Steve Fitzsimons, Business Energy Manager at npower business, discusses why supply chain and regulatory pressures are placing a new priority on energy reduction.
The High Street has been taking all the plaudits when it comes to environmental measures. In recent months a number of the UK’s major retailers and banks have been keen to flex their environmental muscles and show that they have the strength to grapple with the climate change targets facing British business.
While plans to charge for plastics bags and source only ethically-produced bananas have grabbed the headlines, to focus solely on these measures is to ignore a much bigger picture. Britain’s bluechips are serious about climate change and are making some important moves to address it.
It is easy to dismiss this as PR hype, but it’s safe to assume that organisations of the scale we’re talking about will have done their homework and will be feeling confident that their environmental policies will deliver financially as well as ethically.
Such is the influence of these businesses that the moves they make not only impact their own operations, but importantly, those of their supply chain. Barclays bank has made moves to do exactly this, evaluating the environmental credentials of its suppliers and including this in their selection process. A recent statement from the company on an environmental questionnaire said: “The results of the questionnaire have a 10% weighting in assessing our supplier’s suitability”. Virgin Trains and M&S have undertaken similar exercises.
New research from npower business, the npower Business Energy Index (nBEI5), reveals the impact this is having. The nBEI is an annual survey among energy buyers at large industrial and commercial organisations and SMEs to research and understand their attitudes to energy use, costs and carbon emissions.
The latest report shows the extent to which supply chain requirements are influencing the selection of partners. One respondent commented: “A lot of our customers are getting more environmentally conscious and want to do business with environmentally aware businesses.” At the same time as this burgeoning trend, businesses are facing increasing regulatory pressure to reduce their carbon emissions such as from Energy Performance Certificates, which will call on businesses to display the energy performance of their premises, and the Carbon Reduction Commitment
The new Carbon Reduction Commitment (CRC), announced in last year’s Energy White Paper, will bring a new set of businesses into a carbon cap and trade scheme for the first time, calling on them to manage CO2 emissions in new ways.
The CRC is likely to include organisations with particularly large or many small sites, such as supermarkets and local authorities, whose total energy spend exceeds £500,000. This is a fairly high figure, but it will include parent companies and their subsidiaries, so even if individual sites don’t spend this amount, they may find they are included in the scheme.
DEFRA is finalising the way the CRC will operate, but it is expected to closely mirror the EU Emissions Trading Scheme (EU ETS). Participating organisations will be allocated allowances depending on the amount of CO2 they expect to release. According to how they perform, they then retain these allowances, sell unused allowances or purchase the additional allowances required. Put simply, perform well by achieving emissions lower than your target and you stand to benefit from trading the allowances you have left; perform badly and you will be forced to buy additional allowances according to how far over your target you have gone.
And the pressure seems to be showing in the answers that nBEI respondents gave, with fears emerging that carbon cutting regulation will make the UK uncompetitive. A total of 68% of respondents say they will be affected by the CRC; 63% believe the costs will outweigh the benefits and a significant 71% believe it will make the UK uncompetitive.
Conforming to the legislation undoubtedly presents a challenge to businesses and only time will tell what the full impact will be, but despite the misgivings, there are indications that businesses will benefit as a result of generating less CO2.
Just over a third (35%) of nBEI respondents say they expect new commercial opportunities as a result of reducing their carbon footprint – a significantly higher response than in npower business’ 2007 report, which revealed widespread misunderstanding of the Low Carbon Economy.
Whether businesses are feeling pressured or recognising an opportunity, there can be few doubts that adherence to emission reduction is a growing priority in the business world. Businesses in broad sectors are being called on to improve the environmental performance of their operations and reduce their emissions if they are to succeed financially.
The CRC will require an evolution of energy management from simple measures to a sustained programme of activity that will deliver long-term energy and CO2 reductions.
The imperative to reduce emissions is one thing, but achieving that reduction is another thing altogether. Many businesses have taken great strides to reduce energy consumption in recent years, often selecting those areas that provide the quickest wins in terms of efficiency gains. The nBEI reveals that the most popular measures in the last five years have been changing heating and lighting to achieve energy savings.
While these measures have provided payback, in the current business and regulatory context, the challenge is how to identify further areas where savings can be made. Building Service and Environmental Engineers have been central to the efficiency measures made to date and will remain so if the coming challenges are to be addressed. The nBEI reveals that many businesses are in good shape to identify further savings, but will call on external advice to achieve long-term savings.
At npower business we are increasingly working with businesses to assess their longterm energy reduction goals and concentrate on an ongoing strategy of improvements. We believe this will be the way businesses need to work if they are to operate successfully in the developing framework of carbon regulation.
And it is important that this energy management journey starts sooner rather than later, particularly with the CRC in mind. Although the cap and trade mechanism doesn’t start until 2010, businesses will be responsible for submitting their company details, including records of energy consumption in 2008 (this includes all energy sources), as early as next year.
To aide businesses in more accurate measuring and monitoring of their energy consumption we have developed a suite of monitoring and targeting (M&T) tools. These new technologies take energy monitoring to a new level by enabling businesses to identify trends between consumption and external conditions; operational output; import site levels; operating levels and other areas.
These trends can then be used to compare consumption, carbon emissions and costs between sites and measure performance against internal or governmentset benchmarks and targets.
The latest nBEI illustrates that while there are reservations about how emission reduction will be achieved there is a consensus that emission reduction will be important to future business operations. We believe that as the UK moves towards a Low Carbon Economy, businesses that can develop and commit to an ongoing programme of energy management emission reduction, will be the ones that succeed both financially and environmentally.
