Zero cost solutions for driving energy savings

Transcription

1 Zero cost solutions for driving energy savings

2 Zero cost solutions for driving energy savings and delivering sustainability through LED Lighting Businesses looking to cut energy costs, reduce carbon emissions and reap the multiple benefits that come from energy saving technologies such as LED lighting, face a diversity of technologies and vendors, the need to find capital to spend to save, and uncertainty over the level of savings all factors that often lead to inaction despite the well recognized potential for saving on energy costs. In many other areas of business such as vehicles, IT and even process equipment, it is normal to use financed solutions but until recently that option was not available for energy saving equipment, except in the case of very large projects. With the growth of interest in energy saving and the rise of green finance businesses not wanting to use their own capital or take out a loan now have an additional choice an energy services agreement which produces positive cash flow from the start. Regulation applying pressure to save energy Concerns over energy prices and energy security are frequently in the news and both represent significant business risks. These factors as well as new regulations mean that the pressure on UK companies to act on energy efficiency is increasing. Large organizations, those with either more than 250 employees, or a turnover of more than 50m and an annual balance sheet total of more than 43m, now fall under the ESOS (Energy Savings Opportunity Scheme) regulations. These require companies to undertake an ESOS assessment to identify energy saving opportunities and be compliant by 5th December The recommendations from the assessment need to be reviewed by a board director, helping to put energy efficiency on the board agenda where it should be. An ESOS assessment will be required every four years and the Environment Agency can apply civil penalties against non-compliant companies. Another new regulation now faced by building owners in the UK is the effect of the recently introduced Minimum Energy Performance Standards (MEPS) which will come into force in The MEPS mean that a building with poor energy performance, (F and G on an A to G scale) cannot be leased or sold. All commercial building owners need to start assessing the risk to their property now and taking action to ensure it meets the required standard of at least an E rating by April In the years after 2018 the performance requirements will be steadily increased. 2

3 Energy saving technologies Experience over many years and all types of building and industrial processes shows that by applying proven and cost-effective technologies it is often possible to make energy savings of twenty per cent. Savings higher than this are not unusual and of course any savings on energy costs go straight to the bottom line. Energy costs should always be considered controllable costs and management should not be distracted by the often heard argument that energy costs are a small proportion of total costs the relevant question is how many extra sales are required to produce the same profit that can come from energy saving? Producing that additional profit through extra sales will be more difficult than improving energy efficiency. By reducing energy spend through energy efficiency, organisations also reduce their exposure to the effects of energy price volatility on profits or budgets. Reduced effects of volatility of energy costs is in itself valuable for organisations trying to predict financial performance 1 and is increasingly seen as a major factor in driving corporate energy efficiency programmes. 1 Energy price volatility now a major factor in corporate efficiency drive. Curwin, Now_A_Major_Factor_In_Corporate_Efficiency_Drive

4 LED lighting should be the first energy efficiency initiative In order to save on energy costs all businesses should now be considering the cost saving opportunity presented by the revolution in LED lighting as a high priority area. Lighting represents between 25% 2 and 40% of energy costs for many businesses and is one of the easiest areas to save on electricity costs. Globally it represents 20% of the world s electricity demand. We are in the early stages of an LED lighting revolution with the global market for LED lighting growing at 17% Compound Annual 3 Growth Rate (CAGR) and the market for traditional lighting shrinking by 7% per annum. LEDs are solid-state components like semi-conductors and costs are plummeting while performance increases dramatically. Switching to LED lamps can reduce lighting electricity consumption for lighting by up to 70%. On top of the energy savings switching will reduce lamp replacement and disposal costs as LED lamps typically last 50,000 hours (over 10 years if used 12 hours a day) compared to 1,000 to 2,000 hours for conventional lamps and 6,000 to 15,000 hours for compact fluorescents. This means that the labour cost of multiple lamp replacements, as well as the disruption, can be avoided. Waste Electrical and Electronic Equipment regulations mean that fluorescent lamps have to be disposed of in a compliant manner which brings with it disposal costs. Control of lighting can also be improved through systems such as day light sensors and presence detectors. The energy saving potential resulting from the revolution in LED lighting should be the focus for many businesses but other technologies also need to be considered to maximize energy cost savings. Voltage optimization keeps the voltage of the incoming electricity supply at the optimal level for equipment the mains voltage varies between legally acceptable high and low levels and is usually kept higher than required which results in wasted energy. Modern heating controls can save on gas consumption through better control of heating system on and off times, which vary with weather conditions, and can learn the patterns of use of the building and adjust accordingly. In almost all cases electrical motors are oversized and run at less than 50% of their capacity for much of the time. Motor controllers, either fixed speed or variable speed can significantly reduce electricity usage by motors, often by between 15% and 40%. 2 Lighting. Carbon Trust Semiconductor Today, 15th February LED lighting market growing at 17.3% CAGR to 2019 while traditional lighting shrinks at 7.6%. 4

5 Take advantage of the opportunity now So, how can businesses take advantage of the LED lighting revolution and other energy saving technologies to gain the very real benefits of reduced costs, reduced risks and value creation immediately? Clearly one option is to go out and source, select and then pay for an energy audit and then implement lighting retrofits and other projects themselves. This requires time and expertise the energy efficiency equipment market is crowded with many vendors making claims about the effectiveness of their products. For non-specialists it is hard to identify the most effective and reliable suppliers. Jack Welch, the Chairman and CEO of GE between 1981 and 2001, once said: Don t own a cafeteria: get a food company to do it. Don t run a print shop: let a printing company do that. What he meant was focus your own people and resources on what your business does best and outsource the rest. Specifying, project managing and financing the installation of LED lighting or other energy saving projects is not the core competency of most businesses and therefore outsourcing it makes sense. This approach is common for business critical infrastructure such as vehicles, telephones and IT but so far it has not been widely accepted in the provision of energy saving equipment. As well as the time and specialized expertise that many businesses won t have available there is a need to spend to save and for many businesses the available capital will be allocated to other core business needs such as developing products and building sales. 5

6 Zero cost solutions for driving energy savings The best way forward is to use a provider who offers a fully funded package which includes the technical expertise, who can manage the entire project and finance the project out of the energy savings it produces. For LED lighting projects this is effectively using lighting as a service as offered by pioneering companies like Energy Works plc ( service provider takes care of all aspects of the project, specifying the equipment to meet the desired lighting levels, project managing the installation, and financing the whole project. The customer pays a flat fee over a set period which is calculated to be less than the energy cost savings produced by the project, thus giving the customer positive cash flow straight away. The financing of lighting retrofits, or indeed other energy saving projects, can be structured in different ways. For larger, more complex projects an Energy Performance Contract (EPC), offered by the large energy service companies like Honeywell or Siemens can provide a guarantee of savings compared to the baseline consumption. For smaller businesses an Energy (or Efficiency) Services Agreement (ESA) can be simpler and more appropriate. In the ESA the contractor provides the project management, the finance and the on-going Operations and Maintenance services and charges a service fee that is lower than the savings in energy costs, thus reducing overall operating costs immediately. The ESA can be structured as an operating lease which keeps the capital off the customers balance sheet. 6

7 Energy prices will rise despite short-term lower oil prices The headlines about the recent fall in oil prices should not lead to complacency on energy prices. The global fundamentals of increasing population and affluence, coupled with physical limitations on oil supplies and the threat of supply disruptions strongly suggest that oil prices will rise again over the next few years. When we look at just the UK, where commercial and industrial electricity prices increased by 157% from 2004 to 2013, compared to 23% general price inflation, a number of factors suggest there will be continued strong upwards pressure on retail gas and electricity prices for industrial and commercial customers. We are importing more and more gas as North Sea production declines and having to compete in the global market for gas. Meanwhile European gas supplies, 30% of which come from Russia, are increasingly susceptible to supply disruptions in a worsening geopolitical situation. Although the UK does not directly import Russian gas any disruption in Europe would have a knock-on effect in the UK. Electricity prices in the UK have to increase for two reasons. Firstly to ensure that new generating plant is constructed to rebuild the supply margin, the gap between maximum demand and available capacity, which is at an all time low and has significantly increased the threat of supply disruptions in the worst case blackouts. Secondly the UK is committed to moving towards low carbon generation systems which are inherently more expensive than conventional power generation from gas or coal. The Climate Change Committee estimate that energy bills for an average consumer in the commercial sector could increase by 14% in real terms by 2020 and 31% by For the industrial sector average energy bills could increase by 30% in real terms by Given the drivers of energy prices and these estimates business owners should continue to be concerned about energy costs and energy security. 4 Energy prices and bills. The Climate Change Committee, December Energy-Prices-and-Bills-report-v11-WEB.pdf 7

8 Energy efficiency brings many other benefits as well as savings Simply considering the energy cost savings as the only benefit of energy efficiency projects fails to recognize the real and significant value that comes from the many other benefits of energy saving projects. Firstly there are the benefits that come from reducing carbon emissions as well as improving sustainability this can have a direct financial benefit for businesses that are subject to the various regulatory regimes such as the Carbon Reduction Commitment (CRC) which carries a cost of around 16 per tonne of CO2. The other non-energy benefits that come from improving energy efficiency 5 have been recognized in a study by the International Energy Agency. They come in many forms including; reduced need to invest in new energy supply capacity (for example when expanding the 6 business ), increased building value, greater productivity, greater employee satisfaction, reduced sickness and greater customer satisfaction. Examples include: increased employee satisfaction and productivity through reducing glare on display screens (through better, more efficient and glare free 7 lighting). Retailers like M&S increasingly recognize that greener, more energy efficient buildings, can drive increased sales as well as reduce costs, making the need to improve energy 8 efficiency truly strategic. Now businesses of all sizes can take advantage of these strategic benefits without spending any capex. 5 Capturing the multiple benefits of energy efficiency. IEA, Costa increases production with eco measures. 7 Recognising the full value of energy efficiency. Regulatory Assistance Project, M&S: Increased sales could be the greatest boon from switching to LED The Grocer, 20 December

9 Financed energy efficiency solutions bring immediate competitive advantage Competitive advantage comes from a combination of value creation, risk management and controlling costs. Installing energy efficiency technologies such as LED lighting addresses all three factors; it reduces energy related risks, it clearly saves costs and the non-energy benefits such as increased employee satisfaction, increased productivity, or increased customer satisfaction means it can add real value through productivity gains or increased sales. This combination, coupled with the realities of energy prices, energy security considerations and environmental issues, means that energy should be on the board agenda in all businesses. The advances in LED lighting have created a major opportunity to reduce energy costs and for many organizations opting for a fully financed solution from a lighting as a service company like Energy Works plc is a good way of reaping the benefits of the LED revolution without having to invest the time and resource, as well as the capital required. Opting to make the move to LED lighting through a financed solution sooner rather than later will bring in-year balance sheet benefits while strengthening the business. Steven Fawkes Dr. Steven Fawkes is the Principal of EnergyPro Ltd. He is an internationally recognized expert on energy efficiency and the financing of efficiency projects. He has published widely including two books and a regular blog: March

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