Energy efficiency – the next big thing in energy procurement?
July 04th 2007

Energy purchasing in the latter part of the 2000s is a far more sophisticated activity than it was at the beginning of the decade. Energy buyers now need to be conversant in risk management principles, stay informed of factors driving the next swing in wholesale energy prices and competently explain dramatic changes to energy budgets to senior management.

A shifting landscape

A change in the nature of the UK’s wholesale energy markets forced those challenges on energy buyers. If we could sum up the change in a word, it would be volatility. Rising wholesale prices and short windows for decision-making have created a lot of stress for a lot of people since late 2003. The searchlight of senior management scrutiny shone fiercely on energy buyers as prices climbed, with little let up, from 2004 through to mid 2006, and some coped better than others. It led to the emergence of flexible contracting as a more strategic approach to energy purchasing.

As energy prices have come off the boil, the novelty factor around flexible contracting may be wearing off. However the risk of future price shocks remains, so energy buyers should not take their eye off the principles of risk management, flexible contracting and influential factors of changes to commodity energy prices. That particular management searchlight may be moving off as energy budgets descend from historic highs, but another one is bearing down on energy buyers.This time the key word is carbon.

Greater awareness of climate change is leading to more scrutiny being paid to energy use. Companies are compelled to report on the environmental impact of their activities and what they are doing to reduce it. Carbon dioxide emissions,the currency of this reporting,are easily linked to energy. A rapid rate of change resulted from rising energy prices, so we will likely see a rapid rate of change resulting from greater awareness of the climate change problem – and a greater sense of urgency to tackle the cause:CO2 emissions.

Think twice

The first reaction for many organisations is often to ‘buy renewables’ as it is theoretically easy to do and doesn’t tie up additional management resources. But consider this recent finding from market analysts, Datamonitor: 3,500 of the country’s biggest energy customers want to buy 34 TWh of renewable energy - three times the 12.2TWh of accredited renewable electricity produced in the UK in 2006 and far in excess of estimates for 2007. Buying all their energy from renewable sources simply won’t be an option open to every business.

Reducing CO2 emissions through saving energy is the new challenge for energy buyers then.

Fortunately potential energy savings are all around us. Even organisations that believe themselves to be efficient energy users can make further savings.

Tackling energy efficiency

Some great results can be achieved relatively quickly and at little expense by rolling out energy efficiency campaigns to encourage more energy efficient behaviour across the organisation. Hundreds of organisations are now using our Energy Efficiency Toolkit for that purpose. This CD based resource pack contains all the advice you need to plan and implement such a campaign, together with customisable templates to take the hard work out of the tasks along the way – a unique and very popular feature! (Visit our website to order your copy.)

However for best results, energy efficiency needs to be considered as part of the energy purchase and involve a wider decision making group – finance directors, site engineers and facilities managers. Linking energy efficiency to the procurement exercise will also help organisations focus on reducing their long term total invoice cost rather than their short term unit rates. Ask yourself, does it make more sense to focus on saving thousands of units, or thousandths of a penny on a unit rate.

EDF Group has been working collaboratively with energy intensive (and often already energy efficient) companies in France and Germany to deliver extra energy savings. Through our Advanced Efficiency Programme, they have accessed sophisticated expertise from our energy R&D facilities – the largest in Europe. Through EDF Energy that expertise is also available to British businesses willing to take on the energy efficiency challenge.