Craig Akers looks at the impact of increased energy costs across the UK, the perceived restrictions placed on smaller manufacturers from mitigating the impact, and the potential immediate solutions that many seemingly do not yet realise the potential of
UK industry is at a crossroads in its energy consumption. Grappling with a series of interconnected pressures, many industrial users of electricity face the prospect of spiralling energy prices with a corresponding reduction in competitiveness.
For many businesses, energy is their most expensive operating cost, with some experiencing annual energy bills at circa 20-25 per cent of their operating costs. And yet, attempts to mitigate the cost of energy all-too-often run into the familiar road blocks. The UK’s ageing and inefficient asset base is one barrier, but so are capex constraints and the perceived technical obstacles of implementing many of the potential solutions. 2019 has been coined by many as ‘the year of decentralised energy’ and awareness of its benefits is only going to snowball. A recent piece of research commissioned by Aggreko found that 43 per cent of respondents had considered their own electricity generation. However, 38 per cent of respondents have had an investment for new equipment to reduce energy consumption turned down in the last five years due to capex restrictions.
The cost of energy, and to a slightly lesser degree sustainability, are clearly the key drivers for companies wanting to move towards a decentralised future. This isn’t just our opinion; we have conducted extensive qualitative and quantitative research within the market to understand key drivers and pain points. However, UK businesses that have a large, constant demand for energy (such as manufacturers) face two key threats. One is that the price of energy in the UK will rise, compared to the cost faced by competitor firms abroad, placing UK firms at a significant disadvantage. And secondly that they will be unable to maintain their energy supply needs from the grid, stunting growth.
The growth of decentralised energy
Decentralised energy, as an independent source of power, is a solution that is quickly becoming adopted by many large industrial and commercial organisations. There are already a number of examples in the manufacturing industry where companies are harnessing technologies such as wind, solar and CHP. However, this just is not a viable option for the majority of companies, yet.
We are however seeing more companies take smaller steps to reduce costs in their organisations. Demand side response (DSR), for example, is a solution that has been round for many years. More and more businesses are discovering the revenue potential of engaging in DSR and many are now enjoying lower electricity tariffs for their flexibility. But that appears to be as far as we’ve got in the UK. What’s clear is that there is definitely ambition to move to a completely decentralised energy future, however, there are many obstacles in the way.
Barriers to adoption
Cost and funding
Money – it makes the world go round, but is also a barrier to progression in many areas of life. As stated previously, this has stumped a number of UK companies who feel at loggerheads with the need to drive down costs, but not having the capital to do so. Nevertheless, there are solutions to be found with certain incentives and adapting purchasing behaviour which we will come on to.
Lack of technical expertise
The two main barriers to decentralised energy come hand in hand. As with any new technology, the R&D required and the consequently high price point makes evolution difficult for many. This, coupled with a typically human resistance to change, means these barriers are perceived to be more impactful than they actually are. Aggreko’s recent research also highlighted that a staggering 76 per cent of businesses leave energy decision-making in the hands of other job roles aside from energy managers with potentially no specific technical energy knowledge. It is therefore no wonder that industry is not moving at a faster pace to change the way we generate and use energy. The future of decentralised energy is exciting but with many options to be considered and technology to understand, it can understandably cause a headache for many.
So, with businesses concerned about the lack and cost of energy, how it will impact their business going forward, and sustainability, we need to break down the barriers to a cheaper, reliable source of power. Let’s look at some of the solutions that may help take industry forward:
Modern gas generators are one potential solution to reducing energy costs while we start to level with our European counterparts on decentralisation. When combined with battery storage capability, this solution can provide gas generated electricity that can be used as a primary power source for production processes or to power essential every-day requirements, including lighting, heat and IT capabilities.
What’s more, the heat generated can also be used to produce hot water with combined heat and power (CHP) units, offering extra cost savings, particularly in processing environments. It can also harness steam for a number of applications in addition to heating.
The key point for end-users is that this type of technology can be deployed without making any significant changes to an end-user’s usual processes. The gas generator a simple switch from using mains electricity to gas generated electricity. While it still utilises some grid supply, it can significantly reduce the use and reliance on it, simultaneously reducing the costs due to the spark spread i.e. the difference between the cost of electricity and the cost of gas.
Waking up to off-balance sheet solutions
The capex crunch that many industries are suffering from shows no sign of abating. However, one option that organisations should consider as an alternative to permanent fixed plant is hire equipment, which provides an off-balance sheet option with no requirement for depreciation of tangible assets – whilst also solving the technical knowledge issue. What’s more, hire solutions also come with maintenance capability, which ensures that products will always be optimised and any downtime can be foreseen and minimised.
For those who might be intrigued by the potential of hire for their business but unsure of the financing options available, there are still many incentives within reach, such as Good Quality CHP under CHPQA. The Association of Decentralised Energy is a great source for this information and they have been very helpful in providing insight for Aggreko’s research.
As highlighted, there are various solutions available to manufacturers who may think that they are not there yet. The purpose of Aggreko’s campaign is to create awareness of this bridging gap solution.
Craig Akers is Sector Team Leader for manufacturing at Aggreko, a world-leading provider of mobile modular power, temperature control and energy services. Aggreko is working at the forefront of a rapidly changing energy market and is focused on solving its customers’ challenges to provide cost-effective, flexible and greener solutions across the globe. It harnesses innovation that helps it maintain a global reach and supply portable equipment for a wide range of uses. Aggreko specialises in serving eight key sectors: Oil & Gas, Manufacturing, Mining, Petrochemicals & Refining, Business Services & Construction, Events, Data Centres and Utilities.