’t panic!