UK Business Concerned by Cost of Energy Efficiency

INVESTMENT by British business in energy reduction measures is in danger of grinding to a halt, new research has warned.

The research, commissioned by Ernst & Young, which polled board members in 250 of Britain’s leading companies, revealed that whilst the overwhelming majority of companies have invested in low cost measures such as improved temperature controls (75 percent) and lighting upgrades (71 percent), only 12 percent have made investment in measures with large upfront costs such as microgeneration.

The findings indicate that many of the easiest energy efficiency measures have already been implemented, leaving businesses with options which either require more investment, more time and confidence, or are more operationally challenging.

According to the research:

  • 53 percent had made building fabric improvements such as double glazing and insulation, whilst a further 9 percent plan to invest shortly.
  • 52 percent had made upgrades to air quality including improving ventilation systems, while a further 11 percent were planning to invest.

On the other hand, more costly measures are either being completely ignored or dismissed due to their perceived cost. 33 percent of companies haven’t even considered micro generation, whilst 39 percent had considered investing but ruled it out due to it being judged not economical at this time.

Another significant measure to reduce energy costs - changing working practices - has also been rejected in British board rooms, 19 percent haven’t even considered this, while 39 percent had rejected it on economic grounds.

Richard Postance, Advisory Partner, Power & Utilities, Ernst & Young urged the Government to act now to give businesses a clearer picture of the future:

“With the grid coming under increasing pressure, the Government needs to give business certainty that investing in what are perceived to be higher cost measures such as microgeneration will be worthwhile. Developments like the smart grid represent a huge opportunity for businesses to take advantage of the move towards a lower-carbon economy, but too few businesses understand what it will, or could, mean for them. Without clarity on how upgrades to the nation’s energy infrastructure such as smart grid will facilitate return on investment, business will lack the confidence and security to take the next step on reducing their energy costs.”

The research reinforces Ernst & Young’s call to action, identifying two key barriers to business making significant investment in energy efficiency measures:

  • 79 percent of business expressed concern over the length of time it would take for their investment to show a return. Only 3 percent of businesses felt this wasn’t at all significant in the decision to make an investment.
  • 77 percent also feared the scale of upfront investment required, again only a small proportion (4 percent) didn’t feel this was a significant barrier to investment.

Despite these concerns over the cost of investment, British business is well aware of the precarious situation it finds itself in with regard to energy costs, 95 percent of those polled believed that there will be a significant rise in energy costs in the next 5-10 years. Equally, whilst 70 percent stated that localised energy black outs would force them to act, only a quarter felt that this was an event that was likely to arise in the medium term.

Encouragingly, the research showed that businesses were more likely to implement measures requiring significant upfront investment if they had a clearer understanding of how future energy developments like the implementation of smart grids could impact them:

Of those polled, only 5 percent had a strong understanding of the term smart grid and its implication for investment in energy efficiency measures, while 33 percent had no understanding at all and 34 percent had a limited understanding.
Of those who had an understanding of the term smart grid, 45 percent have already invested in micro generation. While a further 33 percent planned to invest in the near future. 76 percent of those who had no or limited knowledge of the term smart grid are not considering investing in micro generation.

Richard Postance, Advisory Partner, Power & Utilities, Ernst & Young, warned that more needed to be done to unlock the next phase of investment in low carbon measures:

“British business investment in low carbon is at a sticking point. Many British businesses have taken first steps, but our study shows that without greater certainty on the return on investment, they are reluctant to commit further. If UK Plc wants to remain globally competitive while simultaneously reducing carbon emissions then providing this certainty must be a priority.”

Additional UK statistics

  • 95 percent of business leaders believe there will be substantial rises in the price of energy
  • 91 percent say rising energy costs will encourage them to invest in measures to reduce their energy use
  • 83 percent are interested in investing to reduce energy costs but need to know more about potential returns on investment
  • 79 percent are concerned over the length of time for their return on investment to come through
  • 77 percent are concerned over the scale of the upfront costs of investment
  • 75 percent of companies have invested in temperature controls and 71 percent in lighting upgrades, yet only 12 percent have invested in micro-generation
  • 73 percent of businesses believe they have already significantly invested in measures to reduce energy costs yet the investments made so far have been in technologies that only have a minor impact such as temperature controls (75 percent) and lighting upgrades (71 percent).
  • 64 percent of businesses see the complexity of implementing new technology measures as a barrier to reducing energy costs (more needs to be done to simplify the process).
  • 71 percent of businesses prioritise investment in other areas of the business as opposed to energy efficiency measures. They aren’t marrying the significance of energy price rises with investment in measures to reduce this impact.
  • 70 percent believe the risk of localised energy blackouts would have an impact on incentivising them to invest to reduce energy costs yet only 26 percent actually believe this will happen in the next five to ten years.
  • 86 percent of businesses believe that regulations forcing companies to implement measures to reduce energy costs is likely to happen in the next 5-10 years.

Picture of Birds circling over Canary Wharf, London; © Copyright Ian Dalgliesh and licensed for reuse under this Creative Commons Licence.

Monday 26th September 2011

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