THE Government’s “Energy Bills Discount Scheme” for businesses is due to change at the end of the month, when it will be more targeted to high-use industries, such as manufacturing. The Chancellor will address energy in his budget in two weeks, and is not expected to announce any changes. That means thousands of businesses will need to prepare to operate without any state support.
Kam Singh, director of carbon solutions at EMCOR UK explains these challenges in more detail and offers advice to business leaders on how to reduce usage and manage their energy profiles:
“Businesses must look at energy reduction before anything else – the cheapest kWh is the one you don’t use. This may seem obvious, but I’ve seen numerous businesses across various sectors that did not understand their energy profiles. Similarly, some businesses prioritise sourcing renewable energy but leave all their lights on overnight. It’s the same as homeowners spending thousands on solar panels but having heating on 24/7 because their home isn’t airtight. The first step must always be to reduce consumption.”
“I visited a major event venue recently that was paying £5m a year for energy before the pandemic and is now paying £12m a year. If I didn’t know it was an event venue, I would have guessed the site was a data centre because energy was being consumed throughout the night due to lights and other energy sapping units being left on. Businesses must understand their energy profiles – which can be created through data and then managed through Building Management System (BMS) control systems, and even night walk arounds to see where they can make reductions.”
“Energy should be treated as a long-term price risk management project rather than a procurement activity. Energy has been a historically volatile market and it will continue to be. It’s not just wars or pandemics that affect the market – forces are at play every day that impact prices. Every business is in an energy contract, so every business should treat it as a risk.”
“I have met many organisations that take different approaches to energy management. One company bought out energy in 2016 for a number of years and did so again in early 2020 when the market was low. As a result, that company has been shielded from the turbulent prices since early 2016 and will be until the end of this year. This is the approach that all businesses should adopt.”
“Most businesses do not have the in-house expertise for energy price risk management. Find a partner or energy broker and look for ones that offer the best risk management strategies and offer complete transparency in their fee structure to ensure there are no undisclosed payments. But be mindful not to get caught up in a protracted procurement process to appoint a broker – in the time it takes for a procurement process to run its course, the spend on energy can vastly outweigh any savings. Furthermore, procurement still tends to focus on the cheapest deal at the time, as opposed to taking a longer-term view that is required from a risk management standpoint.”
“The new Government support scheme will offer varying levels of support depending on the energy usage of a particular industry. However, I would implore all businesses to understand their own energy profiles and not be reliant on any Government support. With the benefit of an energy profile, businesses can make astute decisions, reduce energy use and protect themselves from future market volatility through price risk management practices.”
“The Government may provide additional support for SMEs, but as with larger businesses, my advice is to avoid relying on support as much as possible. The danger for SMEs is to sign up to an energy contract that is the cheapest price at the time, then get stung at renewal when prices have spiked. SMEs should determine their energy profiles, engage with brokers and make a decision that will offer greater protection in the long run.”
