ENERGY


usinesses are no stranger to managing the risks associated with factors such as staff, health and safety, and security, but energy? Despite being essential to the running of any business, historically energy hasn’t featured among these risks and has often been viewed as little more than a necessary supply.


THE RISE OF ENERGY RISKS B


Dave Cockshott, corporate markets director at npower, says it’s now more important than ever to have a strategy in place to manage energy risks.


That may have been the case once, but we believe a number of factors are now combining that will increasingly see energy feature among businesses’ primary risks. Price volatility, the need to reduce carbon emissions, confusion over a supposed supply gap and growing legislative demands mean energy now has far wider implications and, therefore, requires more effective risk management. It is perhaps little surprise then that our seventh npower Business Energy Index (nBEI7), an annual report which canvasses business opinion on energy use and carbon emissions, found a marked change in attitudes towards energy. Half of businesses say that energy risks have become higher profile in their organisation over the last three years as the considerations around energy use multiply. What has come as a surprise,


however, is where energy ranks in businesses’ risks. For major energy users, energy is now the primary risk they face in their business, ranked at 7.3 out 10 in terms of its risk level. This outranks even cash flow, health and safety and legislative risks.


The reasons for this became clearer when we asked businesses about where they perceive most risk in their energy use. Supply costs, rated at 7.9, were considered to place the greatest risks on operations,


but legislative compliance; associated CO2 emissions; and reputational risks also ranked highly.


Despite this acknowledgement, 20% also said they do not have a strategy in place to manage these energy risks, and of those that do, most believe it can be improved.


A failure to manage risks effectively could lead to financial and reputational consequences, both as a result of poor purchasing decisions or as a failure to manage legislative requirements. Take the Carbon Reduction


Commitment Energy Efficiency Scheme (CRC) as an example. For the 20,000 or so organisations the scheme applies to, they have only until 30th September to register or submit an information disclosure on their electricity consumption. Any organisation that in 2008 had at least


one half-hourly settled meter will need to disclose information on their electricity consumption, and those organisations whose consumption through all half-hourly electricity meters was 6,000 MWh or more will qualify in full for the introductory phase of the scheme.


This means that from 2011 those organisations participating in full will need to purchase allowances to cover their projected CO2


emissions from all


qualifying fuels rather than just electricity. The higher their energy use and emissions, the greater the number of allowances they will be required to purchase and surrender. For all involved there are potentially significant financial and reputational implications. For example, late registrants will face a fixed fine of £5,000, plus an additional £500 for each subsequent working day past the deadline, up to a maximum of 80 days. Non-compliance will also be published. And while monies received for allowances are recycled to participants, due to the way the scheme is run, the CRC will also affect cash flow. And this does not even consider the impact on corporate reputation of a low position in the CRC’s league table, which will rank participants in part on how successful they’ve been in reducing their CO2


emissions. For sectors such as retail that are firmly in the public eye, league table position could be more important than the financial implications of the scheme.


A similarly complex scenario is true of energy purchasing. Many businesses have taken the decision to buy energy flexibly in recent years to take advantage of peaks and troughs in the energy markets, but often they do not have a strategy to manage purchasing decisions. We’ve known examples of businesses making a purchase, concerned that market prices would continue to rise, only for energy prices to drop a week later. This situation might have been better managed had there been a strategy in place, based on the detailed understanding of the risks the business was prepared to take with benchmarks set against which purchasing decisions could be made.


Given these combined considerations, we believe it is now essential that businesses have a strategy in place that brings together both the supply and demand side of energy use. In this way,


decisions can be made that benefit the business as a whole – investments in energy efficiency will reduce carbon emissions, but will also reduce purchasing requirements, for example. For many businesses this may require a step change in how energy is managed. All too often decisions on purchasing and carbon reduction are dealt with by different departments making it difficult to make cohesive decisions.


Many FMs may have experienced this first hand. While they may have been actively involved in energy efficiency programmes, such as optimising heating and lighting to deliver long term energy savings, few have a close relationship with procurement teams. Conversely, procurement teams may be focusing on securing the best possible energy contract without considering how energy efficiency, as well as energy price, could be important to reducing costs.


In the future we believe a closer liaison between these two teams, and also with energy suppliers, will grow in importance. Energy suppliers are now no longer just providers of physical energy; increasingly they are the route to advice and guidance on actually reducing energy consumption and have the monitoring and metering tools to help customers achieve this. We are already seeing this changing relationship first hand. We now work with many of our customers, more as partners than suppliers, helping them to manage their energy purchasing and supply while also advising them on carbon reduction programmes in consideration of the long term needs of their business. There are very good reasons for working in partnership. Quite aside from the peace of mind it provides, it could prove to be time and cost effective, negating the need to recruit and train new staff for the task of energy management and avoiding the need to establish a suite of processes and procedures, thus freeing up valuable internal resources. It could also prove to be more productive in the long term as the energy strategy would be built around long term goals to deliver energy savings and carbon reductions, which can then be linked to energy purchasing decisions. If you want to make sure you’re managing the risks ahead, now is the time to take action. www.npower.com


SUSTAINABLE FM | AUGUST 2010 |41


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