Energy efficiency can reduce business bills by 18-25%
Energy efficiency can reduce non-domestic energy bills by 18-25% with an average payback of less than 1.5 years. That’s according to a report by the Federation of Small Businesses (FSB). This supports findings from our BMS optimisation and ESOS surveys where average savings typically match or even exceed these figures.
The report also states 31% of FSB members said energy costs were a barrier to growth and 90% of them want to be more energy efficient but only a fifth have been offered practical advice on how to achieve this. This is where ESOS audits should be taken seriously and findings implemented to enable organisations to free up capital for further investment and increase their competitive advantage compared to rival businesses.
However, astonishingly as it may seem there is currently no obligation by organisations to implement any of the measures identified in ESOS. This is likely to be compounded by businesses not installing energy efficient technologies due to large upfront costs in the short term and savings only seen in the long term. However, there are now several specialised energy finance options available that pay for themselves out of savings achieved.
The report goes on to add that 45% of small businesses say rented premises prevent further efficiency. The situation may currently exist whereby the tenant has a desire to reduce their utility costs but sees no reason why they should invest in some-one else’s property. Although it is recognised that there may be difficulty or lack of desire to invest in a Landlord property, there are other incentives or tools to help move the implementation process forward if a measure or future measures are under Landlord control. As an example, if the company decides to invest in any future efficiency measures, it could open the door to re-negotiation of lease arrangement or contribution to capital expenditure from Landlord’s.
However, as part of the Energy Act 2011, the Minimum Energy Efficiency Standard (MEES) legislation will come into force from April 2018. This states that any Landlord wishing to rent out a property must have an energy assessment certificate that has a performance of at least an E rating. If the rating is F or G then they will not be permitted to rent the property until energy improvements are made.
Consequently, there will be an incentive for Landlord’s to improve the performance of their buildings. If the Landlord has to invest alone they could potentially request a premium on existing rental charges. However, in the interim, if a tenant offers to help improve the performance of a Landlord’s building by investing in upgrades they could reasonably request a re-negotiation on rental costs or agree shared funding. The tenant will see the immediate benefit in reduced energy costs on an on-going basis and the Landlord will retain the ability to rent the premises. Therefore, it is in the interests of both parties to try and improve the energy performance of the occupied buildings.
Finally, the FSB report states 61% of businesses say enhanced tax relief would encourage energy efficiency. The good news is that the ESOS scheme is likely to change for Phase 2 and 3 as this becomes a pivotal form of energy legislation in the UK. The signs are organisations will be encouraged or incentivised to exploit the potential available through tax breaks or grants, rewarding or assisting those organisations prepared to recoup their investment in energy audits and maximise the energy efficiency gains available.
Organisations need to realise that energy efficiency presents a safe investment opportunity and has a much lower associated risk than any other form of investment as it’s not exposed to year on year volatility. In addition, energy efficiency translates into direct cost savings that increase in value on an annual basis as energy prices continue to rise.