Archive for February, 2013

Having ensured that you’re paying the correct water and sewerage tariffs, the next stage in managing water costs is to reduce the volume consumed through the elimination of waste and introduction of new technologies.

Only by understanding your current water and sewerage volumes can you begin to eliminate waste, which is most easily done through benchmarking of volumes against similar facilities within your own organisation or those of other companies with the help of companies like Energy & Carbon Management.

The benchmarking is usually based on understanding the factors driving consumption, for instance the number of people using a building, or the type of manufacturing process (eg bread or concrete). Analysing usage data against similar facilities can quickly identify anomalies, directing an on-site survey to identify the specific causes of wastage (eg broken pipes, old/inefficient equipment) and what must be done for savings to be achieved.

This analysis can also assess the potential savings if waste reduction measures are introduced, identifying the likely payback period for any investment and prioritising activities.

The introduction of water saving technologies should also be assessed, including low flush toilets and automatic sensor taps, rain water harvesting and grey water recycling. These solutions generally have quick pay-back periods, qualify for Enhanced Capital Allowances tax relief, are usually easy to fit and can also reduce energy bills due to reduced demand for hot water.

A proactive approach to water management through tariff analysis, wastage elimination and the application of new technology ensures that your cost base is kept under control, freeing up cashflow and improving margins.

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Although it may seem a distant memory after the drenching of last summer and the snow of winter, it was less than a year ago that Thames Water and many other water companies were imposing hosepipe bans and warning of long-term water shortages. To cope with the increasing unpredictability of our rainfall, significant (if belated) investment is being made in the UK’s water infrastructure which is feeding through to higher bills for businesses and consumers.

Unlike energy, deregulation of the water industry did not introduce competition to the water market, however, leaving regional suppliers with local monopolies over water and sewerage services. And while water costs may not be exposed to the same price volatility as energy, this doesn’t mean that business users cannot proactively manage their water use and costs, cutting both consumption and costs through detailed tariff and volume analysis.

The first step must be to ensure you’re not over-paying for your supplies. Water and sewage costs are determined by set tariff structures, precluding the opportunity for users to negotiate directly with their supplier. These tariffs, usually published on 1 April and lasting for 12 months, are becoming increasingly complex however, often composed of the following separate charges:

  • Water supply
  • Water meter standing charge
  • Foul sewerage removal costs
  • Foul sewerage standing charge
  • Rateable value or area based surface water drainage charges
  • Highway drainage charges
  • Trade effluent charges

A priority in managing your water costs is therefore to understand the volumes of water and sewerage currently being purchased, benchmarking these volumes against all the available tariffs from your water company. This process ensures that the correct charges are being applied based on your actual usage, identifying both opportunities for cost savings in the future and refunds for any historic over-charging.

As water volumes and tariff structures change this review should be conducted annually to ensure you continue to pay the correct price.

Tariff analysis also helps to build a profile of your operational water and sewerage use, identifying additional saving opportunities, often from trade effluent, and sewerage charges, as well as meter sizing. For instance, a site currently used for warehousing may previously have been home to water-intensive manufacturing producing high volumes of trade effluent and generating significant costs. The change of use to warehousing should mean that the water meter (inflow) can be reduced in size and trade effluent charges cut, bringing immediate and long-term cost reductions – but only if the new usage is assessed and reported to the water company.

Water costs may not be high up most businesses’ priority list, but paying the incorrect tariff is money down the drain. Implementing annual checks on your water bills, coupled with on-going consumption monitoring, is a straightforward and essential way of minimising your costs, and in some instance recouping over-payments.

The head of Ofgem, Alistair Buchanan, warned the other day of a ‘double squeeze’ on the UK’s energy generation capacity due to the closure of old, polluting power stations, which could lead to higher imports and therefore energy prices for UK businesses and consumers. According to Buchanan, companies must identify where they can cut their energy use, even if “it often sounds unsexy… it’s very important”.

The consequence of the phasing out of ageing plants is that gas will soon account for 60%+ of the UK’s generation capacity (compared to 33% today), the majority of which will have to be imported. As an earlier post suggested, world events already have a significant impact on UK energy prices, so this volatility will only increase over the next few years, making it harder than ever for businesses to manage their energy costs.

Post-2020 there is the prospect of new nuclear and ‘clean’ coal generation coming on line, but EDF has also confirmed it wants 40 year government price contracts in order to proceed with the construction of new nuclear plants in the UK. Any agreement along these lines would guarantee EDF a minimum price for the power they generate, possibly nearing £100 per/MWH, which doesn’t compare too well with today’s price of around £52 p/MWH.

While these contracts might make it cheaper for EDF to raise the estimated £12-16bn required to build the plants, they could also distort the UK’s energy market, limiting investment in cheaper generation capacity that doesn’t have a guaranteed price.

Either way – increased reliance on imports and/or subsidies to new nuclear – the long-term implications for business energy users are not great, emphasising the need to focus on continuously assessing the energy market to avoid price spikes come renewal time, as well as implementing efficiency measures, both behavioural and technological.

Many businesses, large and small, benefit from the expertise provided by energy consultants/brokers to navigate the complex world of energy prices and contracts. Up to now however, these consultants have not been subject to any regulation, a situation which could be about to change.

Ofgem, the UK energy regulator, is requesting the government grant it power to regulate the energy brokerage market, possibly including the introduction of an accreditation scheme. The aim is to prevent misleading marketing and miss-selling as part of a welcome move to make the commercial energy market clearer and fairer for businesses.

Many reputable consultants have already signed up to the Codes of Conduct of either the Association of Cost Management Consultants or the Utilities Intermediaries Association, on which any future Code is likely to be based. These Codes include a commitment to:

  • Building sustainable business relationships based on honesty, integrity, openness, and fairness
  • A client agreement including at least: definition of scope; period of validity; duties of Client and Consultant; fees and charges; cancellation and termination clauses; and mutual confidentiality
  • Disclose the source of fees
  • Providing good quality information, presented clearly and concisely in a timely manner with neither positive nor negative bias
  • Maintain clear and appropriate communications with Clients

Another factor to consider when talking to energy consultants is to ensure they cover the entire supplier market and not just the ‘Big 6’ (British Gas, EDF, E.ON, Npower, Scottish & Southern and Scottish Power), but also newer entrants to the market such as Haven Power, Gazprom, Corona, First Utility and, Dong Energy.

By working with ACMC or UIA accredited consultants – who also cover the whole market – you can be sure to receive a service appropriate to your needs.

My aim is post occasional insights into how companies can best manage their energy and water use – from mitigating rising prices to improving efficiency measures, cutting costs and assessing on-site renewables.

I’ll also comment upon energy policy and market issues that will impact businesses in the UK, as well as examples of things that have gone well (and perhaps not so well) in the world of commercial energy and water.

I’ll look forward to your feedback and comments.

In the last five years energy prices have risen by 100+% and fallen by as much as 50%, due to factors as varied as the collapse of Lehman Brothers, conflict in the Middle East, the Fukushima nuclear disaster and the Eurozone debt crisis.

Earthquakes, conflict, elections and economic troubles all impact the price businesses pay for energy

About the only thing these global events have in common is that they directly impact British businesses, stretching already tight budgets and adding to existing market uncertainties.

But how can you mitigate this price volatility – and steal a march on your competitors?

  • Don’t wait until close to contract renewal to check rates, as this is unlikely to be the best option: prices could be 10, 20 or 30% higher than they were just a few months earlier, while varying by just 5% between suppliers
  • Continuously monitor the energy market, as it’s now possible for most commercial energy users to lock-in contracts up to three years in advance

As well as being volatile, energy prices are on an upwards trend, so contracting your energy use for 2014 and 2015 insulates you against future price movements.

A long-term energy strategy also means you know the exact gas and electricity unit rate you’ll be paying for the next 2-3 years, improving your budgeting and forecasting accuracy.

Continuously monitoring the energy market means you can avoid price spikes and benefit from price drops, potentially making significant savings, while stealing a march on competitors who continue to rely on luck rather than judgment in managing their energy costs.