As energy prices continue to rise and debate rages about carbon taxation, energy efficiency has been ignored in the debate about the best energy mix of hydrocarbons, coals, nuclear and renewables. This has resulted in a lack of ambition in energy efficiency support and legislation.
Energy efficiency, sometimes called the “fifth fuel”, has a critical role to play in meeting energy demand growth. The Department of Energy & Climate Change (DECC) projected spend of £110 billion on energy infrastructure between 2013 and 2020, but estimated that efficiency measures could result in energy saved equivalent to the output of 22 power stations, removing the need for billions in energy infrastructure investment. Yet the importance of efficiency has not been fully reflected in the legislation, policy and practice around energy management.
ESOS 2015
In the UK, in compliance with article 8 of the EU Energy Efficiency Directive, DECC has introduced the Energy Saving Opportunity Scheme (ESOS) 2015, where every non-small and medium-sized enterprise in the country must implement mandatory energy audits (or one of the approved derogations like ISO 50001) by December 5, 2015, and every four years afterwards. Aside from the weak audit requirements and derogations, a major flaw in the scheme is that it doesn’t require organisations to act on audit findings.
If companies address energy efficiency properly, it can actually be financially positive from day one
While legislation on efficiency is positive, the overall savings estimate is only 0.75 per cent. This lack of ambition is likely to have a limited effect on corporate engagement with energy efficiency. It seems the government hopes that the visibility of energy issues driven by mandatory audits or ISO 50001 will result in the implementation of efficiency measures.
When the Carbon Trust offered free energy audits, however, there was low implementation of follow-on efficiency measures. Unfortunately, visibility alone is unlikely to drive significant change. Companies want to see a long-term plan and drivers. The minimal ambition levels of ESOS seems likely to ensure that industry sees the scheme as a compliance and cost issue, rather than a transformational business opportunity.
BARRIERS TO IMPLEMENTATION
Other challenges exist in implementing efficiency measures, aside from political will and ambition, including financing and skills. Efficiency measures are often, behind the scenes and across the business, creating project perception problems. The disparate nature of energy efficiency projects can make it harder for boards to engage and creates a barrier for financiers who struggle to find efficiency investable, especially with no single asset on which they could recover their money.
One of the most effective models for the financing of efficiency measures is a bespoke EnPC (energy performance contract) model, where the supplier implements the technology and is paid a percentage of energy savings generated over a given period while maintaining a positive cashflow for the client. This means the supplier has some skin in the game. It’s in our interest to achieve as high a saving as possible, as quickly as possible.
What is critical to the effectiveness of efficiency measure implementation and finance is the right combination of knowledge and skills. Employees need to be engaged and support new approaches to operations. There is a growing need for data analytics skills, and a need to integrate production data, reliability, different fuel impacts and information about whole-plant operations. It’s important to have the right expertise to analyse the process systematically, and a focus and awareness of the business opportunities around energy. Investment in these skills once again requires a clear and ambitious development plan.
SYSTEMATIC APPROACH
From an industrial and manufacturing perspective, the focus must be on site activities. Siemens are advocates of a systematic and holistic approach to energy management. There are a number of measures, which can result in consumption reductions of 10-30 per cent, with typical paybacks of three years. But anecdotal evidence suggests that taking a holistic approach can result in savings four times higher than an ad hoc approach.
This means bundling a mixture of fast payback measures, alongside measures which pay back over a longer period, enabling deeper and more effective energy savings. Our assertion is that, if companies address energy efficiency properly, it can actually be financially positive from day one.
PILKINGTON
Pilkington UK, part of the NSG Group, is working with Siemens Industry and Siemens Financial Services (SFS) to develop a major energy management project across its production sites. A glass manufacturer, Pilkington is an energy-intensive business and faces substantial energy bills. This is a significant business risk in an era of energy price volatility and the company must manage this risk, while improving efficiencies and ensuring its financial resources can be spread across a range of business-growth strategies. This enables Pilkington to stay competitive.
The company undertook a strategic partnership with Siemens, backed by a tailored investment package from SFS, targeting £1 million in energy savings. This allows Pilkington to support investment strategies in energy management without having to tap into cash reserves, impact cashflow health or resort to bank funding, while keeping energy efficiency improvements off the balance sheet.
The principle is simple. Siemens Financial Services funds the initial capital expenditure required for the projects, which have typical three-year payback periods in terms of generated energy savings. Pilkington then simply pays a monthly charge equal to the savings reaped from its reduced energy consumption.
According to Pilkington, a single Siemens investment of more than £300,000 in intelligent lighting solutions in one warehouse is now delivering over £120,000 of energy savings a year. The initial investment will be repaid within three years, without any up-front capital expenditure investment, based on tangible savings. This highlights the way energy efficiency can provide the easiest, quickest and cheapest form of energy. If UK business is going to remain competitive over the long term, then both users and government need to escalate their efficiency ambitions.
