Energy As A Risk –
How To Reduce Energy Usage And Protect Your Business
By Kam Singh, Director of Carbon Solutions, EMCOR UK.
The end of the Government energy support scheme for businesses last month should have been on the radar of FM’s for some time – it was in January that the Chancellor confirmed the scheme would be changing at the end of March. While some high-use industries will get enhanced support, the majority will no longer be able to rely on the Government to the same extent.
This is not necessarily a bad thing and may act as a wakeup call for many business leaders. Energy has and always will be a volatile market, not just in times of war or pandemics.
I would implore all businesses to understand and manage their own energy usage profiles and not be reliant on any Government support. With the benefit of an energy profile, businesses can make astute decisions, reduce energy use and protect themselves from future market volatility through price risk management practices.
Energy Reduction
Businesses must look at energy reduction before anything else. After all, the cheapest kWh is the one you don’t use. This may seem obvious, but I’ve seen numerous businesses across various sectors that did not understand their energy profiles and where the wastage is taking place.
I’ve also seen businesses prioritise more complicated and expensive solutions, such as sourcing renewable energy projects, before addressing simple reduction methods like ensuring all lights are switched off overnight. That’s the equivalent of homeowners spending thousands on solar panels but having the heating on 24/7 because their home isn’t airtight. Renewable energy is a valid long-term option for many businesses, but the first step must always be to reduce consumption.
I visited a major event venue recently that was paying £5m a year for energy before the pandemic and is now paying £12m a year. If I didn’t know it was an event venue, I would have guessed the site was a data centre because the energy usage profile suggested that energy was being consumed at similar levels throughout the night due to energy consuming units being left on.
The FM team must have known because they had the energy data to show me, but somewhere along the line the information had not been communicated and acted upon.
Energy Usage Profiles
Businesses can create their energy profiles through granular data collection and modelling, and then manage it through a proprietary data platform or Building Management System (BMS) control systems. The first aspect of the strategy will be to look at baseload management. Baseload in this case is the minimum level of energy usage in a given 24-hour time period. Initiatives such as night walk arounds are useful to help define the baseload and see where reductions can be made.
With an energy profile in place, FM’s can start to identify opportunities for energy reduction and start to chip away at the baseload.
In a post-pandemic world facility managers need to consider sensors and greater automation to better manage erratic occupancy patterns in their buildings. This will allow HVAC systems to be more demand driven, thus enabling the smarter use of energy whilst also extending the life of building services assets.
Effective energy reduction also requires employee support. The chances are that most employees will be happy to help with energy reduction, but just need a bit of guidance and communication. This is implemented through a cultural change programme within the organisation.
It’s been suggested that homeowners could save an average of £147 per year by switching off “vampire devices“ – appliances that consume electricity while in standby mode. Though houses obviously have some different appliances than a workplace, it’s clear that businesses could potentially make large savings if vampire devices were switched off in the workplace.
This can be asking employees to switch off monitors at the end of the day, switch off lights when leaving a room, and unplugging laptop chargers when not in use. These are small asks that could make a big impact.
Energy As A Risk
An energy profile and reduction plan will help with the day-to-day. The other areas that businesses must focus on is the energy procurement contract itself.
My key piece of advice is that energy should be treated as a long-term price risk management project rather than a procurement activity. As I already mentioned, there are forces at play every day that impact prices. Every business has an energy contract, so every business should treat it as a risk.
Most businesses do not have the in-house expertise for energy price risk management. I recommend finding a partner or energy broker that offers the best risk management strategies and complete transparency in their fee structure to ensure there are no undisclosed payments.
Treating energy as a price risk management project means it should not fall under the umbrella of procurement.
There are countless examples of organisations using protracted procurement processes to appoint energy brokers, whilst not appreciating that the cost of the service is relatively small in comparison with their actual energy spend, and that in the intervening period the price of energy has moved so much that the small savings made on the broker contract are totally wiped out. Procurement also tends to focus on the cheapest deal at the time, as opposed to taking a longer-term view that is required from a risk management standpoint. What appears to be a more attractive fixed price deal at first can have a sting in the tail when it’s time to renew the contract and prices have surged.
To illustrate my point about the benefits of taking a price risk management approach, I know of a company that bought out energy when the markets were historically low in spring 2016 and then again at the start of the pandemic. As a result, that company has been shielded from the turbulent prices since early 2016 and will be until the end of this year. Conversely, another company that took the “traditional” route with energy contracts has paid £10m for electricity in 2021, £22m in 2022 and likely more this year for its campus HQ alone.
Expertise Is Priceless
Well, perhaps not priceless – but working with the right partners could help your business save millions on its energy bills. We work with many of our clients to deliver energy management and Net Zero solutions utilising expert partners, as appropriate.
Of course, there are many additional benefits to better energy management, such as working towards net zero and sustainability goals. IBM research found that 67% of employees reported that they are more willing to apply for jobs with environmentally sustainable companies, and 68% were more willing to accept positions from such companies. So, energy management can help with talent attraction and retention for the FM provider and their clients.
For many businesses, changing the approach to energy management will be a challenge. It’s easy to see it as a procurement issue, and it can be tempting to go for the cheapest price and not worry again until contract renewal.
However, as my anecdotes have demonstrated, taking the mindset of energy as price risk management has the potential to save millions of pounds and future proof a business against market volatility.
There’s no time like the present to adopt this approach, understand your energy profile and reduce usage.
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