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Smarter strategy needed to cut business energy use

Author: ICAEW Insights

Published: 21 Aug 2023

The co-leader of a new Energy Demand Research Centre is calling for more certainty on climate policy and further regulation to nudge greater corporate focus on energy consumption reduction.

UK businesses need a more rounded strategy for reducing their energy consumption, a leading scientist in the field tells ICAEW Insights.

The co-leader of a new UK Energy Demand Research Centre (EDRC) – University of Sussex Professor of Energy and Society Mari Martiskainen – says that the government’s current strategy is too focused on large, industrial clusters, leaving other businesses unmotivated.

Speaking in the wake of a funding announcement for the EDRC, Martiskainen says a more comprehensive, whole-of-industry approach would yield better outcomes.

Unveiled in a recent statement from UK Research and Innovation, the £15m EDRC funding package is part of a total £53m investment in six research hubs designed to drive change in the energy system, with the aim of helping the UK to meet its 2050 net-zero target.

Alongside Martiskainen, the EDRC will be co-led by Professor Sara Walker, Director of the Centre of Research Excellence in Energy at Newcastle University, with 10 other universities and several external stakeholder groups also involved in the unit’s work.

Quality of life

This year’s progress report from the Climate Change Committee warned that the UK requires a “considerable reduction in energy demand” to achieve net zero by 2050. Martiskainen also cites research last year from the journal Nature Energy showing that it would be possible to cut demand by 52% in the run up to that deadline while enabling improvements in quality of life.

Previous research tells us that energy intensity reductions – in other words, improvements in energy efficiency – are the strongest factor for lowering energy consumption in the UK’s productive sectors,” Martiskainen says.

Current government scenarios for industry decarbonisation show that greenhouse gas emissions could be slashed by 13m tonnes of CO2 equivalent by 2050 through a mixture of improved resource and energy efficiency. “That’s more than a quarter of the industrial emissions reductions required to meet the UK’s net-zero target,” Martiskainen says.

Alongside that macro-level challenge, energy demand reduction should also be a day-to-day management priority, Martiskainen says. “This is particularly important for businesses that may have struggled with rising energy prices in the past year. Reducing energy demand can help address both costs and emissions.”

Martiskainen says businesses are already recognising the opportunities they can unlock by reducing energy demand – especially for cutting costs.

Comprehensive approach

“Energy policy tends to focus on supply yet demand has an equally important role in the transition to net zero. So, we need a stronger focus on energy demand reduction as a vital part of the transition. Many co-benefits of demand reduction could be better realised, such as improved air quality,” Martiskainen says.

The capital-intensive nature of many industries with a slow turnover of capital equipment means they can find it difficult to install more efficient equipment in response to short-term price spikes. As such, they need longer-term policy signals, Martiskainen urges. “Plus, factors such as Brexit and the direction of climate policy are causing uncertainty. Companies are reluctant to make large investments as they are not sure what the future holds.”

Crucially, Martiskainen stresses, businesses need a clear, long-term government strategy on how to address energy demand, which would enable them to plan investment in advance and develop the required skills and training.

“Government strategy is currently focused on reducing energy demand and emissions from large, industrial clusters. For the rest of industry – particularly firms outside the UK Emissions Trading Scheme – there are few policy incentives to reduce energy demand. A comprehensive policy approach is required to encourage companies to reduce demand and move to cleaner sources of energy, such as electricity from renewable sources.”

As part of its work, the EDRC will examine which business models and local skills could be developed in specific areas or regions to spur action on energy demand, such as local solutions for retrofitting buildings and providing sustainable transport options.

Evidence for action

At present, the UK has some of the highest industrial electricity prices in Europe – the expense of which is hampering the adoption of cleaner, more efficient electrical alternatives to processes that currently utilise natural gas.

Martiskainen says EU Member States are establishing long-term renovation strategies, with minimum energy performance requirements for buildings – including commercial ones. Meanwhile, under ‘energy efficiency first’ principles, policymakers are proposing that all new buildings must be almost zero emissions by default. 

However, the current tenor of UK regulatory policy is rather less encouraging, Martiskainen says. “The UK used to have a Code for Sustainable Homes, but that was removed in 2015. While some of the Code was integrated into Building Regulations, more action is needed. 

“Properly enforced, minimum energy efficiency and building standards can ensure that new buildings are built to a high quality and will not be locked into polluting heating and cooling fuels for years to come. A long-term regulatory outlook would also provide industry with confidence for investment planning.”

With such issues in mind, the EDRC will harness extensive input from the business community. “We are planning specific industry forums, so that we can engage widely with different industry and business representatives to discuss which sorts of evidence we can provide them, via our research, for further action – and equally, which areas we could focus on during the Centre’s lifetime.”

The EDRC’s partner universities and stakeholder groups have strong links to their local businesses, providing further avenues for engagement. “We will take a place-based approach to explore how companies can reduce energy demand – particularly in areas with significant industry that lie outside the current, coastal industrial clusters. We will also look at the potential energy demand implications of re-shoring UK manufacturing.”

ICAEW Climate Change Manager Sarah Reay says: “Given the difficult past 18 months or so, where companies have had to grapple with increasing energy costs, there is a clear business case for improving industrial energy efficiency.”

“Whether within their own businesses or in the course of helping their clients, finance professionals are in a prime position to take action,” Reay adds. “They can do this by gathering energy usage data, factoring environmental, social and governance considerations into their appraisals of investment decisions on retrofitting proposals and showcasing the long-term financial and environmental benefits of boosting efficiency while moving away from fossil fuel energy sources.”

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