Business energy costs are rising. Before investing in on-site generation, this article discovers why it pays to rethink your energy strategy.
Anthony Mayall, joint Managing Director at Sustainable Energy First, explains how to make the right decision.
This October brings budget shock for many businesses as they renew their energy contract. The latest report from Cornwall Insight says that business energy costs have risen 25% since February. There are many factors behind that rise, and we don’t expect wholesale electricity or gas prices to fall significantly in the next year.
Many businesses will be looking around for alternatives to the traditional supplier contract, including generating your own power on site. That could be the right solution for your business – but instead of drawing up the case for and against on-site generation, we suggest going back to the drawing board.
What problems are you trying to solve?
First ask why you’re considering on-site generation. What problem or problems are you trying to solve? “Cutting costs” is the obvious answer. But there will be other reasons too, maybe including:
- Greater control
- Protection from price volatility
- Security of supply
- Traceability for your carbon reporting
- Reducing non-commodity costs (separate from per-unit energy costs)
How does your business use energy?
Next, drill into the detail of how your business uses energy.
- Which parts of the site or sites use the most energy?
- Which processes consume the most energy?
- What does the daily energy usage pattern look like? Over 24 hours, when are the dead times and when are the peaks of consumption?
- Do some days look different from others, and why?
- If you had to cut consumption by 10% this year, how would you do it?
Don’t skip this step – it’s vital. If you don’t have access to detailed energy data for the business, this problem needs solving first. The Sustainable Energy First team can offer advice on sub-metering and energy data collection.
If you’re in scope of SECR or ESOS, you’ll hopefully have a head start. The energy data you’ve been gathering for reporting reasons will be really useful here.
Two bits of your ESOS reporting that you should definitely dig out now:
- Energy intensity ratio(s): connecting energy consumption to something important for your business, like pints poured, units manufactured or just pounds in the till.
- Energy-saving opportunities: a list of ways your business could save energy, rated by how cost-effective they are
Immediate actions
With that information in hand, there are some actions you can immediately take to relieve short-term budget pressure and gain more clarity.
Review your current energy procurement arrangement. Whether you’re on a fixed-price contract, a flexibly traded product or another type of arrangement, it’s worth understanding what you’re currently paying, when key contract or purchasing decisions need to be made, and how your costs compare with the market.
Change consumption patterns. If the business is on a time-of-use tariff, can it time-shift more energy usage to off-peak periods? For example, by charging up EVs overnight or using energy-intensive equipment at cheaper times?
Consider demand flexibility. If it is possible to time-shift consumption, the business could participate in the DFS and get paid for it.
Efficiency/cutting consumption (if your assessment flagged up any quick wins here)
Check your metering. Is your business is still getting billed on the basis of estimated readings? Don’t wait for the smart meter rollout – get accurate billing sorted now.
Revenue recovery. It’s surprisingly common for businesses to be charged more than they should for their energy. Consider getting an energy bill audit to ensure there have been no costly mistakes.
How would on-site generation work for you?
Getting on with the actions in the list above will leave you with an even clearer picture of your business energy consumption and associated costs. You then need to think about the practicalities of on-site generation as a possible solution.
- What type of generation asset would work for your site(s)? Think about usable space, access and weather conditions.
- Would you need battery storage to get the most out of it?
- How quickly could you connect to the grid?
- Would you export surplus electricity to the grid, and if so, how would that affect the numbers?
- Would you own and operate the generation asset, or would you enter into an arrangement like leasing?
- How would the asset be maintained, and again how would that affect the numbers?
Decision-making process
The next step is to compare on-site generation with other options, in the light of what you’ve learned about your business and its needs. For example, you might decide that signing a corporate power purchase agreement (CPPA) will secure cost certainty without the need for a generation asset on site. Or, if you’re looking for a more accessible route to renewable energy, you might consider options such as the . Alternatively, you might decide to focus on driving down consumption to cut costs that way.
Ultimately, a healthy mix of energy efficiency, on and offsite renewable energy are required to minimise cost and carbon. And this shouldn’t be a “one and done” decision. It should be a process where you continually evaluate the options and check that your business is following the right path.
Anthony will be discussing this topic at UK Hospitality’s Environmental Sustainability Seminar in London on 14 October, alongside Maddy Reynolds, Property Commercial Finance Analyst at itsu. They’ll share practical insights on navigating a path to clean energy in hospitality, while managing resilience, risk and cost.
Anthony will be expanding on this article’s topic with the speaking slot titled:
Moving the dial on renewable energy – case studies on how to make it work.
