More than one in three UK businesses now produce at least some of their own electricity according to a recent Economist report. Here are four key reasons why.
1. Security of Supply
The growing strain on the UK’s national grid is creating more problems for companies, with costs to upgrade their supply systems that can breach £1m, and frequent power outages.
There is a huge amount of volatility in the grid as carbon-heavy coal and gas power plants are taken offline and solar and wind alternatives provide more intermittent supply.
To ensure security of supply, it makes sense for companies to generate their own energy. Big brand examples include Apple and Lego with the retail sector leading the way while other sectors are fast catching up.
On-site generation reduces reliance on grid supply while allowing UK businesses to have a firmer grasp on prices, which are some of the highest in Europe.
An added benefit is the reduction in carbon emissions, as the power can be generated from renewable sources like solar, with battery storage and Combined Heat and Power plants using natural gas.
2. Non-commodity costs
Business energy bills comprise three components: energy, transportation and policy costs.
Companies really only have control over the energy element as transportation and policy costs are not controlled by the suppliers but dictated by the government and distributors.
Rising costs are being fuelled not only by increases in power unit prices but also by a range of policy costs. These include:
- Feed in Tariffs, the subsidy for all small-scale renewable generation
- Renewable Obligation, the main support for large-scale renewables
- Contracts for Difference, where the government pays nuclear power plant £90/MWh and the market rate is £40/MWh and the customers pay for the difference.
Reducing dependence on grid supply helps to contain these costs.
3. Sustainability Targets
The pressure is growing from governments, investors and central banks for companies to sign up to global or regional sustainability commitments or create their own internal targets.
Renewable energy generation is a key element in this development and while benefitting the environment also helps to reduce costs. Moves towards a zero-waste supply chain can have very profitable outcomes as well.
Some companies are linking CO2 reductions with bonuses while others see it as a way to increase shareholder value. Either way, to have corporate sustainability or wider Environmental, Social and Governance (ESG) targets is a clear benefit for company, customers and the planet.
There are also marketing benefits as an increasing number of consumers and communities are more likely to support environmentally responsible businesses. This can filter through to the supply chain and encourage partner companies to also harness renewable energy.
4. Lowering OPEX
While companies focus on increasing the sales and the top line, it’s always crucial to take care of the bottom line and lower operational costs. Investment in energy efficiency and self-generation is seen as a key business requirement by many accounting firms as a way to deliver reduced operating costs. Embracing technology, not just energy related but also across other business functions, can have a large impact in reducing the OPEX and increasing profitability.