Archive for July, 2013

A new study by Jones Lang LaSalle and the Better Buildings Partnerships, the Real Estate Environmental Benchmark, has found that poorly managed office buildings cost up to twice as much to run as those with effective energy management systems.

The report states the energy cost of a typical air-conditioned office is £3 per square foot, but that this figure can vary significantly: offices with poor energy management spend up to £225,000 a year compared to £125,000 for well managed offices.

The research found a similar situation with shopping centres: while a typical 18,500 square meter centre has a carbon footprint of 1,200 tonnes of CO2, some have double that.

The benchmark is a great tool to help building owners and occupiers understand the relative performance of their buildings and opportunities to improve efficiency and reduce running costs. It should also help support the financial business case for investing in efficiency measures such as LED lighting, voltage optimisation and on-site generation.

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The current Ofgem consultation on the future of the energy broker/consultant market identified several reasons to use a broker to support your energy procurement and management strategy, as well as a number of things to look out for.

But as it will be some time before Ofgem rolls out any new scheme, businesses should ask their current (or prospective) broker a few questions to ensure they receive a quality, fair and transparent service:

  1. Are they fully independent of all suppliers, do they represent an individual supplier or only part of the market?
  2. How do they make money? No energy broker/switching service is truly free, all brokers, consultants or switching websites receive payment of some kind, usually a supplier-paid commission or fixed fee.
  3. Are they an energy expert, or do they also provide for instance telecoms or insurance services? If so, do they have the technical energy market expertise needed to advise on the correct time to go to market, avoiding energy market price spikes, and understand the increasingly complex fixed and flexible products now available?
  4. What other services and value do they provide? eg invoice validation, consumption monitoring, energy efficiency advice
  5. Are they a member of one of the industry bodies (eg Association of Cost Management Consultants or Utilities Intermediaries Association), which have strict codes of conduct regulating their practices and supporting transparency?

Ofgem recently launched a consultation on the potential regulation of UK energy brokers, or Third Party Intermediaries (TPI).

Acknowledging that brokers and consultants play an important role in “empower[ing] customers to make better choices”, Ofgem also predicted that their “importance is likely to grow with the introduction of smart meters and grids, and in increased focus on energy efficiency”.

There are concerns, however, about the practices of a small number of TPIs who operate in a way that is not transparent or fair, which has prompted the consultation. At the moment brokers are not subject to direct regulation (other than standard consumer protection rules), so Ofgem is exploring options including:

  • maintaining the status quo / issuing non-binding guidance
  • introducing a voluntary code of practice that either sets out objectives but has no or minimal oversight, or has strict accreditation, audit and sanctions process; probably based on existing codes of practice
  • governance via suppliers, requiring suppliers to only work with TPIs accredited to a robust code of practice
  • direct regulation of TPIs by Ofgem

The next step is the development of policy options, which will then be consulted upon again, so there’s unlikely to be any change in the near term. In the meantime there are a number of steps all businesses can take to ensure they’re making the best decisions about their energy contracts:

  • know your contract end date: if you become out of contract you will usually be put on to punitive rates until you enter another contract
  • don’t just accept your renewal quote: shop around yourself or with the help of an energy consultant, as there are often savings to be made by switching
  • if using an energy broker/consultant ensure they’re a member of an industry body (eg Association of Cost Management Consultants or Utilities Intermediaries Association), which have strict codes of conduct
  • check that your broker covers the entire supplier market, not just the ‘big 6′
  • check that they receive a standard % commission or payment regardless of supplier

Above all, don’t wait until the few weeks before renewal to look at your energy contract; start reviewing the market at least 6 months in advance so you can minimise the risk of volatile and rising prices.

The EU’s new energy efficiency directive, due to come into force in December 2015, requires businesses with over 250 employees or a turnover greater than €50 million to complete an energy efficiency audit at least once every four years.

While compulsory, the directive does not require businesses to actually implement identified savings. The government is therefore expected to announce a new Energy Savings Opportunity Scheme (ESOS) using a standardised assessment process to pinpoint potential efficiency savings.

According to DECC, the new scheme has the potential to deliver economic benefits of £1.9 billion a year, with the average business making annual energy savings of £56,000 from efficiency investments of £15,000. The government hopes that ESOS will encourage businesses to see the EU directive as an opportunity to identify and implement cost-effective measures, while driving investment in the energy efficiency sector.

There’s a clear risk that the EU directive becomes a painful tick box exercise, so anything that simplifies the process of identifying and understanding potential efficiencies is to be welcome. The key will be to providing a framework that makes realistic and robust payback assessments, taking into account unique operating practices and facilities, while also providing financing facilities and incentives to back up government directives and schemes.

 

While water costs may not be exposed to the same price volatility as energy, this doesn’t mean that businesses cannot proactively manage their water use and costs, cutting both consumption and costs through detailed tariff and volume analysis.

An English county cricket club therefore asked Energy & Carbon Management (E&CM) to review its water charges with the aim of cutting its annual bill.

Water and sewage costs are determined by set tariff structures, precluding the opportunity for users to negotiate directly with their supplier. As these tariffs, usually published on 1 April and lasting for 12 months, are becoming increasingly complex, E&CM conducted a desktop analysis of the organisation’s historical water invoices, reviewing:

  • costs
  • volume
  • tariffs
  • trade effluent
  • surface water drainage

This analysis identified a couple of areas requiring further exploration, including an on-site inspection of the ground’s water infrastructure. This process immediately identified an annual saving of £3,773 through a potential meter reduction, an application for the Major User Tariff scheme and an application for a greater non-return to sewer allowance.

E&CM was also able to find significant potential for on-going consumption and cost reduction measures through rainwater harvesting and water recycling, providing quotations and payback periods.

Water costs may not be high up most businesses’ priority lists, 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 energy regulator Ofgem warned last week that the UK’s spare electricity generation capacity could fall to just 2% by 2015, increasing the risk of blackouts to one in four years from one in 12 currently if demand reduction predictions are not met.

The growing risk of shortages is due to carbon emissions targets forcing a reduction in coal-powered generation, a greater reliance on more expensive imported gas and the global financial crisis impacting investment in new generation capacity.

One way of avoiding shortages could be a National Grid proposal to make payments to large industrial consumers to reduce demand during peak times (winter between 4-8pm). For the vast majority of businesses, however, this won’t be an option, leaving them at the mercy of the UK’s creaking energy system, and putting ever greater emphasis on reducing their own consumption, as well as exploiting on-site generation opportunities.