Knowledge is power: Making the case for DSM

Policy uncertainty and predicted energy price rises look set to continue the rocky ride for energy sector confidence. What can businesses do to protect themselves in this difficult market? Jo Butlin, argues demand side management will be the critical factor.

News of the Energy and Climate Change Committee’s investigation into whether increased uncertainty in energy policy is undermining investor confidence has been widely welcomed by the industry. It was followed by research by EY Analysts which showed that the UK fell out of the top ten most attractive countries for renewable energy investment for the first time.

Businesses may feel that the evidence is clear – recent policy changes, such as exemptions being removed from the Climate Change Levy for renewable energy sources, have certainly shaken up support for renewables. Whilst the changes impacted the renewable generators most visibly, many large businesses are equally feeling the pain as they are now funding an unbudgeted rise in their energy bills. This proved to be the first of a number of shock policy announcements including onshore wind subsidies being scrapped, and proposals to cut solar and biomass support.

In the complex and ever-changing world of energy, there are some things businesses have very little control over. Energy policy and its effect on investor confidence is a good example of that.  Energy prices and their likely upward trajectory is another one. We recently commissioned research with YouGov, which has shown that energy prices were the biggest concern for companies, with more than half of the businesses surveyed expecting prices to rise in the next year. Businesses also felt squeezed by energy legislation with half of those questioned saying that the Government’s energy policies have increased the cost of running their company.

This highlights the growing importance of reducing consumption to help businesses to manage energy costs. This consumption management is often termed ‘demand side management’ and can take many forms, from simple energy efficiency measures to complex market-based demand management processes.

Many businesses are already using the latest software and building management systems to control and monitor their energy; showing when, where and how they are using energy 24-hours a day. And whilst knowledge is power it is what you do with that information that really makes a difference. Pinpointing your energy consumption in relation to the peak time you pay the most for your energy is the starting point.

Businesses and consumers pay the most for their energy between 4pm and 7pm. Making a minor tweak, for example, turning down the thermostat by one degree during this period, could save businesses a significant amount of money. We’ve worked out that if one of our large clients reduced consumption by 10% in their biggest 10 offices between 4pm and 7pm they could save £300,000 per year.  This shows that small changes really can make a big difference.

Building management systems and controls, along with integrated metering are the best place to start. They deliver the potential to respond to market signals, and manage operational costs. Beyond integrated building strategies for managing demand, there are numerous schemes offered by the National Grid which are intended to incentivise demand side management, although to date the market has been slow in responding.

Likewise many businesses are yet to seriously look at deploying consumption management. However, as the quality of metering improves and uncertainty around future market investment continues, businesses who want to avoid long term cost increases would be wise to consider this option.

In the future, and with increased price volatility, it will be businesses that reduce their exposure to prices at peak consumption times that will reap the most rewards: insulating themselves against future changes in legislation and market price movements. Whilst businesses continue to find themselves at the mercy of energy policy and price rises, demand side management enables them to take control and weather the storm.