The last portion conundrum

Amid rising energy demands and regulatory changes, achieving Net Zero is now crucial for businesses. David Kipling , CEO of On-site Energy Ltd , examines the complexities of utility management and highlights how energy efficiency and on-site generation can reduce costs and carbon footprints.

Net Zero is now a clear goal for most businesses, as well as achieving Science Based Target Initiative milestones. In today's volatile world, utility management is becoming a mixed landscape of options. The most challenging element of your energy bill to manage is now the residual grid position. Forecasting what that will be over time will become increasingly difficult, and retaining the ability to adapt to change and growth is key.

One of the major mistakes we have seen in utility management is locking in too much supply too early. An example we came across was a public body who had committed to a minimum kWh volume PPA for 25 years. They had effectively blocked themselves from embracing any energy efficiency measures, and with it the ability to further reduce their costs.

As an energy manager, the element you can control most easily is the purchasing policy, whether that be the type of tariff, hedging decisions, or corporate PPA options. The most difficult thing to manage is securing capital for projects that change consumption, such as energy efficiency projects or on-site generation projects. These take real effort and the buy-in of others in your organisation. But these forms of measures represent the best long-term savings for your business.

There is a fast-changing technology landscape in energy efficiency, with more and more efficient devices available, without it being a risky ‘new technology’ step. Take air-conditioning units, where EC fans operate up to 90 per cent efficiency in converting electrical energy into air power and consumes 70 per cent less energy than a traditional AC fan. It’s a similar story in motors, boilers, and BMS technology

We recently undertook an efficiency project in a large 118,000m2 manufacturing facility where we installed upgraded air-handling units and saved 40 per cent of gas consumption. That’s straight to the bottom-line energy saving and carbon saving. No clever CO2 hedges or REGOs, etc.

Energy efficiency is the obvious step sitting there that is often over-looked. The three steps in utility management should be (in order):

1. Energy efficiency.

2. On-site generation.

3. To minimise residual grid costs and reduce volatility through hedging instruments.

Traditional energy brokers and energy companies maximise their profits by having you ignore steps (1) and (2). They see your total consumption as being the size of their prize; there is no vested interest for them in you reducing your consumption. If you expand your consumption, happy days. For you, it means more imbalance costs and more exposure.

On-site generation, such as solar panels or cogeneration systems, can help businesses and industries reduce their reliance on grid electricity and provide both lower and predictable energy costs. By generating electricity on-site, businesses can also reduce their carbon footprint and improve their sustainability efforts.

It’s still possible to install cogeneration without increasing carbon emissions. When heat is properly used, cogeneration can save typically ￡1 million per year per MW installed. Savings go a long way to provide the budget for wider decarbonisation efforts. We recently demonstrated this to a large manufacturer that through a combination of co-generation and solar, they could save ￡470k per annum without any change in carbon footprint.

At the same time, utilities must also contend with a changing regulatory environment. The emergence of Great British Energy will have as yet unclear consequences. If it absorbs renewable energy capacity to provide it to residential customers, there will be less ‘green electricity’ available to corporate users. Will this drive up the delta between green and standard tariffs? Will it compete for corporate PPA capacity and reduce the availability of corporate PPA solutions?

At a recent conference, one of the leading utilities announced that they expected the data centre market to reach 17 per cent of total global consumption in the 2030s, which is coming close to all energy intensive industries added together. Data centres demand renewable energy, and they are also best positioned to pay for it. With the added demand from both Great British Energy and data centres, the outlook for available green tariffs for everyone else must be under threat. Yet so many Scope 2 emissions reports are based on purchase of green tariffs.

Energy efficiency and on-site generation minimise exposure to this changing landscape.

Its timely then that the third phase ESOS deadline is upon us (if you have not already complied). The deadline for submitting notification of compliance for Phase 3 of ESOS was 5 June 2024. Organisations that qualify for ESOS must notify the Environment Agency by a set deadline that they have complied with their ESOS obligations. The Environment Agency will not take enforcement action if you submitted a notification of compliance that meets the necessary regulatory requirements by 6 August 2024.

ESOS represents a very significant opportunity to raise the profile of energy efficiency and on-site generation options and highlight the risks of continued reliance on green tariffs and external PPAs. It’s time to take control of your internal energy consumption and reduce reliance on third parties.

If you would like to discuss any aspects of this article with us, please contact Martin Gaffney at [email protected] . On-Site Energy Ltd focuses only on working with energy intensive industries to decarbonise and reduce energy costs.

This article appears in Buying and Using Utilities Autumn 2024 issue

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