Keeping up progress to Net Zero may get tougher

With gas forward prices sinking below the 2p/kWh milestone and realistic ‘all-in’ electricity pricing seeing 15-16p/kWh, David Kipling, CEO at On-site Energy, says we can already hear the collective sigh of relief from the peaks of 2022/23. But is there a dark cloud within this silver lined exterior?

During the 2022 crisis, energy received prime billing at the board table. Projects to save energy were prioritised, and paybacks were much shorter. Also, in 2022 interest rates were more than 2 per cent lower than now. The main problem with developing project business cases at that time was forecasting where future rates would increase to. It was educated guess work at best. We certainly saw projects being approved, with forward-forecasted power prices of 30p and above.

With energy prices becoming less than 50 per cent of those forecasts, the corollary may now also be true. Paybacks are lengthening, the UK is in technical recession, and interest rates are at their highest for 15 years. Will your Board now ration capital for projects and prioritise core trading?

In the past few years though, many more organisations have made emissions reduction commitments, or adopted programmes such as the Science Based Targets initiative (https:// sciencebasedtargets.org/) which are committing them to milestones throughout the 2030s, not just a goal in 2040 or 2050.

With capital now more constrained, projects being less attractive but external commitments being scrutinised, capital allocation will become a balancing act. We had a similar but opposite problem to 2022-23, in that forecasting became much more difficult when market prices were so volatile. Now paybacks could be eroded if prices continue to fall. That makes project, and business cases easier to pick apart and decisions easier to defer. However, the impact could be that sustainability and energy efficiency projects are put on the back burner.

Third-party financing could well be an answer to keep projects on track. Off-balance sheet financing using power purchase agreements or similar contract styles is a potentially attractive way of retaining cash for core business projects, and still taking the benefits of emissions reductions. Practical Steps We recently published our Guide to Industrial Electrification and have since followed up with the Guide to Decarbonising Back-up Power.

We are planning further ‘guides’ this year being – Guide to Industrial Decarbonisation and a Guide to Adoption of Hydrogen and Carbon Capture. The essence of all these publications is:

• One-size doesn’t fit all. Every site should adopt a data-led approach to its energy and decarbonisation strategy based on local factors and the core requirements of the business.
• Jumping in with two feet now may not be the best idea and going too fast could damage your operating costs
• There is a lot of new technology coming, which may be a better answer to your requirements than a rushed decision now with existing technology.
• Retain flexibility to adapt your plan.

An example of how site-specific outcomes have driven contrasting strategies in two projects we are doing for a large automotive manufacturing customer. One site is set to receive (realistically) piped hydrogen within five years which will be capped at the cost of natural gas, and the site also is above a very relevant aquifer for inter-seasonal thermal energy storage. The other site is close to a waste to energy plant due to be commissioned within two years.

Both sites share some common issues due to the age of the facilities, such as legacy over-sized boilers using high temperature hot water for space heating. They date from an era when the sites employed multiples of the number of employees today and occupied a much larger footprint. Both sites also suffer from fragmented systems added over the years to address different needs. BMS systems have not kept pace with the expansion of the sites.

These sites suffer from sizeable inefficiencies and addressing their heating (and increasingly cooling) is key to taking steps forward but is expensive with a long payback. Fortunately, a common solution in both cases is the adoption of low-power consumption air circulation technology which can be used with any heat source. Heat can be injected into the building anywhere (reducing costs of integration and internal working) and then homogenised everywhere. Energy savings are circa 40 per cent, and importantly, it allows other technologies to come in reach of replacing the existing central boilers. Add to this improved control, ease of introducing space cooling sources, and a staged solution towards Net Zero is realistic.

In both cases, solar PV will play a role, but will only provide 3-5 per cent of site load, and there are plans for other on-site generation. The overall plan is multi-step, multi-technology, and the plan is different at each site.

In common with many customers, grid upgrades are needed to accommodate the new on-site generation. The opportunity is being taken to forward plan for the upgrades to allow for electrification of the major consumers by the end of the decade. For that site, there is a realistic plan to reduce emissions from over 20,000 tonnes CO2 per year to zero by 2030. The further interesting point is we will be delivering this project (capital value > ￡25 million) without any contribution from our customer, and they will still generate savings of over ￡15 million by 2030 as well as meet their Science Based Targets.

If you would like to discuss electrification, decarbonisation or generally energy savings, and would like to consider a zero-capex solution, then please get in touch.

Contact us on 0151 271 0037 | [email protected] | www.on-site.energy

This article appeared in Buying and Using Utilities Spring 2024 issue

Read more ??https://meucnetwork.co.uk/buu-spring-2024/