The future of our energy supply is in the balance and addressing it will require profound changes from UK businesses. This is not scaremongering – a recent paper from the respected House of Commons Library addressed the challenge of a low-carbon energy gap in the 2030s, setting out profound implications for us all. And there are many other reports with a similar message.
Mind the gap: Challenges for future UK energy policy
The importance and relevance of tackling these issues is rising up the business agenda but there is a long way to go. Companies relying on critical energy supplies to meet production schedules and maintain operational performance increasingly need to answer one crucial question: Can we afford to take our energy supplies
The answer is ‘no’. The infrastructure for generating energy in the UK is under increasing pressure and there is a consensus over the reasons why. With the ending of all coal-fired generation by 2025 and uncertainty over future nuclear plants, we must look at smart ways to optimise, secure and store existing sources of energy.
Energy security is one of five key pillars of the UK’s integrated national energy and climate plan. The others are energy efficiency; decarbonisation; an internal energy market; and research, innovation and competitiveness.
The UK’s Draft Integrated National Energy And Climate Plan (NECP)
Businesses must embrace all five to maintain just 'business as usual'. Industry, hospitals, education, water supply, shops and public buildings all depend on a constant, reliable power supply. Without it, the consequences could be catastrophic. How shortfalls will be managed and what investment is required to guarantee the energy security of our businesses are essential questions for the boardroom and the answers can’t wait until tomorrow.
As an expert in energy solutions, Veolia has been speaking to hundreds of energy and business leaders across a spectrum of enterprises. What has emerged is a lack of
awareness, concern and, crucially, urgency in addressing this impending crisis.
This report sets out the stark conclusions from those conversations and offers valid and timely options for those who understand that doing nothing cannot be an option.
We believe an ‘energy crisis’ is likely. We don’t mean fuel rationing, power cuts and the like, but we do mean dwindling supplies, price increases, strain on the Grid
and lack of investment in infrastructure.
And it’s not just our opinion. According to a YouGov poll, half of senior decision-makers with responsibility for energy and budget agree (this is considered further, below).
Adapt or fail
The demand for energy in the UK is unrelenting. One quarter of UK energy is used for manufacturing materials, chemicals and goods in the industrial sector. 80 per cent of this is used for heat production where fossil fuels provide the lion’s share of the energy. So what will businesses do when this capacity is significantly reduced?
Demand for energy in the UK is also changing. On our streets, electric vehicles are becoming more and more commonplace. It’s estimated that by 2050 the energy demand will be 18GW - enough to power nearly 48 million homes and the output of 16 nuclear power stations.
Electricity, fed by renewable sources such as wind, is an obvious go-to in the battle to decarbonise our economy, especially after the Government’s recent commitment to reduce carbon by 100 per cent by 2050 compared with 1990 levels.
Our everyday lives will reflect this shift. Electric or district heating will almost certainly replace traditional domestic gas boilers in new homes. We all increasingly rely on the cloud for internet access, data storage and security, and the power required to support data centre infrastructure globally is set to grow five-fold over the next few years. If the UK mirrors this trend, data centres will use the equivalent power consumed by more than 16 million homes. The increasing number of white goods and gadgets in our homes will add further to the future UK power demand requirements. And all that’s before we factor in our growing population.
Businesses can adapt from within to meet the energy crisis head on. Once we start managing our own demand and resilience - becoming more energy efficient, self sufficient, and less reliant on an ageing, centralised Grid, we’ll be in a robust position to confront the energy crisis. Meeting carbon targets will improve the bottom line for businesses and keep energy costs consistent and sustainable.
The Importance of Security of Supply
We’ve already seen how the majority of respondents do not see a looming crisis. Let’s review our conversations with them to assess what other views they hold. In fairness, more than half (52 per cent) of our panel of energy managers are either very concerned (16 per cent) or concerned (36 per cent) about the reliability and security of their energy supply. Half of the senior decision-makers believe the UK is heading towards an energy crisis, whilst four-in-ten disagree. However, three-quarters (76 per cent) acknowledge that having sufficient energy to support their business is important. Taking Grid capacity and resilience for granted certainly does not appear to be in the best interests of UK plc.
Starting from here: our current energy infrastructure
It won’t be easy to transform our complex energy infrastructure, especially when faced with the Government’s commitment to “net zero” greenhouse gases by 2050. Nevertheless, whilst the UK is currently on track to hit the third carbon budget (a 37 per cent reduction by 2020), it is unlikely we will meet the fourth (51 per cent) or fifth (57 per cent), which cover the period to 2032.
To get back on track – and meet the increasing demands of electrification – will require huge investment in infrastructure. We asked our senior decision-makers and energy managers whether they believed government or private investment in infrastructure was enough to meet the growing needs of the UK. In short, they didn’t: 58 per cent of senior decision-makers and 82 per cent of energy managers thought more was needed. Indeed, when we asked our panel of energy managers what solutions their businesses were considering to offset a potential energy crisis, 64 per cent said none.
There’s something of a contradiction when, on the one hand, they don’t think enough is being done but are failing to take-charge and seek alternative solutions. One conclusion could be that our respondents are not looking far enough into the future. Or perhaps there is a knowledge gap about the energy gap. It’s clear that energy specialists such as Veolia can play a big part in helping businesses look for solutions to increase their resilience.
Renewable energy is probably the most recognised energy source for a green future but it still only accounts for 33 per cent of the energy needed for the UK. Alternative solutions, which may need greater promotion to ease reliance on the Grid, include heat and power facilities (CHP), battery storage or just being smarter in
managing or purchasing energy.
Price volatility: planning for the future and cost implications
During our conversations, we wanted to ascertain the importance of cost volatility. When asked how important this was to their business, two-thirds of managers (66 per cent) felt volatility was a concern while 80 per cent needed ‘some’ or ‘complete’ certainty over energy prices. When a similar question was posed to senior decision-makers, 73 per cent agreed the price of energy was important.
To gauge the seriousness of the current uncertainty, it is worth undertaking risk analysis. Suppose your business was hit by a sudden increase of 20 per cent in the cost
of energy. Would your business be agile enough to adapt? We questioned our panel of energy managers to understand how they would try to offset such costs while maintaining business as usual.
Encouragingly, 88 per cent of businesses already build energy price increases into annual cost forecasts, showing good strategic planning and a consideration of energy use. Of the senior decision-makers, 39 per cent would look to buy energy more efficiently if costs rose unexpectedly, 29 per cent would reduce or adapt operations to reflect higher costs, and 27 per cent would invest in new energy solutions. The picture may not be wholly bleak but greater proactivity is needed to increase supply security and avoid being at the mercy of an ever-fluctuating market.
Energy security: what solutions are being considered?
More than a third (38 per cent) of our energy management panel have suffered a loss of supply due to either a failure of the Grid or because of the site’s infrastructure. These losses of production and unplanned shutdowns can be very costly to a business. Despite that, only a similar proportion (36 per cent) of managers are actively looking at solutions to prevent such setbacks. When we posed the same question to senior decision-makers, they set out which solutions they favoured. Reducing demand through energy efficiency was the most popular answer with 32%, 17% would consider battery storage technology, 17 per cent energy procurement and demand-side response, 15 per cent CHP, and 7 per cent district heating.
From our perspective, this is putting more emphasis on prevention than cure. Given the importance of maintaining energy supply, this issue does not appear to be being taken sufficiently seriously when one considers the potential consequences.
Here are some of our suggested options:
ENERGY EFFICIENCY - From smart monitoring to energy performance contracts, Veolia’s integrated energy management team spans construction, operations and dayto-day maintenance – all backed up by 24/7 support. Energy-saving opportunities can be identified with our auditing capabilities and specialist expertise. These feature real-time performance reporting to improve both sustainability and the environmental footprint while achieving the required compliance.
BATTERY STORAGE - Battery storage works by charging when the cost of power is low and providing power to a site during peak times, including Triad avoidance where businesses reduce the power they draw from the transmission system over winter in order to avoid the three highest peaks. This power can either supplement the existing energy provision, avoiding peak power prices, or take the site off-Grid. A battery can also serve as an Uninterruptible Power Supply (UPS), instantaneously providing energy if there is a power cut. This gives advantages over traditional back-up generators and is more carbon-friendly. Revenue can also be generated by selling surplus power back to the Grid and participating in National Grid Balancing Services.
POWER BALANCE - Power Balance is our virtual platform allowing customers to respond instantly to market trends and National Grid needs. Fully managed by our team of energy market experts and engineers, you can turn down or turn off nonessential assets during peak Grid demand while capitalising on excess Grid energy at peak times. Smart management of a diversified portfolio means your assets are achieving new revenue streams while remote controls and software access the most profitable services.
COMBINED HEAT & POWER - By capturing the heat generated as part of the electricity generation process and delivering this in a decentralised way close to the sites they serve, Combined Heat and Power (CHP) offers an effective option. CHP technology gives consistent and stable electricity and heat supply, reduction in energy costs and a reduction in carbon, all of which are typical key performance indicators for a business.
BIOMASS - A source of renewable energy, biomass refers to waste of biological origin from agriculture, forestry, fisheries and aquaculture, as well as biodegradable industrial and municipal waste. Carbon neutral, it can be transformed into biogas or solid fuel to produce energy, reducing dependence on fossil fuels and helping to secure the energy supply.
PRIVATE WIRE - Through district heating and private wire network projects, the impact of the price of energy on our bottom line can be minimised. Uniquely in its sector, Veolia is able to develop district heating and private wire networks as a result of operating and maintaining our Energy Recovery Facilities. Favourable government schemes, including the Heat Networks Investment Project (HNIP), the Renewable Heat Incentive (RHI) and licence-exempt supplies boost the economic potential of such projects.
Conclusions and future trends
Our demand on the National Grid is growing exponentially. The UK Government has declared an environmental and climate change state of emergency and accepted the Committee on Climate Change’s call for the UK to be a net zero emission economy by 2050. So how can we deliver these challenging carbon targets whilst keeping the lights on?
Technologies for producing power from low carbon and renewable sources already exist. We need a leap of faith from business. For that to happen, three key partners are required:
We need Government to remove uncertainty for businesses with a clear road map providing confidence that renewables are worthwhile investments. Valuable support schemes such as FeedIn-Tariffs, LECs and Triads have all been scrapped in recent years so the market is nervous.
Businesses that invest in efficiency, renewable or low carbon energy solutions such as CHP or district heating must be supported. Heat is still the largest contributor of carbon emissions and so we should not just be focussed on power if we are to future-proof the UK. The Industrial Energy Transformation Fund (IETF), with a UK-wide
budget of £315m until 2024, will support businesses with high energy use to transition to a low carbon future. But this is only a small element of what is needed to deliver zero net carbon in 2050.
Companies that care about price certainty and the resilience of their operations should invest before any crisis occurs. They must take the right steps to run as efficiently and as reliably as possible by investing in their own sources of power. Less reliance on an overloaded Grid will ensure security of supply.
Our specialists will make these off-Grid decentralised networks a reality, from concept through construction and into operation.
Veolia is designing a future based on local micro-Grids that can function in complete isolation from the Grid. We have a suite of tools and solutions to meet the most particular of client needs – on any scale.
It is clear from our conversations that industry still has some way to go to understand the implications of an energy crisis and why they must do more to guarantee a secure energy supply. There is a clear desire to offset price rises and a need for innovative solutions, with the government and business investment at the heart of any initiatives. So, can we avert an energy crisis?
The power is within our own hands. We have the solutions today to ensure we have the energy to power a growing UK as well as meeting our carbon targets. The question that remains to be answered, however, is whether we have the will?