The idea that companies need to be bribed to even consider the idea of saving money has become imbedded in the corporate culture, argues Energy Managers Association CEO Lord Redesdale. When financing energy efficiency, one is investing in something ethereal. Something that does not exist yet has a high value. This has always been the thorny knot investment committees have hitherto been unable to grasp. The fact that in most companies the simplest way of increasing its profit margin is to reduce energy costs has not been recognised. There is a lack of knowledge at all levels of UK commerce.
Energy efficiency is not seen as cost effective without subsidy. At several financial institutions the availability of subsidy is required before a project is even considered. The idea that companies would need to be bribed to save money has become almost imbedded in the corporate culture. Ridiculously short periods for payback are a product of this thinking. This mentality is outmoded. Rapidly increasing energy costs and the lack of government support to fund subsidies models are the two key factors which will ensure the energy efficiency marketplace will largely be subsidy free over the next decade. These developments should be seen an opportunity rather than a burden.
Subsidy distorts the marketplace. The solar thermal panel market provides a pertinent case study. The government gave the industry approximately £400m to install panels. In practice, when a year’s fund had been allocated, those considering installing would wait for the next round of subsidy – delaying efficiency. The recent problems with FIT on photo voltaic panels provide a variation of this theme. DECC placed far too high a value on solar PV FIT subsidy. This caused a massive surge in the number of installations fuelled by financiers investing in product just to claim the subsidy. The volume of applications saw funds earmarked for subsidy spent five times over. Consequentially the government was forced to drastically reduce the subsidy leading to a market crash. Although large numbers of panels were installed initially, the boom-bust nature of the market has damaged the short to medium prospects of that industry.
The availability of finance for energy efficiency will be crucial to companies trying to lower their energy bills. Companies that have a balance sheet that can sustain investment will look to the demand side as a means of cutting bottom line costs; but this does not aid companies with restrained capital investment budgets. However, other organisations may well be interested in doing the work for them. Energy servicing and contracting models are coming back into fashion with many ESCOs looking to invest in the area. Performance contracting has a chequered history but there is a new impetus and legislative push, both nationally and at the European level, to develop this marketplace. Furthermore battle-scared ESCOs have largely learnt the lessons of the past and are delivering more solid products.
Compulsory energy efficiency audits enshrined until the Energy Savings Opportunity Scheme (ESOS) due in 2015 will certainly focus the minds of company directors on what measures are available. There is also the moral imperative. If a board of a company does not spend time understanding its energy costs and saving opportunities, are its directors meeting their fiduciary duties under the Companies Act? When directors feel they could and will be questioned by shareholders over lack of energy reduction measures or plans, the issue will become a much higher priority.
However it is funded, with or without subsidy – and I suspect the latter – energy efficiency is going to become not just a greenwash item but a real business priority.
Lord Redesdale established the Energy Managers Association in February 2012 and it now represents energy managers from companies with a collective energy spend of about £3bn