Wednesday, 20 June 2012

Businesses can turn future energy storm into profits

PA Consulting Group specialise
 in management and IT consulting,
 technology and innovation.
Rising energy prices are hitting the profits of UK businesses.

London-based independent and employee-owned consulting firm PA Consulting Group says over the past 15 years, the compound average annual electricity price increase for a medium-sized business is nearly 4 per cent, twice the rate of inflation.

And with The UK investing £30 million each day in a bid to replace some 30 per cent of its power plant by the end of the decade, combined with more extreme weather, energy use and energy prices are set to rise.

Government announcements on Electricity Market Reform demonstrate a clear commitment to increasing use of low carbon energy but this, too, will add to energy costs.

However, rising prices have brought opportunities for companies to secure a competitive advantage, says PA Consulting Group. Business leaders can take action now to manage their energy use and bring long-term profitability improvements to their business.

According to PA Consulting Group, these are four key areas for opportunity: 

Invest in energy efficiency

The key for businesses is to recognise that they need to spend money to save money. Where energy efficiency requires upfront investment, a carefully designed strategy can deliver significant returns. Marks & Spencer claimed that its "Plan A" CSR strategy yielded a 23 per cent improvement in energy efficiency in 2010/11, including £13.5 million of energy cost reductions in stores and distribution centres and fuel savings of £2 million. BT invested significant sums to accurately measure its energy use and saved over £18 million in 2011 across its networks, data centres and buildings.

Embrace 'smart energy'

The commitment to deploy 'smart metering' nationwide can be expected to have a significant impact for smaller businesses and residential consumers that only have one accurate energy reading every few months. Business leaders need to be aware of how smart metering can empower them as energy consumers and to be proactive in requesting this from their energy supplier. More accurate and timely information of electricity and gas use will help businesses to shop around for the very best tariff plan.

Mark Livingstone, PA energy expert says, "Expect forward thinking energy suppliers to introduce new innovations that will provide further opportunity for saving. BT's investment in its own smart energy control is an example of the benefits on offer. Annual savings of £6.2 million were claimed in 2011 through identification and resolution of wasted energy via real-time smart metering data. Really understanding your energy use, and smart ways of changing, holds the key to reducing costs."

Participate in demand-side management

The UK Government is committed to 'demand-side management' - the ability for demand reduction at critical times to play a strategic role in improving market efficiency. Mark comments, "Today some industrial customers have contracts with their electricity suppliers that give them a price break in exchange for offering the flexibility of reducing load in times of pressure. In the future, expect this capability to extend much further as smart energy and electricity market reform increase the incentives on offer."

Adopting a crisis mindset

Embracing market changes and investing in new energy efficiency is an option, but more immediate action is needed. In 1992, New Zealand's lack of rainfall caused a crisis in energy, given the dominance of hydropower. The government moved into crisis mode and instigated a campaign instructing New Zealanders to reduce their electricity use by 15 per cent. Extra vigilance and innovative action enabled a level of saving to be achieved to avert the crisis.

In reality, energy use does not get the focus it deserves. Reliability and reasonable cost are enough to tick the boxes for most. Mark concludes, "As the future storm clouds gather, there are opportunities that today's business leaders can turn to their advantage and make a difference to a company's profitability."

PA Consulting Group is a firm of more than 2,000 people, specialising in management and IT consulting, technology and innovation. The firm operates globally from offices across Europe and the Nordics, the United States, the Gulf and Asia Pacific.

PA Consulting Group works with businesses and governments to anticipate, understand and meet the challenges they face. The firm has outstanding technology-development capability and a unique breadth of skills, from strategy to performance improvement, from HR to IT. Its expertise covers energy, financial services, life sciences and healthcare, government and public services, defence and security, transport and logistics, telecommunications, consumer goods and automotive.

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