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FM Briefings - Energy Management
Energy Management
The latest in our ongoing series of FM Briefings looks at energy management products and services. Energy – and more specifically, the management of consumption and control of cost – has become a hot topic for every organisation. And the increasing pressures of new legislation only add to the focus. The introduction below, provided by market research experts Verdantix, sets out the range of issues driving buyers into the market, as well as some of the challenges they face in making decisions. This provides a valuable backdrop to the helpful information from the following companies:
• Introduction to Energy Management
• Atkins
• Enviros Consulting
• GSH
• Interserve
• WSP
Energy Management
Independent research firm Verdantix recently studied the market to find out why and how organisations buy energy management services.
The era of cheap plentiful energy is over. Today, executives need to actively manage all aspects of energy consumption due to:
• Energy price volatility that impacts profitability. Over the last two years, oil, gas and electricity have hit historical highs. Price spikes and unpredictable volatility in input prices play havoc with budgets and product economics for energy consuming firms.
• Climate change regulations that make carbon management mandatory. The Carbon Reduction Commitment (CRC) baseline year began in April 2009. All large consumers of electricity in the UK are targeted by this regulation that mandates measurement, reporting and energy usage reduction. Firms need to take action now on the early action-metrics: the Carbon Trust Standard for carbon management and the installation of Automated Meter Readers.
• Low carbon building regulations. New building regulations govern building energy efficiency and reporting such as the provision of Energy Performance Certificates which are mandatory since 2008 for all buildings when bought, sold, built or rented. Along with landlord-tenant complexities in the CRC, the revision of building regulations to comply with the EU directive on the energy performance of buildings raises concerns for property developers.
• Cost saving potential from energy efficiency. Buying less energy at lower average price points results in cost savings. So why does management not focus on energy? The savings potential is often overlooked if energy represents less than 1% of operating spend. Executives should reflect on the example of Tesco which by 2008 achieved a 50% reduction in energy use per square metre over a four-year programme.
• Publicly-declared carbon emissions reduction targets. Most FTSE 100 firms in the UK have embraced carbon management. Internal energy management programmes are a crucial lever to reduce carbon footprints.
• Government subsidies for energy and carbon programmes. Provision of free starter packs and subsidised energy and carbon audits by the Carbon Trust (via contracted energy consultants) and Enhanced Capital Allowances (ECA) for control and energy efficient equipment benefit firms who are just starting their journey.
What do customers buy?
Firms that hire consultants do so for two reasons: 1) lack of in-house technical expertise; and 2) the need for extra human resources. Customers hire consultants to deliver a large range of energy services that only partially map to internal initiatives. In practice, this translates into:
• High demand for on-site generation support and efficient design. Firms need external advisors with up-to-date technical competence for on-site generation investments.
• Procurement advice and outsourced bureau services. Firms look to energy procurement advisors to manage more complex flexible purchasing contracts.
• Sector-specific carbon footprint engagements. Half of the customers we spoke with bring in external advisors. Consultants create methodologies that are robust, repeatable and produce benchmark data.
And in most cases, a prime focus for buyers is return on investment.
Firms are under pressure from the current operating environment. This typically translates into lower capital and discretionary expenditure. As a result, most customers interviewed reported that expected project paybacks are shorter.
Sixty-two per cent of firms interviewed currently only consider projects that pay back in under three years. The remaining 38% of firms either take a longer term view or include non-financial justifications in their investment decisions.
Who do they buy from and why?
Energy consulting is a broad discipline that spans from strategy decisions to technical implementation. Advisory services often overlap with implementation work. In addition, energy consulting combines advantageously with many other disciplines, leading to a variety of types of suppliers on the market. The four main types are:
• Energy procurement services. Of the firms with a historical focus on energy procurement, many have expanded into measurement, demand management and carbon services.
• Engineering services. Engineering firms that developed in-house energy consulting expertise now typically perform work for on-site power generation and energy efficient eco-buildings.
• Environmental services. Energy efficiency is a key facet of sustainability, which is why all major environmental groups actively advise on energy management.
• Energy consulting. At pure-play energy consultants energy management has always been central to the firm. Their services extend into regulatory advice and policy support for government.
It's not surprising that this industry is fragmented. According to the Energy Services and Technology Association (ESTA), there are as many as 500 energy consulting firms in the UK. Customer panel interviews reveal that:
• Customers don’t distinguish between consultants and outsourcers. The five firms ranked highest based on 'bought from' and 'considered buying' include two outsourcing providers as well as three energy consulting firms.
• Relationships, not marketing, dominate brand resonance. The customer panel focused on the expertise of individual consultants, not consulting brands. Between one-third and half of the customer panel had not heard of what others regarded as the leading firms.
• Scale does not translate into purchase consideration. Global firms have the same ranking for purchase consideration as energy consulting specialists. Although many more people have heard of 'big name' firms, this doesn’t translate into plans to buy energy consulting from them.
Extracted with permission from 'Green Quadrant Energy Consulting UK', published by Verdantix, June 2009. Click here for more information.
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