The Future of Energy Cost and Efficiency

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Welcome to the new monthly Green Element Sustainable Business Podcast. where we feature business leaders and innovators transforming their operations to be more environmentally and socially sustainable. I'm your host, Will Richardson, and today we'll be looking at the rising cost of energy, the changing energy cap, and what that means for businesses trying to reduce their environmental impact while also keeping their doors open. Later in the episode, I'll be joined by John Fletcher from Big Clean Switch, a certified B Corp developing solutions for homes and businesses to help accelerate the transition to green energy. And also Doug Johnson from Mesh Energy, a trusted provider of innovative, sustainable energy services to property owners and architects. To start, we must first talk about why energy prices are rising in the first place and why this is so relevant now. Over the last couple of months, the discussion around the rising cost of household energy has been getting louder and more urgent. As you'll probably know, in the next couple of weeks there will be an announcement about the Energy Price Cap, which sets the maximum rate suppliers can charge for a default tariff, and this is expected to rise as gas prices continue to soar. Here in the UK, we are heavily reliant on gas to generate our electricity. And shortages across Europe have seen the wholesale market rise year on year. This is in part due to huge demand in Asia for natural gas, as well as a cold winter which put pressure on supplies. Pair this with a relatively windless summer— I know this as a kitesurfer— meaning there was a lack of wind power to subsidise the gas, and a perfect storm was created. This all means that the market today is extremely volatile, with fluctuations of more than 10% within a single day. So what does this mean for companies and their ability to reduce their environmental impact while remaining in business? Well, unsurprisingly, many companies are facing rapidly rising bills, which threatens to pause production and raise prices of goods considerably. In times where the prices aren't set to rise, the obvious choice for businesses to reduce their environmental impact is to pick a supplier that can supply renewable energy backed by REGO certificates. REGO stands for Renewable Energy Guarantees of Origin and assures that energy supplied is 100% renewably sourced. However, the big question currently is whether to stay put and not switch supplies in the hope that prices will settle down, or sign up to a fixed-rate deal may bake in high prices for some time to come. John Fletcher from Big Clean Switch is with me to talk about this dilemma. John, thank you for joining me. Now, this is a hot-button topic, and many organizations have found it difficult to switch to a 100% renewable energy supplier during this energy crisis, even though they want to reduce the environmental impact of their operations. Some businesses are staying put, Some are wanting to switch, and they're finding it difficult because there are energy providers not even taking on new customers right now. Jon, what advice would you offer these companies?

I think the advice probably depends on the particular circumstances of each individual business, and there are a couple of reasons that I say that. The first is that each business is likely to be in slightly different contractual terms with their existing provider, And certainly if a business is still under contract for a deal that they signed several years ago, from a financial perspective, at least they're better off holding fire, keeping the benefit of those lower unit rates that they signed up to before the current high prices, and then waiting for wholesale prices to fall before renegotiating a contract with a green supplier. That's sad for the environment, but in terms of the business finances, that's probably the safest thing to do in terms of risk. risk. If the business is on out-of-contract rates, as they're called in the business sector, then the decision is slightly more complex. And unfortunately, this is where you really want the benefit of a crystal ball, because the big question is how much wholesale prices will reflect the traditional curve that we would see through the seasons as we approach the spring and summer of 2022 versus how much the underlying structural issues with, for example, gas supply will continue to affect prices over the longer term. If, as we still expect, we see at least some drop-off in the price of energy as we enter the spring and summer, as warmer temperatures reduce use and demand and give Uh, the opportunity to replenish things like gas storage, which is one of the factors that's influencing prices at the moment, then it probably makes sense for businesses who are just falling onto out-of-contract rates to hold fire in the hope of getting a better deal in a few months' time. That doesn't mean that they bake in current high prices for several years. But if that business has very seasonal energy use, and uses most of its energy over the winter months, there may still be a case for reducing their exposure to very high out-of-contract rates now and signing up to a deal, even though they know that that's likely to mean that they swallow higher costs for a longer period.

Another challenge is the number of innovative and renewable-focused suppliers that have gone bust. Over 20 have not made it. What are your thoughts on this? And is there anything that can be done?

I think there are a couple of issues with the number of suppliers we've seen going bust. One of them is born of something that's affecting households rather than businesses, which is the price cap that was introduced by Ofgem in 2019, which has prevented particularly newer suppliers from charging customers sufficiently high prices to match the price of the energy they're having to buy. And I personally feel as though there's been a regulatory failure in allowing suppliers to bear the brunt of that. Effectively, what we've seen is the price cap being used to cushion households from the highest energy prices at the expense of private sector suppliers, many of whom have been very innovative and driving change within the industry that we all want to see. I would much prefer for there to have been a more honest conversation with the public about high energy prices and much more focus early on, on trying to protect those most vulnerable customers who can least afford the price hikes, which is a situation which we're going to see come spring 2022 anyway, when the price cap will increase and those higher prices are going to start to filter through to households. So we're going to have to answer that question: how do we provide support to the most vulnerable households? And by delaying until now and relying on the price cap to give what I view as a political get-out for 6 months, we've put a lot of decent suppliers out of business. There is an argument that some of these suppliers should have what's called hedged their energy purchasing better, which just means that they should have purchased energy in advance of the customers needing to use it. That is an easy argument for bigger, more established, often the fossil fuel-based suppliers to make because they inherited large customer bases after privatization, which are much less inclined to switch. And so they have large numbers of customers sitting there inert within their customer base that they have to buy energy for and therefore hedge energy for. over the longer term. And the challenge facing newer suppliers who've had to compete on price to win their customer base is that they know those customers are more inclined to switch away. So they can't take a risk and buy energy in advance for those customers because at the end of their contract they may leave and they maybe end up having purchased energy that they can't then sell them. So it's not unexpected that in a situation in which prices increase very dramatically, it's the newer suppliers who are most exposed to those sudden increases in price and who bear the brunt of not being able to charge what they need to because of the imposition of the price cap.

So with this sudden increase in price and the fact that we've talked a lot about the current problem facing the energy industry, particularly the renewable sector, How do you see us moving towards a place where this sort of crisis doesn't occur, or perhaps not to the extent we're seeing?

I think one of the most dangerous elements of the current high prices that we're seeing is a political argument for removing support for green technologies and investment in a green energy grid on the basis that those costs, it's unfair to expect them to be borne by consumers, when it's precisely that investment which will provide us with the greater levels of security to generate our own green power within our own borders, to store it, to manage demand effectively, to reduce our overall dependency upon whether it's our own electricity or imported fossil fuels, and to create the sort of energy grid that we can all be proud of nationally and that will give us long-term low prices, reliability, and of course low emissions.

It must be a good thing that Scotland has just put out— I think they've just awarded 17 new contracts for renewables at a time of this energy stuff that's going on.

It is. I think what I would really like to see, and I don't think is there at the moment, is a degree of joined-up thinking in national planning around the development of energy infrastructure. We've done brilliantly as a country in developing very strong offshore wind assets, but they only work when it's windy. And one of the contributing factors to current prices has actually been that the weather's been much more stable and less windy than was previously expected at this time of year. It's not beyond the wit of man to be able to anticipates those kinds of scenarios arising every now and then. And what we really need is a very clear plan that integrates every component of the energy grid, diversified green generation assets, a mix of storage, and the all-important demand reduction in order to set out a roadmap to getting to a grid where one thing going wrong doesn't have terrible consequences. And where we can expect to be able to get those lower prices and better security in the future. And I don't think that plan is currently there. Certainly, I don't think the public has any awareness of it. I don't think there's any plan for funding it. And until that happens, I think these sorts of circumstances are going to continue to arise.

Is everyone singing from the same hymn sheet within the renewable sector? Because you're seeing Del Vince talking quite a lot, you've got Good Energy, they are breaking themselves up. I mean, is everyone saying similar stuff or are there still different opinions on this subject as well?

I suppose it's inevitable that people with different perspectives on the renewables industry and the green agenda voice those perspectives. in different ways. I think one of the challenges facing government, but the signs of good leadership, is to accept that not everyone is going to agree with the plan, but that it's more important to have a plan than to do nothing or to do the most politically acceptable small pieces at the expense of the whole. And so whilst some may favor investment in replacing gas with hydrogen, whilst others may say, well, we should be prioritizing reducing demand overall. Someone has to give us an answer that says we're going to aim for this mix of these things and here's where we're going to put the money in to do it and accept that it's not going to please everyone. But it's more important that we get to an answer than we continue to argue about what the answer is.

But broadly, I think everyone's on the same hymn sheet, though, aren't they?

Absolutely.

Yeah.

Which is that You know, the fight against climate change is absolutely the most urgent thing facing the planet and the people and species that live on it. And we've got to get to an answer that reduces emissions as fast as humanly possible.

Brilliant. Lots to think about and great advice there from an industry leader. Thank you for coming on today, John. As John said, we still have a long way to go and much of what we can do as businesses is behavior-based. In the short and long term, businesses need to try and reduce the amount of energy required to power their buildings and operations, such as lighting, heating, and business travel. Consuming less will reduce companies' carbon footprint, ease the strain on the supply and the amount of money companies spend on energy. Another way of businesses reducing their emissions and increasing their efficiency is the Greenhouse Gas Protocol, or GHG, method for calculating market-based energy usage. GHG Protocol establishes comprehensive global standardized frameworks to measure and manage greenhouse gas emissions from private and public sector operations. This claims using 100% renewable energy will reduce carbon emissions for electricity to nearly zero, which is certainly an interesting prospect and one for businesses to explore. Striving towards energy efficiency in business operations is an important topic, and one I discussed with Doug Johnson. We talked about his work at Mesh Energy and how their work in the building and design sector offers a possible solution to the fight between energy efficiency and profit.

We work with predominantly architects, private clients, you know, commercial clients who are building buildings, doing extensions, figuring out how their offices or their or their homes or their buildings almost on any scale can be more energy efficient. And they approach us to help them navigate them, you know, navigate through that, navigate through planning issues, compliance, um, designs, you know, all the, all the services design that needs to go on, uh, looking for appropriately qualified installers, helping them through an ever more complex kind construction, uh, construction process, and, and increasingly getting access to a lot of government money that's floating around to make buildings and, and businesses, uh, and, and private dwellings more, more sustainable. So we really, um, try and act as a guide through that process to help businesses, um, out that this may be foreign territory and is increasingly for a lot of businesses and bringing together all our experience to help those guys out so that they're— it's giving them the best chance of success on their particular scheme.

And you must be phenomenally good at what you do because it's interesting, I actually anticipated you to say that you were larger than you are because I've mentioned you to a few people in Scotland and they know exactly who Mesh Energy are. And, um, so you've got a very good reputation that precedes you.

Yeah, I mean, that's always nice to— it's always nice to hear. I mean, what is, what is fascinating is that whilst sustainability and energy efficiency now, you know, you can't get away from it. There are, there are hundreds of articles written every single day in, in the press, and, uh, you know, it's hitting mainstream media every single day. But actually, the challenges and the people actually equipped and the consultancies equipped to deliver against that are, you know, not very great in number. And, you know, whilst there are lots and lots of companies and consultancies and very, very big consultancies that are used to delivering building and construction projects, energy efficiency is, you know, is a new take on that, which is tricky. And, you know, we as a business try and do a lot of promotion and work through education, um, as well.

Yeah, that makes complete sense. And when organizations come to you, what sort of conversations do you have with them, um, initially?

There are a, a big bunch of companies that come to us and say, we're, you know, we're, we're looking at making this change, um, and the local authority expects us to jump over this particular bar. Now, that may be something called BREEAM, it may be a certain level of carbon reduction by way of a percentage. And so they're very much, you know, kind of stick, you know, we're being asked to, we're being forced to do this. How do we do this as kind of cost-effectively as possible? You know, we're not going to go over and above, but we understand that we, you know, we've got some energy-efficient criteria that we need to meet. So how, how can we kind of professionally navigate that and make sure we're doing what we need to do? And then the other type of conversation that we have from clients is, and this is increasingly the case is we understand that there is a compliance that we have to meet for this building, but what's really important for our brand is to show that, you know, this will be an exemplar building, or we see a big opportunity here to market this as net-zero carbon, or a considerable, you know, a considerable improvement on what is expected. And, and they can see the wider opportunity there for telling a much more compelling story to their staff, to their clients, to their customers. And I think increasingly, as businesses do this sustainability stuff, the really interesting conversation is, why are you doing it? And there's a huge opportunity there. And that certainly generates some of the more enlightening conversations for our clients, is really digging underneath all of those layers and finding out beyond just kind of a business becoming more profitable. What are the real reasons for them doing this sustainability stuff? And I think we'll continue seeing more of that as time goes on.

Is there any advice that you would give businesses starting out on their journey, knowing what you know?

Blimey, yeah, that's a big question. I mean, I think my interpretation of that question is, rather than an established business, a business that is really an idea at this stage, and maybe starting with 1 or 2 or a few people, um, you know, from, from, from a very, very kind of seed of an idea. And I would say, I've thought about this before because I've talked about this with other business owners, but I think, you know, beyond— first and foremost, you've got to have a profitable idea. You've got to make sure your price point is is right and you've got money to play with to better your offering so that you don't go bust in the process. There's no point in being sustainable and being responsible if you can't make money and sustain yourself and grow the business. And so I think it's very misunderstood that being sustainable, running a responsible business has to be expensive. It doesn't have to be. Um, once you've figured out what your, you know, what your service is or your, your product is for the, for the wider market, there are some, you know, mission and purpose things that you've gotta, you've gotta get straight. I mean, if you can spend the time on, on really figuring out what your core message is and core purposes for the, for the business, which is often, you know, means it means a great deal to the, uh, you know, to the business that business starters, um, the entrepreneurs that have started the business, that's, that's one thing that they can do. We've talked about if you have your own offices, does it make sense to have them, you know, 100% renewably, um, sourced by way of, say, electricity or, or gas or those kinds of things? I think it really depends on, on the listener's, um, you know, priorities, but there are many, many sources, um, that that have a list of things that you can take a look at. And the best thing is, don't rush into anything. Take your time, figure out what you can do, figure out what the costs are, figure out what the complexity is of making that particular change, and then pick a couple to do. Start with something. You haven't got to be the world's most sustainable business ever. Just do these kind of one at a time, and you'll soon figure out how much hassle it is, how much money it costs you. And then genuinely, hand on heart, you can start promoting that you are doing those things. So beyond feeling good about it, you've got a great story to tell there, then, suppliers and customers, and you know that you are doing those things. It's not just greenwash.

Doug Johnson there, with a really positive outlook on the future of sustainable business and profit generation. Mesh Energy have actually just launched Meshwork, a platform about community, sustainable design, and education. It's completely free to join, so do check it out. We have discussed a lot in this episode, and much remains to be seen. We'll see what happens on the 7th of February and how much the rate suppliers can charge rises. But I think it's safe to say it'll affect everyone, individuals and businesses alike. It's clear to me that choosing renewable energy as much as possible and working towards becoming more energy efficient as businesses is the most sensible decision, both for the planet and for our wallets. We face a great number of challenges. But there are wonderful companies out there like Big Clean Switch and Mesh Energy paving the way towards a greener future for businesses. Many thanks to my guests, John Fletcher and Doug Johnson. And thank you for joining me for this episode of the Green Elements of Sustainable Business Podcast. You'll find links to more details and our webpage in the show description. And make sure you subscribe to the podcast so you don't miss an episode. And please don't forget to join our post-podcast discussion at sustainabilitysolved.org, a special online community where you can share ideas, views, and comments. That's sustainabilitysolved.org. Thanks a lot, and see you again soon. See you again next time.

See you again next time.