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Fundamentals of business energy strategy
December 16, 2019
You may be looking to reduce your environmental footprint, cut costs, or improve operational efficiencies. It may surprise you, but many businesses don’t have a strategy to effectively address these goals. Luckily, five fundamental factors are enough to help you plan or improve your energy strategy.
1. Big business benefits
Strategies are about meeting goals with the available means.
In other words, it could really pay to know how you’ll get to your destination – whether that’s reaching a science-based emissions target or upgrading to an EV fleet.
In return, you’ll be able to boost your brand reputation, minimise risks, and earn financial benefits.
Building an energy strategy is also crucial for meeting your legal requirements. In the UK, a variety of legislations require large businesses to report their carbon emissions, participate in trading schemes, pay environmental taxes, and carry out energy efficiency audits.
2. Efficiency incentives
With so much demand on your business, it is important to know where the government offers support:
• The
Enhanced Capital Allowance (ECA) scheme allows you to write off the full cost of qualifying energy efficient appliances from your taxable profits in the year of purchase.
• You could receive quarterly payments for 20 years based on the amount of low-carbon heat you generate under the
Renewable Heat Incentive (RHI) scheme.
• If you’re a highly energy-intensive organisation, you can apply for a
Climate Change Agreement (CCA). In exchange for achieving specific efficiency targets, you can receive a discount on your Climate Change Levy (93% on electricity and 78% on other fuels).
3. The legal context
Legislation is admittedly not the most exciting topic. But it helps to understand why you have to pay so many different types of taxes.
Luckily, there are only two legislations you need to know about in order to understand the UK’s legislative landscape.
1. The first is the EU’s 2009 Renewable Energy Directive (RED). The law says that the EU will collectively procure 20% of its energy from renewable sources by 2020. Each EU Member State has a specific national target – for the UK, it’s 15%.
2. The other law is the UK’s 2008 Climate Change Act. The recently
amended legislation requires the UK to reach zero emissions by 2050.
4. Taxes and charges
Less than half of your energy bill pays for energy. The rest covers taxes and charges. So, knowing what you pay – and why – can help you identify opportunities to reduce your exposure to these costs.
There are currently two major environmental taxes that apply to large businesses:
1. The
Climate Change Levy (CCL) applies to practically every type of business.
2. If you’re an energy-intensive organisation, you may also need to participate in the
EU Emissions Trading Scheme (ETS).
In addition, there are a variety of mechanisms to ensure that the energy network can transition to low-carbon generation.
The Government collects the necessary funds for this through charges and taxes. You may know these by their technical labels, such as CCL, DUoS, BSUoS, TNUoS, CM, CfD, RO, and FiT.
These non-commodity costs are likely to rise in the future. However, a robust energy strategy can help you manage them effectively.
5. Reporting requirements
Conscious consumption is the new norm.
We’re seeing more and more customers and investors call for increased transparency. And the numbers show it. Ethical consumption, for instance, nearly doubled in the UK since 2010.
This means that reporting will help you meet your legal requirements – and bring in higher profits.
If you’re a large business, you’ll have to comply with one or more of the following requirements:
• If you’re a quoted UK company, you must disclose your emissions under the
Mandatory Greenhouse Gas reporting requirement.
• The new
Streamlined Energy & Carbon Reporting (SECR) creates emissions reporting requirements for an extra 8,000 organisations by bringing unquoted companies under its remit.
• As a large business, you may also have to carry out an energy assessment every 4 years under the
Energy Savings Opportunity Scheme (ESOS).
• If you happen to be an asset owner or a listed company, then you’ll have to disclose your climate risks under the new
Green Finance Strategy by 2022.
Factoring the relevant requirements into your energy strategy will certainly help you save valuable time and effort.
Equipped with these fundamentals, you can set out to integrate your energy strategy into your business strategy. Contact our energy experts today to find out how our
large business solutions can help you turn energy into a competitive advantage.
Read more...
Balancing planet and profit during unprecedented market volatility
Wholesale energy prices have experienced unprecedented levels of volatility since the end of summer 2021, with both day ahead/spot and future contracts surging to all-time highs. In the last couple of months, prices have decreased but still remain high compared to a year ago. This period of high energy prices is expected to continue for the foreseeable future (see next section). Energy prices have surged for a number of reasons: A global increase in gas demand following the ease or end of Covid-related restrictions throughout 2021. After the pandemic, economies across the world started to recover. Asian countries like China saw their imports of Liquified Natural Gas (LNG) increase. This resulted in lower LNG shipments to the UK and Europe. On the supply side, the Covid-19 lockdowns pushed some maintenance work from 2020 into 2021 at a time when demand was recovering. In 2021, gas production hit a record low of 363TWh, 47TWh below the previous record low in 2013. Low production was the result of an extensive summer maintenance schedule which saw shutdowns at several major terminals, as well as the Forties Pipeline System which serves a significant proportion of UK gas and oil production. A lack of wind in the summer resulted in higher demand for conventional power. European gas storage in 2021 and Q1’22 remained far below previous years and it’s unclear how these are going to be replenished in the summer given the concerns around supply including the potential suspension of Russian gas flows due to sanctions. The 1,234km offshore Nord Stream 2 gas pipeline, which was designed to double the flow of gas between Russia and Germany (and by extension the rest of Europe) has been abandoned following the invasion of Ukraine. Gas storage in the UK is extremely minimal with capacity at less than 2% of the UK’s annual demand, compared with 22% for other European countries. Whilst the UK is not heavily reliant on gas coming from Russia, it sources almost half it’s gas supply from Europe. Hence, wholesale gas and power prices in the UK are now subject to knock-on-effects from the conflict in Ukraine.
Amidst rising energy costs, digitalisation, growing pressure from stakeholders and increasing regulation, organisations may struggle to define their pathway to a low-carbon future. What can you do to protect your business’ net zero plans from the challenges of volatility? Disruption and volatility are putting organisations under pressure. Digitalisation and new technology developments continue to challenge existing business models. Its increasing dependence on energy and encouraging businesses to drive change to secure competitive advantage. And as customers, employees and shareholders look to engage with companies who understand the importance of decarbonisation, pressure is mounting to prioritise sustainability.
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Balancing planet and profit during unprecedented market volatility
Wholesale energy prices have experienced unprecedented levels of volatility since the end of summer 2021, with both day ahead/spot and future contracts surging to all-time highs. In the last couple of months, prices have decreased but still remain high compared to a year ago. This period of high energy prices is expected to continue for the foreseeable future (see next section). Energy prices have surged for a number of reasons: A global increase in gas demand following the ease or end of Covid-related restrictions throughout 2021. After the pandemic, economies across the world started to recover. Asian countries like China saw their imports of Liquified Natural Gas (LNG) increase. This resulted in lower LNG shipments to the UK and Europe. On the supply side, the Covid-19 lockdowns pushed some maintenance work from 2020 into 2021 at a time when demand was recovering. In 2021, gas production hit a record low of 363TWh, 47TWh below the previous record low in 2013. Low production was the result of an extensive summer maintenance schedule which saw shutdowns at several major terminals, as well as the Forties Pipeline System which serves a significant proportion of UK gas and oil production. A lack of wind in the summer resulted in higher demand for conventional power. European gas storage in 2021 and Q1’22 remained far below previous years and it’s unclear how these are going to be replenished in the summer given the concerns around supply including the potential suspension of Russian gas flows due to sanctions. The 1,234km offshore Nord Stream 2 gas pipeline, which was designed to double the flow of gas between Russia and Germany (and by extension the rest of Europe) has been abandoned following the invasion of Ukraine. Gas storage in the UK is extremely minimal with capacity at less than 2% of the UK’s annual demand, compared with 22% for other European countries. Whilst the UK is not heavily reliant on gas coming from Russia, it sources almost half it’s gas supply from Europe. Hence, wholesale gas and power prices in the UK are now subject to knock-on-effects from the conflict in Ukraine.
Amidst rising energy costs, digitalisation, growing pressure from stakeholders and increasing regulation, organisations may struggle to define their pathway to a low-carbon future. What can you do to protect your business’ net zero plans from the challenges of volatility? Disruption and volatility are putting organisations under pressure. Digitalisation and new technology developments continue to challenge existing business models. Its increasing dependence on energy and encouraging businesses to drive change to secure competitive advantage. And as customers, employees and shareholders look to engage with companies who understand the importance of decarbonisation, pressure is mounting to prioritise sustainability.