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Going for Less Gas

12 November 2008

In the current tough financial climate making energy management a key part of operational strategy can help protect and enhance bottom line profitability, explains Mike Hogg.

THE DEBATE IS RAGING ON. Is the UK heading for a recession or are we in the grip of hysteria and media scare mongering? Whichever side of the argument you’re on, it’s undeniable that turbulent financial markets and elevated energy and commodity prices are making it tougher for everyone. At the same time, companies of all shapes and sizes are under increased pressure to lower their carbon footprint as the government strives to hit stringent environmental targets. In this climate, forward-thinking businesses should be looking for new ways to reduce their costs and, as a consequence, energy procurement has never been a more pertinent commercial issue.

Utilities are a crucial expenditure, but too often they aren’t given the attention they deserve. Many businesses simply don’t have a grasp of how much energy they use, or the different purchasing options that are open to them. They’re missing out, because if energy costs are managed carefully, significant financial savings can be unlocked.

Gas prices
One of the most frequently overlooked opportunities to improve energy efficiency and reduce costs is at the procurement stage. In many cases, organisations approach energy purchasing on a cost-only basis and tend not to consider how supplier expertise can assist best practice energy efficiency.

In today’s gas market, flexible gas supply contracts can be developed that track market prices, offer fixed prices or provide a combination of the two to allow customers to purchase gas in advance. From operators of commercial properties to energy-intensive manufacturers, bespoke products can be developed to ensure companies start maximising financial savings even before they implement energy saving initiatives.

Businesses which use larger volumes of gas (in excess of 10,000 therms per day) such as manufacturers and industry, may opt to fix tranches of gas based on current market prices and balance this with a purchasing plan that tracks the market on a daily basis. This enables companies to spread risk and realise significant savings, but must be supported with daily market monitoring in order for both the company and gas supplier to make informed decisions.

Smaller-volume users of gas often take a less critical view of gas purchasing and tend to select fixed-price contracts that run for two or three years. This approach is popular, as it’s considered the most straightforward method of managing energy expenditure.

In reality, expert suppliers have developed products that provide one single transparent price each month, based on a variety of price indices ranging from forward and future options to average daily market prices. This reduces the risk of fixing the full volume of gas at a potentially higher than average price and can require little input from the customer.

The Carbon Trust identified that UK businesses could save almost £350m and 2.7m tonnes of CO2 during the winter by implementing cost free and low cost energy saving actions. For a high volume manufacturer these savings could be in the hundreds of thousands each year.

Conducting a comprehensive energy management assessment will provide a solid basis for any energy management programme. It will help identify areas in which a building or business can improve its efficiency and reduce energy use, while also quantifying potential emission and financial savings.

Levels of assessment may vary, but generally it should comprise a full review of the company’s three P’s –Practices, Premises and People. Considering all these factors together, as well as looking at the metering and local power supply, will provide a complete picture of the business’s energy footprint and what improvements are achievable.

A key consideration is to ensure that assessments are focused on auditing energy usage in-line with legislative requirements and the day-to-day operation of the business including objectives and targets. This approach ensures that a balance is struck between identifying the amount of energy needed to maintain core operations and the actual volume consumed. An accurate scoring system can then be devised which ranks the efficiency of the building, working practices and equipment, and sets realistic targets for achieving reductions.

Essentially, an expert energy management assessment quantifies what improvements can be made and the financial and emissions savings these will generate. This process in itself can reduce energy consumption by three to ten per cent through raising awareness of where energy is being used and so encouraging reduced energy wastage. This can prove beneficial in terms of financial and operational planning and securing internal support for the delivery of the energy management programme.

Many companies will already be familiar with the cost free or low cost tactics they can use to save energy such as turning-off equipment not in use, using power-saving lighting and monitoring equipment performance, not to mention the role that educating staff has to play. What they may be less aware of is the effectiveness of regularly monitoring energy consumption.

Checking meters and recording readings on a daily basis can enable usage trends to be identified, the success of the energy management programme to be charted and faults spotted early.

Similarly, companies should work with their energy suppliers to understand their utility bills. An expert supplier will be able to analyse usage to identify trends and potential cost savings. This will often be supported with consumption reports produced on a regular basis in-fitting with customer requirements, be that production cycles or peak periods, allowing the company to keep energy budgets up-to-date.

Automated Meter Reading (AMR) technology has the potential to take this monitoring further - enabling businesses to realise greater savings. Shell Gas Direct now offers an AMR package: this incorporates a device that is fitted to an existing gas meter and communicates usage data directly back using mobile telephone technology to a secure website. From here, customers can view their consumption data for both energy management and budgetary purposes, and Shell Gas Direct can access the data to enhance invoicing accuracy and timeliness.

The virtually real time, electronic provision of data means that cost savings can be realised by reducing administration and the need for physical meter readings. Furthermore, estimated billing is replaced by much more accurate readings. This allows for more precise budgeting and, for high volume gas users in particular, provides the data for significantly more pro-active energy management.

Part of the Building Regulations Act requires accurate measurement of energy consumption and this technology and the information it supplies can help manufacturers comply with this legislation. Usage and billing data can, as mentioned above, be made available online via a secure website and consumption reports produced on a daily basis if required.

Energy expertise
The development of new energy efficient technologies and techniques will continue to gain pace over the next few years. Current UK emission levels suggest the UK is suffering a major shortfall in achieving its 80 per cent carbon reduction by 2050. As it strives to offset the difference, it is likely green-related funding and tax breaks will be introduced to increase energy efficiency.

Businesses need to recognise that energy efficiency is not just a quick win scenario, but one which stands to affect long term gain. It’s a progressive strategy and soon, suppliers and manufacturers will only be doing business with companies with the same green ethics as themselves. For those who lag behind, the road will be much harder, with legislative demands, government targets and financial penalties obstructing their path.

Taking a more considered view of energy procurement and selecting an energy provider that offers technical expertise, a partnered approach and industry knowledge will realise financial and environmental savings that are truly priceless.

● Mike Hogg is general manager of Shell Gas Direct, a leading supplier of natural gas to UK businesses in a diverse range of markets, and from commercial buildings to energy-intensive industries.

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