Not mission impossible: Carbon Trust has taken energy efficiency out of the ‘too hard basket’

Posted on 13 Nov 2009 by The Manufacturer

The Carbon Trust’s mission is to accelerate the move to a low carbon economy now and develop commercial low carbon technologies for the future. With the likes of Director of Solutions Hugh Jones having chosen to accept this mission, the Carbon Trust is tackling the problem of climate change, while also helping UK manufacturers to be more productive and profitable. Tim Brown reports.

Hugh Jones is well prepared for the interview, armed with a stack of data to reinforce the Carbon Trust’s many achievements. He is calm, collected and well informed, a demeanour that instils confidence in the belief that, while the issue of global warming is complicated, it is not insurmountable.

Assistance is available
Over half a million businesses and public sector organisations have been assisted by the Carbon Trust in the last 12 months. The Solutions department alone provides advice to more than 4,000 businesses every year on reducing their direct emissions by minimising unnecessary energy use. The Carbon Trust’s work also helps businesses save money which, in the current downturn, has meant there is vastly increased interest in its services.

The Carbon Trust Solutions department offers a range of different services to organisations ranging from one-man bands, to large enterprises. These services include: a free energy efficiency advice line; specialist web publications offering energy saving advice for specific technology areas and industry sectors; free carbon surveys to help small and medium-sized businesses to reduce energy use in their premises; interest-free loans of up to £400,000 to enable businesses to replace inefficient equipment – cost free; and large scale, companywide carbon management programmes for assessing and tackling long term energy risks and opportunities.

Replacing and Refitting
Perhaps one of the most ambitious and successful Carbon Trust schemes is its interest-free loan initiative. Titled, ‘The Big Business Refit’, the campaign is designed to help businesses save energy by replacing outdated equipment with new energy saving models. With a minimum loan size of £3,000 and a maximum of £400,000, businesses are saving between £14,000 and £130,000 a year by replacing their old equipment. Of particular interest to businesses is that the scheme is designed so that the loans are repaid by the energy savings, over one to four years. Once the loans are repaid, these energy savings go straight back into the business.

“The Big Business Refit can have a major impact on an organisation’s bottom line,” says Hugh Jones. “We’ve found that about 60% of UK manufacturers are forcing themselves to ‘make-do and mend’ with old outdated equipment due to lack of cash, despite the availability of interest-free funding to help them replace it. By refitting that equipment now, manufacturers can have new modern, more efficient equipment, and they save on their energy bills.” The Carbon Trust is planning to loan out about £60m this year and £40m next year to UK SMEs and some larger organisations. The popularity of The Big Business Refit is growing. When this article was written in the middle of October, the scheme had experienced its busiest month ever in September, with over £5.5m lent in England alone. Jones says that they are looking to maintain that trajectory right through this financial year and into the next and, if successful, they will have provided loans to upwards of 2,000 businesses this year.

Every loan is predicated on an Energy Saving Assessment (ESA) which is undertaken by an accredited consultant on behalf of the Carbon Trust.

The loans are unsecured, so beyond a robust credit check, no other collateral has to be provided in order to obtain the loan. It only has to be demonstrated that the energy saving equipment is going to work.

Applications for the Big Business Refit are made via the web, an offer can be received in 24 hours, and the money deposited within 10 days.

The amount of the loan is dependent on the equipment that is being purchased and the carbon that is being saved. According to Jones, the Energy Savings Assessment is a rigorous process which is based on known results for the type of equipment involved. For those that are sceptical that the energy savings will match the size of the loan, Jones says that in a large number of cases the savings exceed the required repayment within three years. Hugh offers the Stewart Company, a Croydon-based manufacturer of gardening and catering products which has received three loans up to upgrade its operations, as such an example. “Stewarts took out loans of up to £400,000 to replace three old injection moulding machines, plus process heating and cooling equipment, they are now saving £120,000 a year, as well as having the benefits of working with more reliable machines,” says Jones.

“Clearly in their case they are on track for a payback of under three-and-a-half years, and then anything beyond that is profit.” In addition to energy saving, Jones says that replacing old machinery has the potential to vastly improve productivity. “We have witnessed productivity improvements ranging from 5% to 20%. We see this as a double benefit of the Big Business Refit, especially for manufacturing, where productivity is as important for profitability, if not more so, than saving money through energy efficiency.

Time to engage
Jones says that while interest in the environment has certainly improved, encouraging businesses to actively engage with ecological improvements is not always simple. “We are finding that in terms of awareness of the science surrounding climate change, there has been a step change in the last three or four years. Regardless of environmental awareness, the economic downturn has caused a great many businesses to seek help on energy efficiency as a key way to tackle unnecessary cost.”

Jones suggests that now is the perfect time to engage with environmental improvements, and that such commitments should be considered as opportunities not just responsibilities. “We are finding that particularly among larger businesses, the vast majority have now taken significant steps towards improving the carbon efficiency of their businesses.

We are finding that among SMEs, the proportion of companies that have actually taken those steps are somewhat lower, but that is across a broad spectrum of SMEs.

“What we have also found is that many businesses still don’t have the resource or the access to capital to make some of these changes. As a result, we suggest starting with simple steps that will save money – we help businesses to understand just how much, and over what period. Then with the help, for example, of a Carbon Trust interest-free loan, it is possible to take the next step, which is to replace old machinery, for more efficient models.

While Jones says he has witnessed great progress being made, he acknowledges that UK industries can certainly achieve a great deal more. “Our message overwhelmingly for any business not yet fully engaged with energy efficiency is that it is not too late to become involved. We are finding that in every single business there are, at the very minimum, 5-10% energy savings that can be made just through nocost and low-cost energy efficiency measures and that is leaving aside equipment refitting and other process changes.” Carbon Trust believes that there is an economic benefit in every case for businesses through energy saving improvements. None easier than simply undertaking a carbon survey or, for larger businesses, carbon management. Currently the Carbon Trust undertakes approximately 4,000 surveys per year and Jones describes them as a “sure fire” way to save money and carbon.

“We typically recommend a host of different measures and we can quantify both the carbon savings and monetise the measures so businesses can see both the environmental and economic benefits for them.

We then work with businesses to assist them to implement as many of the measures as possible.

One example is Mueller Europe, which makes copper tubes. We worked with them to identify a number of recommendations focused around monitoring, targeting and energy management. They are now projected to save about £76,000 pounds per year off their energy bills as a result of implementing the measures that the Carbon Trust advised through a carbon survey. In that case, improvements were made around policy and energy management measures, rather than equipment and clearly in many cases, companies can do both.”

Waste not, want not
Jones says that engaging with the issue of energy wastage should be of particular benefit for manufacturers. According to figures from the Carbon Trust, SMEs in England alone are wasting over £3bn per year on energy lost through inefficient equipment.

The average saving for a business taking a Carbon Trust energy efficient loan is about £14,000 per year, but the greater the replacement project paid for by the loan, the greater the potential savings. Roberts Mart is a manufacturer of flexible packaging products.

The company borrowed £300,000 for a printing press drying system and a number of other measures.

According to Carbon Trust, the company are making savings of £130,000 per annum off their energy bills, which Jones correctly points out is “a significant sum off any business’s bottom line.” The Carbon Trust predicts that the £100m loan funds available is expected to fund replacement projects for approximately 3,000 businesses, helping them save a total of £40m a year. The loans are first come, first served, and there is a limit on the available fund.

As a result, Jones says that it is very important that organisations apply as soon as they possibly can. But that that line of thought does not just apply to the Big Business Refit. “With regards to all of our work ranging from advice to loans, the sooner you contact us and apply, the sooner a company can start making savings and the more quickly you will start to see the money on your bottom line.”

Licence to save money
Clearly, legislation around energy use is a major factor for manufacturers. The Climate Change Levy has been in existence since 2001, and it effectively puts an extra price on fuel bills for all businesses, in order to encourage businesses to reduce greenhouse emissions. Other legislation, such as the Carbon Reduction Commitment, which is coming into force next year, will affect around 5,000 businesses that normally have an electricity bill of over £500,000. For the moment, for businesses smaller than that, in the SME range, there isn’t a specific applicable piece of legislation apart from the Climate Change Levy.

With future compliance presenting an opportunity and a challenge for business, Jones says that the Carbon Trust would encourage every business to “take the opportunity to control energy usage, which should be treated as a variable, not a fixed cost.” Adding that, “as well as saving money, the reputational benefits of being an environmental performer mean that other businesses often want to do business with you.” Jones says that with the help available from the Carbon Trust, there is really no reason not to mitigate the impact that energy and carbon cost increases will have on your business in the future.

Look to the future “This issue should be taken with a long range view, the same as other business risks,” says Jones.

“As well as there being business risk, there is also opportunity.” While onsite operations are the primary focus of initiatives, such as The Big Business Refit, Jones suggests that it is important for businesses to also consider their supply chain and start factoring potential changes into plans for the future. He suggests firms, “look at where the pressure points may be in the future,” using the likelihood of carbon or fuel increases, the potential scarcity of certain raw materials, or how the effects of climate change, such as increased flooding or agricultural damage will impact a supplier.

“The environment is a very complex issue,” says Jones. “It requires long-term thinking because we can take a step in one direction, while there can be an unforeseen side effect that can cause a shift in another. There needs to be a commitment. We need to plan beyond the next few months or next year. We need to be thinking about three year plans, five year plans and beyond if we want to achieve the changes that need to be made. It is not going to be easy but I think we have to take a positive view. We can’t put our heads in the sand. A new economy will be borne out of this recession, and responsible, cost effective energy use will be fundamental to successfully doing business within it.”