Taking the longer view on energy prices

24 January 2012

While the recent cuts in energy prices are to be welcomed, they should not be considered as a long-term solution to energy cost and risk management, warns Sabien Technology.

The recent bout of mild weather has triggered a fall in wholesale gas prices, resulting in reductions in energy prices. However, this should be viewed as a temporary reprieve from an overall upward trend in prices and should not deter organisations from investing in energy efficient measures. And it makes sense to look at the relatively low cost/fast payback measures that are available using proven retrofit technologies.

There is a considerable body of evidence to illustrate the short-termism of confusing price management with energy management. When the energy industry was privatised fierce competition enabled many organisations to negotiate very favourable tariffs. As a result, they took their eyes off the energy management ball and suffered the consequences when prices began to rise.

A recent report(1) by the London School of Economics (LSE) supports this view, predicting that energy costs will rise over the next 10-15 years, regardless of any measures the government may take.

“The LSE study has crucially looked at the longer term trends, which helps to promote the bigger picture, rather than the moves by some suppliers hoping to improve their customer image with cuts which have effectively followed persistent price increases since 2001,” said Sabien Technology chief executive Alan O’Brien.

“UK businesses should not forget the impact of energy and climate change policies on the prices. According to DECC (2) energy bills for non-domestic users will increase by 26% by 2020 due to energy policies, these increases will happen regardless of milder weather” O’Brien added.

Some of the greatest volatility in prices has been seen in gas markets, so reducing gas consumption should be a priority for both public and private sector organisations. One such option is to take control of boiler dry cycling – an energy-wasting phenomenon that is found in most boilers – using Sabien’s M2G technology.

Lincolnshire County Council, for example, reduced its gas consumption by 15% after installing M2G in 23 properties – with a projected return on investment of just 1.3 years.

Public sector organisations may also be able to take advantage of Salix funding, with an extra £20m having been made available by DECC for use before the end of March 2012.

Further information about reducing gas consumption with a sensible payback can be found at www.sabien-tech.co.uk

References
1. LSE: The Future Report: Demanding Times for Energy in the UK
2. DECC: Estimated Impact of Energy and Climate Change Policies on energy prices and bills