Michelle Giles of IMServ looks at ways manufacturers can get to grips with energy legislation
Energy prices have been nothing short of volatile over the last year and in mid-2008 oil values reached record levels. This, combined with the effect of the weaker pound, threats to the UK’s skills base and a drop off in demand, has meant a real threat to the competitiveness of the manufacturing industry in this country.
However, the fact still remains that the manufacturing sector needs energy, and lots of it. In fact, for British manufacturers, energy often tops the list of expenditures. Faced with the highest gas prices and amongst the highest electricity prices in Europe, along with increasing amounts of energy legislation, it is essential that large industrial users in the UK gain a tighter control of energy consumption and expenditure.
But I find it staggering how little visibility some of these companies have over their energy costs when they represent such a significant financial investment. Over the last year, a variety of new legislation has been implemented by Government to force businesses to get tighter control of their carbon and energy consumption, and make reductions moving forward.
This new legislation is having – and is set to have – a considerable impact on a large number of UK businesses in the manufacturing sector. However, awareness of the range of new legislation is varied, with some changes being well publicised and others less so.
The sheer amount of new legislation involved, combined with complaints of changes being poorly communicated has left manufacturing business owners and managers confused.
However, despite the often bewildering legislative energy landscape it is important that all organisations take note and take action. Not only is the new legislation a stick (large fines are common for non-compliance), but it can be an unexpected carrot too, with businesses able to make large savings on energy costs by complying.
In October 2008 the Department of Energy and Climate Change (DECC) was established bringing together energy policy and climate change mitigation policy (previously Department of Environment and Rural Affairs – Defra). One of the key objectives of the DECC is to help Britain become a low carbon emitting country and to assist the move towards the ambitious targets set by the Government’s Climate Change Act.
One scheme that has been introduced is the Carbon Reduction Commitment (CRC), a mandatory scheme that aims to improve energy efficiency. The CRC has not been introduced merely to force change and add to managers’ work loads, but rather to encourage energy efficiency that will in turn, save organisations money – we’ve found savings of up to 15% can be made on energy bills. The scheme aims to target senior level management in order to increase awareness and encourage behavioural change throughout an organisation.
CRC will start in April 2010 and is an emission trading scheme, which provides financial incentives by placing a price on carbon emissions. The scheme works through organisations purchasing allowances that reflect their annual emissions. The overall emissions target is reduced by placing a cap on the amount of energy allowances available to organisations.
Whilst the emissions allowance is determined for an organisation, how they chose to achieve these levels is down to them. Organisations can decide the most cost effective ways to reduce their emissions. There are a number of ways that an organisation can do this, from adopting a smart meter to integrated intelligent building solutions.
Whilst many companies will despair at the prospect of more legislation to comply with, the government estimates that these measures will save businesses around £1 billion over the next decade. Furthermore, the top-performing companies will be rewarded with financial bonuses made from the revenue of the allowances, adding further incentives to businesses. The penalties for those who do not comply are severe; a fine up to £5,000 and in the worse cases 2 years in prison.
All organisations will also be ranked according to their performance in a league table. This will create complete transparency, with the added objective of providing companies with a corporate social responsibility (CSR) driver amongst organisations that are increasingly concerned with how carbon efficient they are seen to be. It is hoped that this will encourage awareness at a senior level, which will ultimately lead to increased understanding and strategy implementation concerning energy efficiency.
Those who qualify for the scheme are organisations with at least one half hourly electricity meter (HHM) settled on the half hourly market across the whole organisation. Organisations will only qualify if they consume less than 6000Megawatt -hours electricity – the Government predicts that this will affect 20,000 organisations.
Due to the introduction and complexity of this legislation, organisations are advised to research to see if they fall within its scope. The information and requirements around CRC in particular is confusing and it is important that businesses attempt to get to grips with this before April 2010.
Smart metering is one of the few standard practices in place to assist businesses in addressing the constantly changing energy demands.
The recent smart meter announcements by the Government are a really positive step for the roll out of smart meters across UK businesses, but all businesses need to recognize the huge cost savings smart meters offer and the Government needs to do more to promote these.
What’s needed is a clear snapshot, with management-level reporting functionality, of energy consumption and spend. Modern metering technology – such as smart metering – combined with good energy data capture software is therefore the first step to managing and reducing carbon and energy.
According to the Carbon Trust, on average the UK wastes up to 20% of the energy they buy. By installing a smart meter, businesses can expect to save between 10% and 15% off energy bills. A further 10% saving is also attainable if businesses drive behaviour change from this data. The smart meter is effectively a catalyst for change – once a business has access to this data it can be analysed and used to work out ways to reduce spend and cut carbon emissions.
Smart metering really does go to the core of the issue of energy consumption. The system offers businesses accurate, real time information through half hourly energy consumption readings. This allows businesses to constantly monitor and record the amount of energy used everyday. This eliminates estimated bills and consequently removes the issue of overcharging and ultimately means energy costs can be budgeted accurately. Businesses can monitor their usage patterns everyday, enabling them to identify trends of use. Consequently, smart metering not only helps businesses tackle rising energy costs but also helps change energy usage habits to ensure wastage is kept to a minimum.
The final step in a business’ carbon and energy journey is to move an organisation to new levels of proactive energy management and ongoing carbon control initiatives. In the short term, using energy efficient devices and upgrading inefficient technologies will deliver immediate measurable benefits. Encouraging staff behavioural change will also make a difference to overall carbon and energy saving in the long term.
By Michelle Giles, head of energy management at IMServ.
To find out more about IMServ and how they can make companies’ energy use more sustainable, see imserv.com.