Zero cost solutions for
driving energy savings
Zero cost solutions for driving energy savings and
delivering sustainability through LED Lighting
Businesses looking to cut energy costs, reduce carbon emissions and reap the multiple benefits that
come from energy saving technologies such as LED lighting, face a diversity of technologies and
vendors, the need to find capital to spend to save, and uncertainty over the level of savings – all
factors that often lead to inaction despite the well recognized potential for saving on energy costs.
In many other areas of business such as vehicles, IT and even process equipment, it is normal to use
financed solutions but until recently that option was not available for energy saving equipment, except
in the case of very large projects.
With the growth of interest in energy saving and the rise of
“green finance” businesses not wanting to use their own capital
or take out a loan now have an additional choice – an energy
services agreement which produces positive cash flow from
the start.
Regulation applying pressure to save energy
Concerns over energy prices and energy security are frequently in the news and both represent
significant business risks. These factors as well as new regulations mean that the pressure on UK
companies to act on energy efficiency is increasing. Large organizations, those with either more than
250 employees, or a turnover of more than €50m and an annual balance sheet total of more than
€43m, now fall under the ESOS (Energy Savings Opportunity Scheme) regulations. These require
companies to undertake an ESOS assessment to identify energy saving opportunities and be compliant
by 5th December 2015. The recommendations from the assessment need to be reviewed by a
board director, helping to put energy efficiency on the board agenda where it should be. An ESOS
assessment will be required every four years and the Environment Agency can apply civil penalties
against non-compliant companies.
Another new regulation now faced by building owners in the UK is the effect of the recently
introduced Minimum Energy Performance Standards (MEPS) which will come into force in 2018. The
MEPS mean that a building with poor energy performance, (F and G on an A to G scale) cannot be
leased or sold. All commercial building owners need to start assessing the risk to their property now
and taking action to ensure it meets the required standard of at least an E rating by April 2018. In the
years after 2018 the performance requirements will be steadily increased.
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Energy saving technologies
Experience over many years and all types of building and
industrial processes shows that by applying proven and
cost-effective technologies it is often possible to make
energy savings of twenty per cent.
Savings higher than this are not unusual and of course any savings on energy costs go straight to the
bottom line. Energy costs should always be considered controllable costs and management should not
be distracted by the often heard argument that energy costs are a small proportion of total costs –
the relevant question is how many extra sales are required to produce the same profit that can come
from energy saving? Producing that additional profit through extra sales will be more difficult than
improving energy efficiency. By reducing energy spend through energy efficiency, organisations also
reduce their exposure to the effects of energy price volatility on profits or budgets. Reduced effects of
volatility of energy costs is in itself valuable for organisations trying to predict financial performance
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and is increasingly seen as a major factor in driving corporate energy efficiency programmes .
Energy price volatility now a major factor in corporate efficiency drive. Curwin, 2011. http://www.cnbc.com/id/44072900/Energy_Price_Volatility_
Now_A_Major_Factor_In_Corporate_Efficiency_Drive
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LED lighting should be the first energy efficiency
initiative
In order to save on energy costs all businesses should now be considering the cost saving opportunity
presented by the revolution in LED lighting as a high priority area. Lighting represents between 25%
and 40% 2 of energy costs for many businesses and is one of the easiest areas to save on electricity
costs. Globally it represents 20% of the world’s electricity demand. We are in the early stages of an
LED lighting revolution with the global market for LED lighting growing at 17% Compound Annual
Growth Rate (CAGR) and the market for traditional lighting shrinking by 7% per annum 3. LEDs are
solid-state components like semi-conductors and costs are plummeting while performance increases
dramatically.
Switching to LED lamps can reduce lighting electricity
consumption for lighting by up to 70%.
On top of the energy savings switching will reduce lamp replacement and disposal costs as LED
lamps typically last 50,000 hours (over 10 years if used 12 hours a day) compared to 1,000 to 2,000
hours for conventional lamps and 6,000 to 15,000 hours for compact fluorescents. This means that
the labour cost of multiple lamp replacements, as well as the disruption, can be avoided. Waste
Electrical and Electronic Equipment regulations mean that fluorescent lamps have to be disposed of
in a compliant manner which brings with it disposal costs. Control of lighting can also be improved
through systems such as day light sensors and presence detectors.
The energy saving potential resulting from the revolution in LED lighting should be the focus for
many businesses but other technologies also need to be considered to maximize energy cost savings.
Voltage optimization keeps the voltage of the incoming electricity supply at the optimal level for
equipment – the mains voltage varies between legally acceptable high and low levels and is usually
kept higher than required which results in wasted energy. Modern heating controls can save on gas
consumption through better control of heating system on and off times, which vary with weather
conditions, and can learn the patterns of use of the building and adjust accordingly. In almost all cases
electrical motors are oversized and run at less than 50% of their capacity for much of the time. Motor
controllers, either fixed speed or variable speed can significantly reduce electricity usage by motors,
often by between 15% and 40%.
Lighting. Carbon Trust. 2015
http://www.carbontrust.com/resources/guides/energy-efficiency/lighting
3 Semiconductor Today, 15th February 2015. LED lighting market growing at 17.3% CAGR to 2019 while traditional lighting shrinks at 7.6%.
http://www.semiconductor-today.com/news_items/2015/feb/ihs_170215.shtml
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Take advantage of the opportunity now
So, how can businesses take advantage of the LED lighting revolution and other energy saving
technologies to gain the very real benefits of reduced costs, reduced risks and value creation
immediately? Clearly one option is to go out and source, select and then pay for an energy audit
and then implement lighting retrofits and other projects themselves. This requires time and expertise
– the energy efficiency equipment market is crowded with many vendors making claims about the
effectiveness of their products.
For non-specialists it is hard to identify the most effective
and reliable suppliers.
Jack Welch, the Chairman and CEO of GE between 1981 and 2001, once said: “Don’t own a
cafeteria: get a food company to do it. Don’t run a print shop: let a printing company do that.” What
he meant was focus your own people and resources on what your business does best and outsource
the rest. Specifying, project managing and financing the installation of LED lighting or other energy
saving projects is not the core competency of most businesses and therefore outsourcing it makes
sense. This approach is common for business critical infrastructure such as vehicles, telephones and IT
but so far it has not been widely accepted in the provision of energy saving equipment.
As well as the time and specialized expertise that many businesses won’t have available there is a need
to spend to save and for many businesses the available capital will be allocated to other core business
needs such as developing products and building sales.
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Zero cost solutions for driving energy savings
The best way forward is to use a provider who offers a
fully funded package which includes the technical expertise,
who can manage the entire project and finance the project
out of the energy savings it produces.
For LED lighting projects this is effectively using lighting as a service as offered by pioneering
companies like Energy Works plc (www.energyworksplc.com).The service provider takes care of all
aspects of the project, specifying the equipment to meet the desired lighting levels, project managing
the installation, and financing the whole project. The customer pays a flat fee over a set period which
is calculated to be less than the energy cost savings produced by the project, thus giving the customer
positive cash flow straight away.
The financing of lighting retrofits, or indeed other energy saving projects, can be structured in different
ways. For larger, more complex projects an Energy Performance Contract (EPC), offered by the large
energy service companies like Honeywell or Siemens can provide a guarantee of savings compared to
the baseline consumption. For smaller businesses an Energy (or Efficiency) Services Agreement (ESA)
can be simpler and more appropriate. In the ESA the contractor provides the project management, the
finance and the on-going Operations and Maintenance services and charges a service fee that is lower
than the savings in energy costs, thus reducing overall operating costs immediately. The ESA can be
structured as an operating lease which keeps the capital off the customers balance sheet.
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Energy prices will rise – despite short-term lower
oil prices
The headlines about the recent fall in oil prices should not lead to complacency on energy prices. The
global fundamentals of increasing population and affluence, coupled with physical limitations on oil
supplies and the threat of supply disruptions strongly suggest that oil prices will rise again over the
next few years.
When we look at just the UK, where commercial and
industrial electricity prices increased by 157% from 2004
to 2013, compared to 23% general price inflation, a number
of factors suggest there will be continued strong upwards
pressure on retail gas and electricity prices for industrial
and commercial customers.
We are importing more and more gas as North Sea production declines and having to compete in
the global market for gas. Meanwhile European gas supplies, 30% of which come from Russia, are
increasingly susceptible to supply disruptions in a worsening geopolitical situation. Although the UK
does not directly import Russian gas any disruption in Europe would have a knock-on effect in the
UK. Electricity prices in the UK have to increase for two reasons. Firstly to ensure that new generating
plant is constructed to rebuild the supply margin, the gap between maximum demand and available
capacity, which is at an all time low and has significantly increased the threat of supply disruptions – in
the worst case blackouts. Secondly the UK is committed to moving towards low carbon generation
systems which are inherently more expensive than conventional power generation from gas or coal.
The Climate Change Committee estimate that energy bills
for an average consumer in the commercial sector could
increase by 14% in real terms by 2020 and 31% by 2030.
For the industrial sector average energy bills could increase by 30% in real terms by 2030 4. Given the
drivers of energy prices and these estimates business owners should continue to be concerned about
energy costs and energy security.
4 Energy prices and bills. The Climate Change Committee, December 2014. http://www.theccc.org.uk/wp-content/uploads/2014/12/
Energy-Prices-and-Bills-report-v11-WEB.pdf
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Energy efficiency brings many other benefits
as well as savings
Simply considering the energy cost savings as the only benefit of energy efficiency projects fails to
recognize the real and significant value that comes from the many other benefits of energy saving
projects. Firstly there are the benefits that come from reducing carbon emissions – as well as improving
sustainability this can have a direct financial benefit for businesses that are subject to the various
regulatory regimes such as the Carbon Reduction Commitment (CRC) which carries a cost of around
£16 per tonne of CO2. The other non-energy benefits that come from improving energy efficiency
have been recognized in a study by the International Energy Agency 5. They come in many forms
including; reduced need to invest in new energy supply capacity (for example when expanding the
business6), increased building value, greater productivity, greater employee satisfaction, reduced
sickness and greater customer satisfaction. Examples include: increased employee satisfaction and
productivity through reducing glare on display screens (through better, more efficient and glare free
lighting) 7.
Retailers like M&S increasingly recognize that greener,
more energy efficient buildings, can drive increased sales
as well as reduce costs, making the need to improve energy
efficiency truly strategic8 .
Now businesses of all sizes can take advantage of these strategic benefits without spending any capex.
Capturing the multiple benefits of energy efficiency. IEA, 2014
https://www.iea.org/Textbase/npsum/MultipleBenefits2014SUM.pdf
6 Costa increases production with eco measures.
http://www.greenbuildnews.co.uk/projects-details/Costa-increases-production-with-eco-measures/645
7 Recognising the full value of energy efficiency. Regulatory Assistance Project, 2013.
http://www.raponline.org/press-release/recognizing-the-full-value-of-efficiency-theres-more-layers-in-the-layer-cake-than-many-account
8 M&S: Increased sales could be the greatest boon from switching to LED
The Grocer, 20 December 2014
http://www.thegrocer.co.uk/home/topics/switch-the-lights/ms-increased-sales-could-be-biggest-boon-from-switch-to-led/511223.article
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Financed energy efficiency solutions bring
immediate competitive advantage
Competitive advantage comes from a combination of value creation, risk management and controlling
costs. Installing energy efficiency technologies such as LED lighting addresses all three factors; it
reduces energy related risks, it clearly saves costs and the non-energy benefits such as increased
employee satisfaction, increased productivity, or increased customer satisfaction means it can add real
value through productivity gains or increased sales. This combination, coupled with the realities of
energy prices, energy security considerations and environmental issues, means that energy should be
on the board agenda in all businesses. The advances in LED lighting have created a major opportunity
to reduce energy costs and for many organizations
opting for a fully financed solution from a lighting as a
service company like Energy Works plc is a good way
of reaping the benefits of the LED revolution without
having to invest the time and resource, as well as the
capital required.
Opting to make the move to LED lighting through a financed solution sooner rather than later will
bring in-year balance sheet benefits while strengthening the business.
Steven Fawkes
Dr. Steven Fawkes is the Principal of EnergyPro Ltd. He is an internationally recognized expert on
energy efficiency and the financing of efficiency projects. He has published widely including two books
and a regular blog: www.onlyelevenpercent.com @DrSteveFawkes
March 2015
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Energy Works PLC
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London EC2R 7BP
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