The Committee on Climate Change (CCC) is an official advisor to UK Government, providing independent advice on building a low carbon economy and on preparing for climate change. The CCC’s Net Zero report, published on 2nd May, recommends that the UK legislates for a net-zero emissions goal by 2050. Ørsted looks at why, as some of our largest energy users, manufacturing businesses will play a central role in achieving this goal and how they will also be among those most affected by the change it requires.
The CCC’s report forecasts that the electrification of heat and transport will double demand for power by 2050 and that this is likely to cause energy price peaks over the next 10 years. For manufacturers, who have already seen costs rise by 37% over the last five years, this may start alarm bells ringing. Energy costs now constitute up to 20% of operating costs and many businesses are reporting an impact on competitiveness. Fortunately, there are actions which manufacturers can take to mitigate this. For those ready and able to adapt, the changing energy infrastructure also presents new revenue opportunities, and the chance to invest in renewables projects that can secure long-term price certainty. We’ll look at some of the options, but first it’s important to understand why carbon reduction is so important.
Impacting the planet and your profits
Our energy choices have a direct impact on the environment: increased levels of greenhouse gases in the atmosphere could have serious consequences for life on earth. Scientists estimate that current emission levels put us on a path towards temperature rises of more than 3ºC by 2100. Rises beyond 1.5 % could trigger devastating processes such as thawing of permafrost that releases methane gas, contraction of the snow cover that reflects heat from the sun, and reduction of the sea’s ability to absorb carbon. It all adds up to significant costs for nature, humankind and the economy. To keep the warming around 1.5ºC, global emissions must fall by 55% by 2030 and reach net zero around 2050
The same energy choices have a direct impact on the profitability and resilience of our businesses: efficiency measures reduce energy costs as well as carbon footprint, while sustainable choices can improve customer loyalty and supply chain appeal; An Ørsted 2018 consumer survey revealed that 3 out of 4 consumers are more inclined to choose a manufacturer or retailer that uses renewable energy. There is also talent acquisition to consider; a hot topic for many manufacturers right now. 92% of millennials state it’s important to them to work for a company that’s environmentally and socially responsible
The work of the Climate Group demonstrates the power of business energy choices: through its RE100 initiative, businesses are setting themselves apart as leaders by making a commitment to renewable energy. And the 176 businesses already signed up to RE100 consistently outperform their peers financially, across every sector.
To compete with manufacturers from outside the UK, industry here must not only keep operating costs down, they must also be seen to be operating responsibly, ethically and sustainably. It’s a tall order, but it’s one which a new approach to energy can help manufacturers achieve.
Actions that suit your business
So, what actions should manufacturers be taking when it comes to energy?
1 – Actively choose renewables:
The easiest first step for many will be to actively choose electricity supply from 100% renewable sources. While a little more difficult for multi-site businesses, this is still a relatively simple action which provides significant advantages. The Climate Group recommend setting ambitious 100% renewable goals; to help spread the word and make your business’ commitment to renewables impactful. However, the most important thing is to actively choose a green tariff, to be sure you are sourcing renewables beyond what is supplied by the grid mix. The ideal contract is one where the supplier guarantees power which is 100% traceable. There are also a number of green gas options on the market these days, helping manufacturers to cut carbon across their energy sources.
2 – Efficiency and flexibility:
Reducing energy consumption is high on the priority list for businesses with rising costs. Unfortunately, once easy to implement efficiency measures have been ticked off the list, many businesses fail to take the next steps that could have longer-lasting benefits for their bottom line. All too often, a fear of impacting processes or a lack of CapEx investment that gets in the way. It’s crucial to build the business case for efficiency measures, and to get buy-in from the board. You may be surprised by the big savings small changes can make, without affecting your daily processes.
Consuming energy flexibly can also have an important impact; both on the business bottom line, and on helping balance demand and supply on the electricity system. Flexibility improves cost-efficiency in a system which is increasingly reliant on variable electricity sources, bringing benefits for businesses who participate in balancing or Demand Side Response (DSR) schemes. National Grid has stated that DSR will be a key element in achieving our net zero goals and the Association for Decentralised Energy (ADE) has now launched a new compliance scheme that will make it easier for industry to participate. Flex Assure compares aggregation services to provide transparency and give businesses confidence in this rapidly developing marketplace. The service will support businesses that wish to access the revenue available through flexibility, while also supporting the transition to a greener energy future. The ADE says that a sixth of the UK’s peak electricity requirement – or 9.8 gigawatts – could be provided by businesses being flexible in their energy demand, which could save UK energy consumers £600 million by 2020 and £2.3 billion by 2035.
3 – Corporate Power Purchase Agreements:
Those who are ready for a longer-term commitment should also consider a Corporate Power Purchase Agreement (Corporate PPA). A Corporate PPA creates a win-win situation: it can deliver long-term cost and carbon reductions for businesses and guarantees revenue streams for renewables projects. The agreement provides businesses with a long-term, fixed-price agreement linked to specific renewable generation assets. One of the key attractions is the ability to fix the unit price throughout the contract, mitigating exposure to wholesale price movement and reducing risk.
An example of how a Corporate PPA works can be seen in Ørsted’s agreement with Northumbrian Water. The company sources 30% of its renewable electricity directly from Ørsted’s Race Bank offshore wind farm, off the coast of Norfolk. It means that they will source approximately 100GWh a year for ten years and can ensure price certainty throughout that period. Under the agreement, Ørsted will also provide a balancing service of the wind output so that the electricity can be delivered under their existing supply agreement. The result is one that will appeal to businesses across all sectors: reduced operating costs without commercial compromise.
Every manufacturing business has its own challenges to face. While carbon reduction can unfortunately feel like one more obstacle to overcome, it’s important that every business gets on board in ways that are practical for their unique circumstances. It’s also important that manufacturers join the carbon zero conversation and share their thoughts on how carbon reduction can be made simpler for them. What must be prevented through positive policy changes is the transfer of energy-intensive activities to countries with laxer emission constraints. Carbon reduction is a global concern, and one that we must all address together.
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