npower’s latest annual energy report of businesses sees energy risks such as supply and costs highlighted as primary business threats. With these risks set to remain a priority for the foreseeable future, Wayne Mitchell, interim industrial and commercial markets director at npower, looks at the role self generation and demand management technologies can play in energy risk management strategies
The annual npower Business Energy Index (nBEI) canvasses the opinions of businesses on energy-related issues. With industry destined to play a big part in helping to achieve the Government’s national target of an 80% reduction in carbon emissions by 2050, approaches to energy procurement and management are of growing importance.
The importance of energy
The number one risk highlighted by respondents from major energy users (MEUs) was ‘energy risk’ and, in particular, the risks associated with supply and costs. Energy outweighed all other more traditional ‘business’ risks including legislation, security and health & safety. With such importance being attached to energy, it is clear it needs to be taken seriously at every level of an organisation.
Security of supply and the cost of energy are also set to remain at the forefront of business concerns for the foreseeable future. Businesses predicted that supply and cost risk would still be the major energy-related concern in five years time – continuing to rank higher than areas such as energy sources, legislative compliance and associated CO2 emissions.
Energy risk is growing in importance, with 44% of MEUs saying it has gained a higher profile within their organisation over the past three years. This increased awareness reflects encouraging changes in how organisations are managing energy. 81% stated it had led to improved monitoring and reporting, and 85% said it had led to improved energy efficiency results. To support this move, 63% of MEUs questioned said they now employed a person specifically responsible for energy purchasing and 14% of these is a board member. With significant operational risks concerning costs and supply, we should expect to see this number increase as time goes by.
Implementing a strategy
However, one in six MEUs admits to having no strategy to manage energy risk at all. It appears that for some UK businesses, energy concerns have yet to be turned into a strategically-driven response. We would encourage organisations to implement an energy risk management strategy as soon as possible to ensure maximum protection.
Businesses can offset some of the risks associated with long-term energy supply and cost by implementing self generation technology, for example, solar panels or combined heat and power (CHP) and utilising demand management tools. The nBEI looked at this area for the first time this year as we wanted to understand how businesses were using the technology available as part of their energy management plans.
For those who said they did not have self generation technologies in place, the respondents looked to the Government to fund them, with 61% saying help should be provided by way of Government grants. Their least preferred option was a bank loan.
Encouraging self generation
With 39% of MEUs and 61% of SMEs admitting to having no current self generation capability, it is clear that such moves to protect the future position of the organisation are not yet common place. It will be interesting to see how this figure changes over the coming years, especially as security and cost of energy supply are set to remain a priority.
With a degree of reticence, it seems that for some organisations, taking the step to ensure their own future security of supply via self generation is proving a difficult one to take.
MEUs keen to protect themselves from the energy risks outlined in this year’s nBEI, will need to seriously consider investigating the options for self generation technologies and demand management tools – to shield themselves from the energy challenges of the future.
It is predicted that £200 billion of new investment is required by 2020 to replace ageing energy infrastructure in the UK and to move toward smarter, lower carbon technologies. However, Government reform designed to attract this investment inevitably relies on finding a balance between cost, carbon and continuity of supply that is acceptable to customers and the UK?economy. The npower Future Report ‘Demanding times for energy in the UK’ examines four scenarios that could arise if the right balance is not found:
Scenario 1: Current Intent
Scenario 2: New dash for gas
Scenario 3: Investment shortfall
Scenario 4: Spiralling costs
You can find out more about the outcome of each scenario by clicking on the link that can be found at: www.npower.com/Large-Business/Energy-news.
The report concludes that there is an urgent need for clarity and a coherent, co-ordinated energy policy for the UK. Forward-looking businesses can take control and protect themselves from risk.
Mitchell said: “Whatever happens in the future, business energy users can take control by becoming more energy efficient, controlling the timing of their consumption and relying on their own stand-by generation when it is economic to do so. Organisations that actively manage their energy demand not only reduce the risks for themselves, they also become part of the solution and can help the grid match supply and demand. Indeed, there is an opportunity to use this approach as an additional revenue stream by selling back power to the grid. There is an expectation that the value of this kind of opportunity will rise to as much as £945 million a year by 2020, so there is significant business benefit to be had from adopting such an approach.”