In 2008 the UK government passed the Climate Change Act, legislation which incorporated the world’s first climate change target. As part of its commitment to climate change, the government aims to reduce emissions by at least 80% by the year 2050, relative to 1990 levels. Aligned to this undertaking, all UK quoted companies have been required to measure and report on their greenhouse gas emissions in their annual Director’s Report since October 2013. Although this requirement is directed at those UK incorporated companies listed on the main markets, the government also expects that other companies will follow and report voluntarily.
By measuring energy usage and wastage, companies can single out areas where energy spending can be reduced and identify processes that can be made more efficient. It is estimated that big businesses could save more than £250 million in energy bills each year simply by reducing their energy consumption by a mere 1%. Gaining a thorough understanding of the potential that lies in hidden energy savings can be beneficial to smaller companies too. According to research by the Office of Gas and Electricity Markets (Ofgem), the average small business spends between £3,500 and £6,500 on gas and electricity per annum. The Carbon Trust has found that small- and medium-sized enterprises (SMEs) waste, on average, 20% of their energy – with many wasting as much as 50%.
Many businesses still have inflated energy bills because they are unaware of the potential savings that energy-efficient equipment and clean energy technology can yield. Yet the benefits of upgrading technology to greener alternatives are clearly evident: businesses can reduce operating costs, positively impact the bottom line, improve their competitiveness and increase productivity with new technologies – , all while reducing the environmental impact of employing less efficient technology and equipment. Moreover, considering the rise in electricity prices in the past decade, carbon reduction measures, enabled through the deployment of environmentally-friendly technologies, are becoming increasingly important in order to help safeguard businesses’ hard-earned profits in the longer term.
For those businesses that do recognise the merits of green investment and are keen to seize the financial and environmental advantages, creating robust investment plans can be seen a challenge in light of some common obstacles. These include, for example, high upfront initial investment costs, lack of knowledge about the kind of technologies available, as well as limited understanding regarding the potential energy savings. Third-party research has shown that companies are also sceptical about the pay-back periods related to energy-efficient investments. Particularly for SMEs, who are often resource and financing option limited compared to larger businesses, the prospect of having to undertake a a large initial capital for green investments can be daunting.
The financing issue, however, does not have to render business investment plans unfeasible. Viable financing options for energy improvement measures are available in today’s market. One such solution is the Energy Efficiency Financing scheme (EEF). A joint initiative between Siemens Financial Services Limited (SFS) and the Carbon Trust, the scheme is designed to provide finance for energy-efficient equipment and technologies, where the expected savings in energy costs and/or income from energy generation offset(s) the monthly equipment finance costs, effectively making the investment zero net cost or even cash positive.
In order to counter any concern felt by businesses regarding the expected energy savings, the Carbon Trust conducts an independent Energy Savings Assessment (ESA) prior to any finance being approved. The evaluation verifies that the expected energy savings/income generation will match or exceed the equipment finance payments, providing the reassurance to organisations that the projected figures provided by their suppliers are both accurate and achievable.
The EEF scheme has already helped many organisations implement energy improvement measures, one of which is Matthew Clark Wholesale Ltd, the UK’s largest drinks wholesaler. Having upgraded the old lighting in its Glasgow depot to energy-efficient fluorescent lights, the company wanted to replicate the project at six further warehouses. Due to its limited budget, Matthew Clark required a financing option that would make the investment affordable. With the support of the EEF scheme, it was able to retrofit the lighting at the six depots, achieving on average, energy savings of over 70% across the sites and a carbon emissions reduction of 469 tonnes per year. With a total combined project cost of £250,000 and a financing period of four years, the company additionally gained a cash positive benefit of more than £1,700 per month since the energy savings exceeded the monthly finance payments.
A further example is NWN Media, an independent publishing and printing company. NWN Media was experiencing high levels of energy wastage because of the inefficiency of its ageing boilers and air compressors. In a bid to bring down operating costs and to reduce its environmental impact, the firm decided to invest in a gas space heater and a new air compressor. Previously, up to 14 tonnes of water was required daily to supply heat to all the radiators, heaters and controllers throughout the company premises. It was recognised however that the printing press generated an excess amount of heat after a certain period of use, and as a result energy-hungry air-conditioning would then have to compensate to control the ambient temperature. Replacing the old boilers with gas space heating eliminated this inefficient set up and processes. By circulating hot air, the need to pump water around the building was also removed, significantly reducing energy consumption. With an annual energy-efficiency saving of £10,000, return on investment was seen as achievable within three years, with monthly outgoings aligned with energy savings.
A proactive energy management approach can help businesses to reduce energy waste and achieve lasting benefits and substantial savings. At the same time, it also helps companies gain green credentials and demonstrate corporate social responsibility. Businesses that do not take proactive actions risk paying for their inertia financially in the long run. While obtaining funding for green investments remains a realistic concern for many companies, especially for larger and more complex projects, alternative financing schemes are available in the market to help organisations overcome the financial hurdle. The sooner businesses can leverage such financing options to shape their energy management, the greater the benefit they can gain on their energy bills, productivity and competitiveness.
By Richard Baker, Sales Manager, Energy Efficiency Financing scheme