LONDON, June 20, 2012 /PRNewswire/ --
Rising energy prices are impacting the profitability of UK businesses. Over the past 15 years the compound average annual electricity price increase for a medium-sized business is nearly 4 per cent, twice the rate of inflation. These rising prices have brought opportunities for companies to secure a competitive advantage.
Recent research illustrates the early stages of a gathering storm. The UK is investing £30m each day to replace 30 per cent of its power plant by the end of the decade. This investment combined with more extreme weather will push up energy use as well as energy prices. Government announcements on Electricity Market Reform demonstrate a clear commitment to increasing use of low carbon energy but this too will add to energy costs. Business leaders can take action now to manage their energy use and bring long-term profitability improvements to their business.
These are four key areas for opportunity:
Invest in energy efficiency
The key for businesses is to recognise that they need to spend money to save money. Where energy efficiency requires upfront investment, a carefully designed strategy can deliver significant returns. Marks & Spencer claimed that its "Plan A" CSR strategy yielded a 23 per cent improvement in energy efficiency in 2010/11, including £13.5m of energy cost reductions in stores and distribution centres and fuel savings of £2m. BT invested significant sums to accurately measure its energy use and saved over £18m in 2011 across its networks, data centres and buildings.
Embrace 'smart energy'
The commitment to deploy 'smart metering' nationwide can be expected to have a significant impact for smaller businesses and residential consumers that only have one accurate energy reading every few months. Business leaders need to be aware of how smart metering can empower them as energy consumers and to be proactive in requesting this from their energy supplier. More accurate and timely information of electricity and gas use will help businesses to shop around for the very best tariff plan.
Mark Livingstone, PA energy expert says: "Expect forward thinking energy suppliers to introduce new innovations that will provide further opportunity for saving. BT's investment in its own smart energy control is an example of the benefits on offer. Annual savings of £6.2m were claimed in 2011 through identification and resolution of wasted energy via real-time smart metering data. Really understanding your energy use, and smart ways of changing, holds the key to reducing costs."
Participate in demand-side management
The UK Government is committed to 'demand-side management' - the ability for demand reduction at critical times to play a strategic role in improving market efficiency. Mark comments: "Today some industrial customers have contracts with their electricity suppliers that give them a price break in exchange for offering the flexibility of reducing load in times of pressure. In the future, expect this capability to extend much further as smart energy and electricity market reform increase the incentives on offer."
Adopting a crisis mindset
Embracing market changes and investing in new energy efficiency is an option, but more immediate action is needed. In 1992, New Zealand's lack of rainfall caused a crisis in energy, given the dominance of hydropower. The government moved into crisis mode and instigated a campaign instructing New Zealanders to reduce their electricity use by 15 per cent. Extra vigilance and innovative action enabled a level of saving to be achieved to avert the crisis.
In reality, energy use does not get the focus it deserves. Reliability and reasonable cost are enough to tick the boxes for most. Mark concludes: "As the future storm clouds gather, there are opportunities that today's business leaders can turn to their advantage and make a difference to a company's profitability."
Notes to the editor
About PA Consulting Group
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SOURCE PA Consulting Group