28/06/2017

The energy industry is one area of governmental policy and business concern subject to some of the most heated discussion since Britain’s shock decision to leave the EU just over a year ago. Post referendum, ‘Brexit’ has thrown up a whole host of questions surrounding the country’s energy future, many of which remain unresolved.

However, despite political instability and uncertainty over a number of energy-related issues, there is one particular sphere of the market which continues to thrive against this complicated backdrop: energy efficiency.

According to the latest edition of the EEVS Insight report, compiled in partnership with Bloomberg New Energy Finance, the UK energy efficiency sphere is experiencing a growing number of orders and increased customer satisfaction as an ever greater number of organisations look to spend on energy efficiency measures in order to make long-term savings.

The report – Energy Efficiency Trends – reflects on an upbeat sector in the first quarter (Q1) of 2017, with high confidence shown from both suppliers and consumers alike.

This is most starkly demonstrated by the fact that eight out of ten energy efficiency suppliers surveyed by EEVS reported stable or increasing client order books over Q1, with high energy efficient lighting and smart metering systems two of the most popular technologies for businesses to invest in.

Median project valuations continued on an upward curve too, reaching a new high of £260,000 during the first quarter.

Such a positive outlook for the sector comes in spite of half of the suppliers surveyed declaring that they believe the government’s energy efficiency policy to be ineffective at stimulating the market.

Amid the scepticism, one particular question is therefore worth being raised: ‘What are the drivers that persist in feeding this growing energy efficiency trend?’

SMS Plc’s Head of Energy Efficiency, Sean Keating, summarises that the conditions for increased adoption of energy efficiency measures amongst organisations across the UK can be narrowed down to three factors: cost pressure, regulatory pressure, and people pressure.

Cost pressure

“Cost pressures for businesses are mounting,” highlights Keating. Indeed while wholesale electricity prices fell to the lowest they’d been since 2007 early in 2016, by late October last year, they'd risen by about 40% (reaching a record short-term peak in the process). And although prices have fluctuated since then, they’ve remained very high. This isn’t the only thing businesses have to contend with in terms of cost, says Keating.

“Aside from the fluctuations in the wholesale price of energy, non-energy costs are rising substantially and are an increasing part of the energy bill. These non-energy costs relate to the cost of building and managing our power generating and distributing infrastructure. Years of under-investment have kept this cost artificially low, but now, forced by the risk of failure in our ageing infrastructure, investment is being made and passed on to consumers.”

Regulatory pressure

With the momentous Paris Agreement ratified by the UK Government in November 2016, the country has committed to tackling the devastating effects of climate change by making a commitment to drastically cutting its carbon emissions.

Although Britain has agreed to reduce emissions by 57 per cent by 2032, the strategy on how it will meet this target has yet to be finalised due to the delayed publication of the Government’s Emissions Reduction Plan. However, business is generally taking the long view, explains Keating.

“While efficacy of specific regulatory approaches is debateable, industry can see that the future involves increased regulation. Globally we have our first meaningful climate agreement, and regardless of US resistance, this has momentum.

“Elsewhere, EU regulation is unlikely to be suddenly withdrawn – trading means we should continue to closely align with this post-Brexit – while [major] party manifestos have progressive aspects on energy and climate regulation.”

An increasing number of organisations who have taken this long view now have mature energy programmes in place, and this will likely continue to translate into increased investment in energy efficiency.

People pressure

“Climate awareness and awareness of the energy services marketplace is at an all-time high,” says Keating. “While there is still a range of views from activism to scepticism, the vast majority are now accepting of the need to act on climate change. This majority are the employees, management, shareholders and supply chain for our businesses, leading to a gradual paradigm shift in attitudes towards corporate responsibility.”

Indeed this shift has taken significant effect across the business world in recent times, with corporate responsibility making up an increasingly important part of the overall mission and public image of organisations. Not only have companies starting listening to people pressure, but realised that environmental concern has also become a big selling point for consumers, as well as a way to cut down expenditure.

Meanwhile, as the energy service marketplace matures in its service provision and its identity in the minds of buyers – the higher the number of transactions, the more we understand its roles, and the less trepidation there is about executing spend to save energy conservation measures.

Energy efficiency: far from its potential

Taken together these three driving factors combined (cost, regulatory, and people pressures) mean energy efficiency is on the march. So what does the future hold for energy efficiency? Keating stresses that the market is far from reaching its potential.

“The technical gap between potential efficiency and the actual efficiency of our building stock is vast, and has been for a long time,” he says. “The barriers to improving energy efficiency have been more organisational than technical. Innovation over recent years has led to improvements in the efficiency of building elements, but has leapt forward in relation to information systems and business models to optimise operations.”

Helping businesses make their own leap forward in this respect is SMS Plc.

An increasing number of our projects use big data analysis and sophisticated prediction algorithms to monitor and control buildings as well as advise on component performance and upgrade requirements.

Creating information networks within and between buildings, we’ve collaborated with organisations to improve building comfort, reduce energy use and help switch organisations focus from planned maintenance to condition based maintenance.

We’ve also been using these information tools to improve the commissioning of building services through providing transparent real time data on all elements of system performance – changing the power balance between the client and contractor when it comes to signing off project completion.

Closer to the cutting edge, our R&D team are defining technology and business models for solving challenges relating to the flexibility of power grids, such as using the thermal inertia of buildings as an alternative ‘battery’ to balance supply and demand.

Future market growth

So, with demand for smart, energy efficient technologies and confidence in the sector high and continuing to grow despite political uncertainty in the UK, how well does this bode for future growth?

“We’re confident in the future growth of this market – that’s why we’re in it,” reiterates SMS Plc’s Head of Energy Efficiency, Sean Keating. “The real challenge is encouraging organisations to adopt quickly and see energy efficiency as a source of competitive advantage – not only domestically for individual businesses, but for UK Plc as a whole.

“The organisations that have the agility to understand and respond to the sustainability agenda demonstrate not only a sense of moral purpose, but that they are intellectually and organisationally fit for the future.”

Has your organisation invested in energy efficiency? For further information on our energy services, please do not hesitate to contact one of our team on 02920 739 540 or email us and we'll call you back.

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