2012 Energy Report - Energy intensive

Hej, yassou and bonjour. That's hello in Swedish, Greek and French to the non linguists and it's exactly what those nations could be saying to manufacturing operations from the UK, should current energy trends continue. These countries, along with Denmark, Finland and Romania, all enjoy lower electricity prices for their factories than us Brits and, according to the findings of WM's Energy Report, the gap is widening. Nearly 60% of UK manufacturers suffered hikes in energy bills last year, our survey of over 100 site managers reveals. That's up 4% on 2011 and means the majority of businesses have now experienced two years of consecutive price rises. And the increases have been significant, data showed. One quarter said utility bills increased by 10% or more and a half by at least 5% in the past 12 months. The hostile prices are forcing plants to focus on savings from energy efficiency improvements. But motion sensor lights or smarter motors will only carry you so far, it seems. Almost a third said further energy hikes in 2012 would be apparent in slimmer operating profits. Nearly 20% plan to pass the rises on to customers through price increases and at least one respondent admitted turning to job cuts if the situation worsens. It's leaving many turning a desperate glance towards Westminster for extended government aid. Wish-lists ranged from tax breaks for upgrading to new energy-efficient machinery to measures to mitigate capricious swings in utility costs. "Anything that gives us a stable, predictable situation," remarked one manufacturer. "That means the coalition have to do whatever they can to buffer industry against any rise in energy (effectively running) costs." It leaves the government in a cul-de-sac. The party line says industry in non energy-intensive sectors must come up with its own solutions. Yet ministers have been polishing the Downing Street silver to ensure foreign manufacturing giants build their factories here. And while those sites have to be lit by the fifth highest per-kW-hour prices in Europe, Sweden, Greece and France are going to appear highly attractive alternatives. Electric shock treatment A brief glance at electricity prices explains why you don't see many factories sporting the glowing Santas seen hanging from many homes come Christmas. The utility was named the biggest factor behind rising bills in WM's Energy Report – 44% said electricity was the main culprit behind their increased spend. Market figures backed up the findings, with industrial users seeing a 6% rise in prices last year according to Department of Energy and Climate Change (DECC) figures. Smaller businesses were hit hardest, with firms paying 9.02p/kWh to keep the lights on compared to 6.34p/kWh for larger organisations. On average, including taxes, UK companies pay 7.84p/kWh compared to France's 6.86p and Finland's 6.14p. Not a huge difference, but over the course of months and years those pennies add up to some significant pounds – or euros – in savings. Gas came a close second for the title of costliest utility, according to WM's Energy Report. Over a third of respondents named gas as the biggest factor behind rising bills. Once again the DECC figures endorse the findings, with industrial gas users seeing prices soar by 25% from the third quarter of 2010 to the third quarter of 2011. But despite the rise, UK factories still paid less for gas than their rivals based within the EU, the DECC figures reveal. Average prices were more than 25% lower than the median for the EU15 group of nations, including Germany, Spain and Italy. UK manufacturers are paying their energy bills predominantly on fixed contracts, WM's Energy Report found. Nearly two thirds preferred the long-term security of this method, according to the research. One to two years is the most popular duration for the fixed contract, our report revealed. Just 11% of manufacturers will commit to deals beyond three years. And the countdown to the end of contract date is the biggest driver behind future energy buying habits, the report found. Nearly 40% named the time to contract expiry as the overriding factor for energy spend. Nearly 30% said energy buying was led by a defined risk management strategy compared to the 21% who take a more pragmatic approach of reacting to rising or falling energy prices. Shopfloor steers energy savings A quarter of manufacturers have defied spiralling energy prices and cut their utility bills through greater energy efficiency in the past year. These energy pioneers have, for the most part, turned to frontline employees to deliver the savings, the Energy Report found. Over 60% of respondents named employee engagement and behaviour change as a key part of their energy-saving strategy. Six in 10 factories now have a dedicated energy champion on site, with 31% employing energy-saving targets in workers' KPIs. People power is being complemented by more traditional efficiency-chasing tactics, the report showed. Turning off unnecessary lights was named the top measure for cutting energy expenditure for the third successive year. Operators are also looking to smarter equipment, such as more efficient compressors, as well as better plant maintenance. Overall, nearly 70% of businesses have adopted targets on energy use as part of their grand business strategy. Companies are most likely to be chasing energy reductions of 1-9%, the report found. But while the will to become leaner, greener factories is strong, many are struggling when it comes to finding the way. Cost was named the biggest barrier to energy improvements, with many respondents demanding more government-led incentives to help industry. The 'any other comments' section of WM's research reads like Oliver Twist, with managers asking for more incentives, more tax benefits and more financial aid to supplement their efficiency drives. A lack of understanding is also hindering good intentions. A quarter said a lack of energy know-how within the factory gates was the biggest obstacle to meeting savings targets. Again, eyes turned to Westminster for help to eliminate this knowledge gap, with expertise from organisations like the Carbon Trust. "The one thing the government could do to help us is reinvest in the Carbon Trust loans and support programme," one respondent urged. The landscape leaves UK factories as good but not yet great examples of energy efficiency, according to the research. Not a single respondent classed their factory as an example of exemplary energy efficiency. The bulk (46%) said their sites displayed admirable energy-saving focus but still had plenty of room to improve. Strategy, what strategy? Over 40% of manufacturers slammed government energy policy as punitive, the Energy Report revealed. Just 7% said Westminster's efforts had been in any way supportive. Most felt a sense of inertia towards the policymakers, with 50% rating government measures as neither punitive nor supportive. The mood was best captured by one respondent, who asked: "What energy strategy?" It might come as a surprise to that manufacturer to learn that there is in fact a very clear one under the coalition government. The UK aims to become the hub of secure, affordable low-carbon energy, as energy minister Charles Hendry made clear in an interview with WM recently (WM Jan, p14). The ambition translates as short-term pain for long-term gain. A raft of policies linked to carbon emissions is underway as the government looks to attain energy market stability which it hopes, in turn, will be followed by a multi-billion international investment. Those carbon-capping policies are winning few friends on the factory floor, WM's Energy Report revealed. "Abandon the impending Carbon Floor Pricing scheme" a respondent demanded of legislation that will bill businesses a minimum of £16 per tonne of CO2 emitted from 2013. The government has tabled a £250m sweetener for manufacturers in energy-intensive sectors including chemical and steel to coincide with the initiative. But for the rest there is the ominous sense that the bid to enforce stringent emission targets today could result in few being around to enjoy the benefits promised for tomorrow. As one respondent put it: "They've got to be realistic about the implications of carbon taxation, especially within the current climate. The UK approach is detrimental to our business performance when compared to sister companies in the USA and Europe." Can energy efficiency drives save us from soaring utility prices? WM brings together a panel of frontline site managers to debate our report findings this month. Look out for full coverage in our April issue. 101 senior managers and decision-makers from a range of manufacturing sites participated in WM's Energy Report. The sample included representatives from sectors including plastics & rubber, general mechanical engineering, electrical engineering, pharmaceuticals and automotive. Respondents came from companies large and small, from those sites employing more than 500 to those with fewer than 50 Key findings 56% of businesses were hit by a rise in their energy bill 25% of manufacturers' energy bills increased by 10% or more 7% rate government energy policy as supportive 61% have an on-site energy champion Site Verdicts We have endured price rise after price rise Haydn Pike, site head of engineering at pharmaceutical manufacturer Norgine "It's hugely concerning that most respondents have been hit by energy bill rises above the rate of inflation. That's completely unsustainable and makes us less competitive as a nation. "On our site we have been working hard to cut down on energy waste. We aim to reduce our consumption by 25%. That's got off to a great start because you are able to pick the low hanging fruit but after that things become more difficult. The quick wins tend to be things that can be done without upsetting your productivity. "However, to get to the next level you have to start changing things that can adversely affect both productivity and quality. For example turning a machine off over quieter periods can lead to static contamination. We'll have to work very hard to save a few per cent from energy use this year. "We tend to fix prices on a one-year period but you have to be careful not to be caught out by the volatility in market prices. You're agreeing a price on one given day in the year and without a crystal ball you just don't know if a random event could drive that price down in the future. "Awareness among employees is key to energy efficiency and much of our continuous improvement is focused towards energy saving. "My overriding concern is that, nationally, we don't seem to have a long-term energy strategy. I was disappointed to see a reduction in the feed-in tariff for solar energy. There seems to be such fluctuation in the market that our colleagues in France don't suffer." Switch on the shopfloor and start saving Jamie Kay, production director at Camfil Farr, highly commended in the Energy & Environment category of the 2011 Best Factory Awards and the first manufacturer to achieve the BS EN 16001 energy standard "There's no doubt energy prices have gone up, but we've been able to cut our spending. That's been driven by an energy-efficiency programme which tries to get our employees to lead energy savings. We report cost in terms of kW per hour consumed and are trying to get all of our engineers working to energy-linked KPIs . "We launched our own campaign called CEASE – Camfil Energy Awareness Saves Environment – to capture the attention of employees. The scheme invited workers to submit energy-saving ideas and they generated 90 within a very short time. An awful lot of those were very simple measures and we just actioned them right away. As time goes on you have to keep emphasising and reminding people about energy saving. We talk about it at our monthly committee meetings and you can see some people beaming because they know they've been leading the best practice whereas others start looking a little sheepish. "It's important to praise employees as well as nag them. The key is getting the shopfloor operators on side. They are the people who can make the difference between leaving a machine running for 15 minutes in idle or switching it off. I've now got those people telling me they want to reduce the amount of time they spend running a particular machine. "The great thing about a lot of energy saving is it doesn't need heavy investment. It's small incremental changes that add up to something significant. "I can appreciate people's reservations over more costly kit, like solar panels. We wouldn't consider a payback period for production equipment beyond two years and some solar panels take three times that." KPIs will help us cut energy use by 4% Simon Shubrook, infrastructure and facilities engineer at Croda Consumer Care "We're looking to cut energy use by 4% every year and have employees working towards KPIs linked to that objective. I chair our plant process group which assigns individuals energy saving projects and implementation dates. If someone fails to deliver then it's reported up the chain and you're named and shamed. "The group goes out and performs audits where we try and praise good practice as well as highlighting where people could improve. It can be as simple as putting stickers by the light switches saying, 'remember to turn me off'. We produce a monthly energy report which is sent to senior management and benchmarks current figures with previous years. "Utility prices have definitely gone up. We're trying to put together a business case for capital investment from the board for a couple of initiatives. One is a water reclamation plant which could save tens of thousands of pounds and achieve payback within a year. I'm also keen on putting a wind turbine on site and we're working with a neighbouring factory on the project. In the meantime, we try to keep energy saving at the front of people's minds through newsletters and posters. It seems to be working and we've had good buy-in from the shopfloor. "Greater energy efficiency can help factories absorb some of the utility price rises. Imagine if the price of petrol went up to £50 a gallon – suddenly you wouldn't use your car as much. Everyone's facing the same challenge,whether it's at home or at work. The pressure on cutting energy waste has never been greater."