How big business could access £4-billion in savings to their bottom line
This week, customers, businesses and the media joined us at the Institute of Directors for the launch of our new report: The Twenty Per Cent Imperative.
While the premise is simple, the benefits are far-reaching. By reducing energy consumption by 20% – which we believe is achievable for nearly every business – you unlock not only cost savings and budgetary efficiency but also embed greater profitability and competitive edge.
Locking in £176-billion profitability over next decade
Last year, the energy broking firm Power Efficiency published a paper entitled ‘Energy Eating into EBIT’ in which it calculated that energy inflation would make a £13bn dent across FTSE 100 margins by 2021.
With the UK industrial and commercial sectors spending just over £15bn a year on electricity and £5bn on gas, achieving consumption efficiencies of 20% represents a collective saving of around £4bn annually. And if energy inflation mirrors the previous decade, annual savings put in place now would help to lock in profitability and realise energy savings of £176bn between now and 2024.
UK energy costs double USA and Norway
From a competitiveness perspective, the cost of UK energy has long been a hotly debated topic among those operating in international markets.
In 2013, the UK’s average net selling value per kWh sold in pence was 8.495 in the industrial sector and 7.861 in the commercial sector . This compares to just 4 pence per kWh in the USA (due the impact of shale gas) and 3 pence in Norway (which is rich in natural resources).
While we may enjoy some of the lowest wholesale energy prices in Europe, UK consumers pay higher overall bills due to the taxation element from low-carbon policies, whereas other nations choose to finance similar investment through other taxes.
So when it comes to effective energy management, taking steps to minimise consumption can therefore make more of a difference to your bottom line here than elsewhere in the world.
Security of supply a growing concern
Security of supply is also a key concern for 88% of UK businesses, according to a recent survey by the Major Energy Users Council (MEUC). That’s why we are seeing growing numbers looking to invest on onsite generation and also participating in demand reduction schemes – from the government’s current Electricity Demand Reduction pilot to National Grid’s new Demand Side Balancing Reserve scheme.
Regulation driving opportunity
The introduction next year of the new Energy Savings Opportunity Scheme (ESOS) will mean all large enterprises must complete an energy audit every four years. And while it’s not compulsory to implement the efficiencies highlighted, with such a wide range of benefits to gain, it makes sense to embrace the saving opportunities these audits can identify.
Our Twenty Per Cent Imperative Report sets out five key areas for businesses to focus on to reduce energy costs by a fifth:
- Make the business case for an energy-saving programme, including identifying return on investment.
- Invest in renewable and embedded generation such as onsite renewables or CHP and biomass to enhance security of supply and reduce costs long-term.
- Recover and recycle energy by gaining greater understanding of your business’s energy journey.
- Don’t underestimate the value of training, behavioural change and a shift in working patterns to support energy savings.
- Look at external financing options such as Energy Performance Contracts to unlock the full range of efficiencies.
More details can be found in the report. If you would like a copy please email [email protected] and we’ll send you a link.
With sector-wide savings of £4bn within reach – which equates to £3.4m a year by 2024 for a manufacturing company with an £10m annual energy spend – there’s never been a better time to embrace greater efficiencies. And with energy prices likely to increase, perhaps it’s more pertinent to ask, can you afford not to?