“Energy is a tool not a product,” Ben Verwaayen CEO of Alcatel-Lucent, reminded delegates at the CBI’s well attended energy conference yesterday.
His words were timely, building on a welcome recognition in energy minister Ed Davey’s opening remarks that a competitive energy industry is critical for the UK – not just to mollify disgruntled voters who are fed up with high prices and billing errors – but to support balanced economic growth.
Certain leaders in industry may have raised an eyebrow when Mr Davey insisted that energy and environment policy has become a “driver of Britain’s balanced economic growth” in recent years.
They may then have raised the other when he claimed that Britain is now also the most energy secure country in Europe and the fourth most energy secure in the world.
“I would not be surprised if you were surprised,” to hear these things he admitted, implying that the national press had taken to sensationalising the likelihood of large scale power shortages.
These words will be of little comfort however, to industrial firms like Sheffield Forgemasters which suffered repeated blackouts last winter, or Tata Steel’s 400 newly redundant employees in Port Talbot who could not be kept on because commercial energy prices are making business untenable for the diversified multinational.
And, of course, optimistic though he was yesterday in delivering a piece of unashamed electioneering at the CBI’s conference, Davey would never claim that it’s job done on energy policy.
Indeed the CBI’s event provided a convenient platform for Davey to outline what’s next in government’s plan to further increase energy security for the UK and address remaining capacity issues.
Responding to mounting evidence on the gains to be made through greater investment in energy efficiency, Davey announced the launch of a £10m pilot scheme to encourage business investment in energy efficient technologies.
Business who would not otherwise have been able to buy into energy efficiency can bid for this money to install technologies like variable speed drives, LED lighting and voltage optimisation equipment.
Through prompting a much larger uptake of these technologies in the UK, Davey hopes to emulate some of the benefits the US has enjoyed in recent years – a solid presentation at by Fatih Birol, chief economist and director of global energy economics at the International Energy Agency at yesterday’s conference showed the USA’s current oil independence is 66% due to energy efficiency policies, not primarily due to its fracking boom as many believe.
With regards to the UK, Davey said the UK could make savings equivalent to around 9% of total demand by 2030 if it gets in implementation of energy efficiency measures right and prompts, factories, hospitals, schools and more to invest.
The £10m from government – which will be followed by another £10m if the pilot works, is to be lauded – not just because it will help the UK meet carbon reduction targets and ease capacity strains – but because much of British industry’s installed base of equipment is in dire need of overhaul and a revamp, using energy efficient technologies would do a great deal to increase productivity and competitiveness, particularly in the manufacturing sector.
However, simply launching a fund of this nature is not enough. Despite the obvious benefits of investing in energy efficient equipment, and a mass of business surveys which indicate that investment intentions across the UK are high, investment reality remains sluggish – a very real cause from concern for industry trade bodies representing the manufacturing sector like EEF.
Firms like Siemens, which makes and installs energy efficient variable speed drives in the UK, have had to resort to paying up front for installations and offering customers the option of sharing the energy saving benefits in order to cover the cost of the sale.
It is possible therefore, that a proposition from the new Energy Demand Reduction Pilot which makes it easy to get money only if you are willing to put in a significant amount yourself – and which requires bidders to be able to work out a proposal for the amount of capacity their scheme will save in kWs, something many may find difficult – will not be enough to overcome the hard-to-budge risk aversion clinging to the business environment.
Furthermore, it takes more than launching an investment incentive to ensure that it is used and the government’s track record on marketing its business support schemes is not strong.
When it extended Annual Investment Allowances (AIA) in 2012, for example, the move was meant to hail a wave of capital investment from British industry – especially in the nervous and cash-pressed SME base.
But by January 2014, with just a few months of the initial extension left (Government then extended it again in the 2014 Budget) research by asset finance provider Lombard showed that less than a third of SME’s were even aware of the scheme.
Commenting on these findings at the time Tony Hague, MD of Midlands-based electrical systems integrator Power Panels Electrical Systems, observed: “The changes in AIA were communicated dreadfully by HMRC. I’m certainly not surprised less than a third or respondents knew of the changes, in fact I’m surprised it was that high!”
With an initiative a minute being launched by government DECC will have to work hard and consistently to ensure that business leaders are clear on how to access its funding, and make sure that it is easy to apply for.
But there’s another challenge waiting in the wings here – not for government – but for the energy industry, particularly the energy networks which have most to gain through users reducing demand.
The sector cannot rely on government intervention to move infrastructure changes and technology investment along. Could it be doing more to incentivise or even subsidise business investment in technologies which will result in a stronger energy outlook for the UK and a more competitive economy as a whole?