Will the Green Deal help my business be more energy efficient?

Greg Barker and Green Deal providers.  Credit: DECCgovuk

The government wants businesses to become much more energy efficient, and the Green Deal was meant to be one of the ways to encourage it.  Big firms may be able to finance their own improvements, but finance was seen as an obstacle for SMEs in particular.  This was to be the purpose of the Green Deal for business customers – to provide affordable financing for energy efficiency on a “pay-as-you-save” basis.  Yet the media is full of assertions that it will do no good.  Do we have a problem?  Is the Green Deal a big deal for your company?

Delay

DECC announced recently that the Green Deal will roll out for domestic properties in October as planned, but that it won’t be available to non-domestic properties until later.  Ostensibly this is because it is more complicated.  Whatever the reason, this does mean that only home-based businesses will qualify in October – as long as they apply under the umbrella of the domestic Green Deal.  Any firm that has outgrown the dining room or barn conversion will have to wait – and as yet we don’t know exactly how long.

Landlord – Tenant problem

The Green Deal improvements are paid for by a financing company, while the beneficiary pays for them over the life of the project through their electricity bill.  How will this work for business tenants?  Apparently this has not been thought through, even though there are plans in place for ensuring domestic tenants and landlords can take advantage of Green Deal offers.  Commercial tenancies may be sufficiently different from their domestic counterparts that significant alterations need to be made to the scheme to make it suitable for companies.

So now we can see some problems.  However, just because a policy is coming under fire from the media and commentators, that doesn’t mean it will be no good, nor does it mean that you shouldn’t be interested.

So does my company need the Green Deal?

Most companies can save substantial sums by revisiting their use of energy and other resources.  However, the largest companies – and some smaller ones – have already been gaining enormous profits from doing this, without the Green Deal.  Why might your company need it?

First, the Green Deal specialises in sorting out energy usage.  This will give your organisation focus, if that’s what you need.

Second, the Green Deal will have specially trained energy advisers who will give your firm a report on energy efficiency opportunities.  Many such people exist already, and some NGOs even offer this service for free to qualifying companies, but if your firm hasn’t located this sort of expertise, the Green Deal might simplify the process.

Third, and by far the most compelling, is that the Green Deal offers finance.  The “pay-as-you-save” approach to efficiency improvements has been tried elsewhere and can be very attractive to a firm short of cash.  The concept is simple: a finance firm pays for the efficiency investment.  Payments to the finance firm come from the beneficiary’s electricity bill.  The “Golden Rule” means that the extra payment to the finance company must be less than the savings made through efficiency, so the beneficiary still saves a bit of money (and much more once the finance firm is paid off), but doesn’t need to invest their own capital.

This may be attractive to those firms eager to invest, but without other access to capital at affordable rates.  For firms that are sitting on cash, or whose credit rating makes loans affordable, the Green Deal may not offer a better rate than they would have been given elsewhere.

What should my business priorities be as regards the Green Deal?

Here there is no question.  Your priority should be to invest in people, technologies, processes and knowhow that cost-effectively reduce your environmental footprint – your use of energy, water and other resources, and your emissions of greenhouse gasses and waste.  This is a tall order – it’s hard work and takes commitment from the top of the business and engagement of every stakeholder in the firm.  If the Green Deal has no place in your sustainable strategy because it doesn’t offer what you need, then forget the Green Deal and do what you need to do.

Competition on sustainability is not about installing energy efficient technology.  It’s about making money now, and doing it in a way that means you will still be making money in 40 years’ time – that is sustainability.  That might or might not involve solar panels and insulation, but it definitely involves thinking strategically about the way you do business in terms of resources in and out.  Get to know what is available to you from the Green Deal, but don’t let it lead your strategy.  Your firm has its own place: you should take the lead, and use the Green Deal if – and only if – it suits your strategy.

Is micro-generation a good business investment?

The UK government yesterday announced its strategy for microgeneration of renewable energy.  It is aimed at businesses and individuals who want to produce energy on their own property, rather than energy companies or investors.  In my 16^th May article I pointed out that small businesses may be able to invest in renewables profitably if they have an idle resource that can be turned into energy cost effectively.  Does the UK government’s strategy make this any easier?

It will.  The government has already put financial incentives in place to promote small scale renewables, most notably the Feed-In Tariffs (FiTs).   These incentives work, yet not every suitable business is installing solar panels on the roof or a wind turbine on vacant land.  Why not?  One major obstacle is the lack of knowledge, and uncertainty about whom to trust.  The government’s strategy will address this by taking a stronger lead in establishing standards, quality marks and the like, to give decision-makers more confidence in choosing systems and services.

Will this strategy overcome all the major obstacles to the development of microgeneration?  No – the missing piece of the puzzle remains planning permission.  Although the government’s strategy mentions the issue in relation to community energy projects, they describe it as essentially a work in progress.  However, approval rates do vary widely, as the National Audit Office has reported, with Scotland taking the strongest lead in application approval rates.

A longer term consequence of regional variations in micro-generation approvals will be that business decisions about new site location may be influenced in part by planning attitudes to renewable energy.   This will be particularly attractive to those firms in energy-intensive industries, or where carbon footprint is important to the buying decisions of their customers.

Of course, the difficulties in obtaining planning permission do not make renewable micro-generation less attractive in terms of financial returns.  Instead, these obstacles increase the business risk associated with considering renewables, as it becomes more likely that the management time and pre-planning investments will come to nothing.  Businesses are no strangers to this problem – tenders, pitches, and investments in unproven markets all suffer from this sort of risk.  The secret to managing them is to make these efforts many and small, so the firm can afford to fail with most of them.

 

Translating this to micro-generation, the approach should be similar.  Look at all resources that could be converted to energy.  Plan to put in applications for any renewable installations that have a positive financial value.  Do this over a period of time that does not put excessive burden on management.  Expect to lose most of them, unless your business is located within an authority that is friendly to renewables, so keep the up-front investments low unless there is good reason to think your application will succeed.  Use independent, specialist consultants to evaluate the business case and advise on planning.   Micro-generation can be profitable, and approaching it with the same attitude taken to any business investment will bring good financial returns, as well as environmental benefit.

Finally, keep an open mind about micro-generation opportunities, because government policies, carbon pricing, and fuel costs will continue to alter the landscape in which businesses have to make their choices.