Is now be the moment for manufacturers to start taking renewable energy far more seriously? Rob Hill reports.
Rising fuel bills and security of energy supply are on the management agenda as never before. The recent media coverage about the very real risk of UK lights going out in 2016 brings an added urgency. At worst, manufacturing industry has less than three years to take more control by finding new ways of stabilising energy costs and securing supplies that don’t rely on the grid. With time fast running out, could now be the moment for manufacturers to start taking renewable energy far more seriously?
It may not feel like it, but UK energy costs have up to now been relatively low. A survey of the first six months of 2012 shows that industrial electricity prices were more expensive in both Germany and Italy. And for industrial gas prices, only Romania was cheaper than the UK over the same period. Gas cost more in all other 25 EU countries.
We’ve reaped the benefits of North Sea gas for years – but that’s now in decline. Back in 2000 it was virtually our sole source of supply. Today, more than half of the gas we use in the UK comes from Norway, the Continent and internationally traded LNG.
Just as worryingly, we only have the capacity to store the equivalent of 4 per cent of our annual gas consumption - about 14 days' supply. That’s less in relative terms than any other major European economy.
Current generating capacity is also set to reduce. The effect of the Large Combustion Plant Directive is that 8.4GW of coal fired and 3.6GW of oil fired capacity needs to be replaced by 2016 as power stations are closed. A further 7GW of nuclear capacity will also be decommissioned by 2020.
At the same time, prices are rising fast. UK gas price increases recently reached a peak of 23.9 per cent. Demand has declined during the recession but bills will inevitably go up significantly further as the economy recovers and imported energy sources come under increasing pressure.
Alistair Buchanan, Chairman of Ofgem, recently commented that gas was already 60 per cent more expensive in countries such as Japan that rely on imports. He told the BBC that Britain will be very tight on power station capacity in three to five years. We’ll have to go shopping in world markets at a time when they’ll be very tight for supplies themselves. It was impossible to predict, he said, how high bills could go for British households.
We may just scrape through, but the grid is going to come under a lot of stress. The risk of brownouts and blackouts – and their crippling effects for industry – looks certain to rise steadily as we approach 2016 and the years beyond. Energy bills will carry on going up inexorably, and as demand outstrips supply the market may turn into a bidding war.
So what does all this mean for manufacturing industry? How to avoid the deadly impact of rocketing and unpredictable fuel costs on profitability? How to guard against the nightmare scenario of factory floors grinding to a halt as the power suddenly goes down?
An obvious but essential starting point is to know your usage by getting a detailed picture of exactly what you’re doing with your energy and why. Do you know down to appliance level, for example, where your highest costs are? Could machines that are left permanently switched on be powered down overnight without affecting performance? Many factories are still not optimised for energy efficiency. A well researched and planned investment programme to replace or modify equipment can play a big part in reducing consumption and cost.
But even this of course, valuable though it is, won’t provide much protection against rising bills and threats to supply. So the clear answer is to gain more independence though a secure and stable source that’s under your control – and it’s here that producing your own renewable energy on site could be the key.
Let’s start with wind power. For factories in the right location, there’s a sweet spot in the feed-in tariff (FiT) banding where small to medium turbines with a capacity of 500kw are proving a highly cost-effective option. Even for those where wind can’t be viably generated on site, there are good opportunities to become the sole funder or part of an investment group in a wind farm. This can both secure an independent power source and create a revenue stream to offset traditional procurement costs.
There are some interesting developments in the solar world too. The cost of panels has come down thanks to increasing capacity and competition between solar manufacturers. Most factories of a reasonable size with roof space can install a cost-effective solar array of under 250kw, and the next twelve months could be a good time to make the investment before the market consolidates and prices go up again.
If you have some spare land that could take a small-scale anaerobic digestion plant, perhaps working in collaboration with a developer, this is another good potential route to secure some fuel independence and a stable cost. AD technology converts organic waste into biogas that can be used as a fuel or burned and converted into electricity. It also produces natural, nutrient-rich digestate as an automatic by-product that can be sold for agricultural or domestic use.
We’ve looked so far at the threats of high fuel costs and loss of power. But there can be some real commercial, competitive and reputational advantages too in securing a more independent supply. Reliable energy continuity may well become an increasingly important selection factor in customers’ choice of suppliers. There’s price advantage to be gained by the private generation of renewable energy. New revenue streams are there for the taking with FiT subsidies for installations under 5MW and renewable obligation certificates (ROC) over that limit. And on top of all that of course, there are all the environmental benefits of reducing emissions, helping to mitigate climate change and meeting CSR commitments.
Whether or not the lights actually do go out in 2016, none of that can be a bad thing.
Rob Hill is Energy group associate director, Wardell Armstrong, an independent engineering consultancy specialising in mineral resource development and management. www.wardell-armstrong.com