Posted on: 02/03/2018
Energy is a major material cost for most businesses and typically the largest source of carbon emissions. Chief Commercial Officer David Cockshott, discusses why organisations can no longer afford to be passive energy consumers.
Energy is a strategic priority for many large companies. This was historically because of cost but with the increasing focus on climate change, carbon emissions and energy security are now top of the agenda.
Many companies have seen energy efficiency and renewable energy achieve board-level engagement and while these are crucial steps on the journey, they only make up part of the picture.
To be truly resilient, organisations need to be thinking more broadly about the challenges and opportunities presented by the changing energy landscape.
As “always on” fossil fuel generation is being replaced by clean power and new technology like battery storage, there is a real need for energy users to change their behaviour to support the new system.
Many companies are already rethinking their energy strategies and looking for ways to be more active and responsible with their energy consumption. Ultimately those that alter their behaviour will benefit at the cost of those that don’t.
Below are the top three areas that I believe all organisations should be embedding into their energy strategies in the short-term to achieve long-term energy resilience.
Of course, energy costs will still be a key issue for all organisations so it’s still crucial to have a supply contract in place with a suitable time horizon to manage purchasing risk.
1. Identify opportunities for flexibility in your operations
Businesses can play their part by reducing their energy consumption during peak times when the system is under pressure.
Most organisations would be able to find short-term flexibility in their operations, such as turning off non-essential machinery or shifting the time of energy-intensive processes.
Not only do these Demand Side Response (DSR) activities support the grid and reduce the need for fossil fuel power plants to be called on, they are often commercially viable in their own right.
Flexibility is a highly-prized asset that will only become more valuable in the future, so now is the time for companies to start getting involved.
Top tip - request a site survey from your energy supplier to see where you may have flexibility – understanding your capability is a vital first step.
2. Engage your supply chain on renewable energy
Many businesses are doing great things to reduce their own emissions, but their supply chains present a much bigger issue.
According to CDP’s Global Supply Chain Report 2018, emissions located in the supply chain are on average four times as high as those arising from direct operations.
It’s certainly not easy to tackle the supply chain, but if businesses truly want to reduce their impact on the planet and future-proof their operations, then it’s crucial.
Many supply chains are large and complex but simple steps can reap significant rewards. Encourage your suppliers to procure renewable electricity. It’s easy to do in many countries – particularly in the UK – and will significantly reduce your scope 3 emissions.
Top tip – the old adage is that “what gets measured gets managed” so start by adding a question into tenders, then look at ways to incentivise and reward suppliers that take action.
3. Connect directly with renewable generators
While renewables are contributing more to our energy mix, the development of new projects has slowed due to decreasing government support.
The UK still needs more renewables to be built if we are to achieve our climate targets, so we’re seeing a trend emerge of investment-grade businesses helping get projects off the ground.
Known as a Corporate Power Purchase Agreement (PPA), this type of agreement sees an energy user commit to a long-term contract to buy the power from a new renewable generator.
The corporate commitment enables the project to get bank finance so it can be built, and the company then gets a secure, clean energy source to meet a proportion of their requirement into the future – and great sustainability kudos!
Top tip – energy prices are only forecast for a few years ahead but these agreements typically last for 15 years, so look for solutions that avoid the asset needing to sit on your balance sheet.
Each of these areas should be part of your energy strategy and if you have a forward-thinking energy team, they may already be. But for most organisations, innovative projects like these would fall outside “business as usual” so it’s important they receive exposure and support from a senior management level.
Taking advantage of the opportunities presented by the new energy landscape will make your organisation more energy resilient and ready for the future.
About the author
Dave joined SmartestEnergy in 2017 and is responsible for all commercial activity across retail supply, generation, trading and asset optimisation. He has held director level roles with both “Big 6” and large energy consultants and he played a leading role in the development of flexible contracts in the industry. Dave joined SmartestEnergy from Inenco Group where he was Chief Commercial Officer with board responsibility for client relationships. Previous roles have included both I&C and latterly Domestic Market Director for npower, managing a team of over 1,400. He has also worked for Utilyx and Northern Electric and Gas. He is a Member of the Institute of Directors.