When is a fish worth £800?

Does your firm face serious (costly and reputation-harming) oil pollution risk, and can that risk be quantified in financial terms?: it's not just about tankers crashing or oil platforms exploding.  Many firms store enough oil on their sites to be at significant financial risk.

Companies that store oil for heating, process use, or vehicle fuel are subject to strict regulations to prevent pollution incidents from poor storage.  According to the EnvironmentAgency, on average an oil spill (which might occur due to aging equipment or poor choice of equipment or errors in filling or draining the tank) costs a business £30K in fines, clean up costs and lost operational time.  This figure doesn't appear to include the cost of buying more oil to make up for the amount spilled.

The relevant regulations that firms need to comply with in England are the Oil Storage Regulations and the Control of Major Accident Hazards containment policy; there are equivalent regulations for Scotland and Northern Ireland.

200 Litre oil drum.  If you have a volume of oil storage equivalent
to more than one of these in England you must follow the oil storage regs

Small firms aren't necessarily exempt.  Any firm with at least 200 litres of oil being stored needs to comply.  That's just slightly less than the volume of a typical domestic wheelie bin.  And it's the volume of a conventional oil drum.

The Environment Agency provides quite a lot of advice for free on their website.

Spills happen all the time; they are not a rare problem.  Oil is the most common type of waste pollution in the UK.  The Environement Agency says it records over 5K incidents annually.    Few people know that oil pollution is a criminal rather than a civil offense in the UK.  Recent research in Europe  by The European Space Agency has found that just over a third of oil reaching the oceans came from land-based spills rather than ships or oil platforms, so it makes sense that spills on land are treated so seriously.

Recently the UK's largest producer of malt was fined £20,000 and made to pay £6475 in costs and were ordered to make improvements costing £11K to prevent a recurrence after oil leaked from a faulty storage bund  into a nearby river, killing 47 fish.  That's a cost to the business of about £800 per fish they killed.  That's one way to put a value on environmental assets.  Of course it doesn't make sense in terms of the cost of a fish, but the long term damage to ecosystems in the river will mean many more fish (and other animals and plants) will be affected.  Moreover there may be farm animals downstream drinking this water, and companies drawing it off for process use, and eventually maybe a water company that will recycle and purify it into mains water.

One seriously expensive fish!

Eventually, the firm is reported to have spent £106,304 on clean-up andmaintenance.  The event polluted 4 km of river.

These penalties are perhaps not so surprising at a time when water resources are increasingly under pressure, resulting in hosepipe bans and increased metering, as well as the threat of rising prices: over the  years 2002-07 UK water charges rose 32% (http://www.earth-policy.org/plan_b_updates/2007/update64), considerably faster than inflation.

What can you do about this risk?

Manyspecialist oil storage firms can offer help in bringing your oil storage up to required standards

Julia Lawrence Sustainable Business Management can help you evaluate the risk to your firm and compare the risks, costs and benefits of oil alternatives that would suit your organisation's needs.

Is your firm safe from oil price increases?

There is a story about two hikers in the Rockies who spot a grizzly bear, as species known for its aggression towards humans.  As the bear charges one hiker turns to run, but the other sits down, unpacks his trainers, and starts unlacing his boots.  “What are you doing?” asks his companion, “you can’t outrun a bear!”  He replies, “It’s not the bear I’m trying to outrun.”

Monthly oil price spot.  Credit: TomtheHand/Wikimedia

Many commentators are forecasting oil price rises as demand from the developing world increases post-recession, and as supply from Saudi Arabia diminishes.  Rises of around a third are bandied about, and greater increases are not out of the question, over a vague time period but certainly during this decade.  As repeated economic squeezes come, how will you stack up against your competitors?

If you use oil-derived products for heat, transport, or lubrication, you will of course see an increase in these costs.  Your suppliers will see their costs rise, increasing your input prices, and your customers will similarly feel the pinch, reducing their margins and provoking them into looking for savings up their supply chain.  End customer demand should also decline as fossil fuel prices eat into disposable income.  In other words, we would be in for another recession each time oil prices spike.

As it looks increasingly likely that this is the sort of future we have to look forward to, many firms are looking at ways of freeing themselves from oil-derived products in their processes and supply chains.  This is no easy task because there are still no economic substitutes for oil in most applications.  However, as we know from the recent global recession, keeping ahead of the competition on cost can be a matter of company life or death.

In the search for practical ways to prepare for volatile and/or high oil prices, here are some of the approaches that firms small and large are already pursuing:

• Supply chains: redesign of distribution e.g. route planning, creating more localised supply chains, optimising vehicle technology and driver behaviour
• Products: Making products more fuel efficient in both production and use
• Systems: Identifying low-value-added uses of oil and designing them out of the business model
• Resource stewardship: waste elimination and recycling
• Substitution: identifying those uses of oil for which cost-effective substitutes are now or will soon be available.

Tackling these issues now will make your firm more resilient during periods of oil price volatility.  While no firm needs to be best in class in every area, it does need to be better than its competitors overall when the economics squeezes come.

Electric vans - does the £8000 grant make them a good buy?

The UK government has just announced grants of up to £8000 to support sales of electric vans.  Will the take-up on these be better than the take-up of electric cars?  Arguably yes.  Businesses tend to make decisions based solely on economic criteria, and the economics support the purchase of an electric van under the right circumstances.  However, the truth is that very few firms would currently benefit from buying an electric van.  This is because of current technical constraints – they won’t last forever, but they will dent the growth prospects of EV vans in the short term.

Range: who will be able to use an EV van?

The first question everyone asks about electric vehicles is range.  Take for example the Renault Kangoo ZE, with a range of 106 miles.  Assuming no power infrastructure, that gives a return range of 53 miles, the distance from Bristol to the M50 junction with the M5.  At the moment, the UK network of EV charging points is underdeveloped, although Ecotricity is working on this.  The Ecotricity charge points are currently slow (6-8 hours for a full charge on a Renault Kangoo van), making their use for commercial transport impractical.

This means that at present, electric vans are only suitable for businesses that mainly serve their local area, or which have a fleet of more than one van, where at least one (electric van) could be dedicated to local service.

The typical charging time means these vans are also mainly going to be used only by firms that need the van intermittently, rather than driving all day.  For all day driving one would need either several vans, or a fast charge point, and while the prices of these are coming down they are still prohibitively expensive.

Running cost: who will gain financially?

Even at today’s high electricity price levels, running an EV is cheap compared to either diesel or petrol – about one fifth the cost.  On the other hand, the van itself is more expensive.  How many miles would you need to do to make the EV worthwhile?

This depends on your firm’s economic circumstances, of course, because the cost needs to be paid up front, while the savings will come over a number of years.  Let’s compare two firms – one drives about 115 miles per week, or 6000 miles per year, using the van for only about ¾ of an hour each weekday.  The other firm does 15K miles per year, or about 288 miles per week, using the van for nearly 2 hours per day on average.

First, the lower-mileage firm:

	Kangoo EV	Kangoo diesel	Difference
Price after subsidy	13,592	8,950	-4,642
Miles per gallon		54
KwH / mile	0.21
Battery lease £/month	60
cost per mile	0.02	0.11
miles per year	6,000	6,000
Road tax		115
Running cost per year	844	788	-56

In other words, for the low mileage firm it’s actually more expensive to run the electric van, even before we look at the up front cost.

Now let’s look at the higher mileage firm:

	Kangoo EV	Kangoo diesel	Difference
Price after subsidy	13,592	8,950	-4,642
Miles per gallon		54
KwH / mile	0.21
Battery lease £/month	105
cost per mile	0.02	0.11
miles per year	15,000	15,000
Road tax	-	115
Running cost per year	1,570	1,798	228

Unlike the other firm, this one gets an annual saving from driving the electric van, but the payback time is only about 20 years.  This means that even for the high mileage firm, which generates the most savings from driving, the electric van is still not currently worthwhile.

So will anyone benefit from buying an electric van?

There are some additional considerations on the financial side.  First, a central London-based firm will save on the congestion charge, which could mean that the choice to go electric pays for itself in a couple of years.  A firm with just one van delivering every weekday for 50 weeks of the year would save £2600.  Combined with the good EV charging network in London, this makes EV vans an excellent choice for firms that deliver within the London congestion charge zone.

Another consideration is the capital allowance – firms can claim 100% of the van’s cost in the first year.  Of course, SMEs with low capital spend may be able to do this anyway.  Whether this benefits your firm depends entirely on your circumstances.

Last but not least is the marketing benefit of driving a green vehicle.  Whether your customers are private sector bodies, socially conscious urbanites, or commercial firms looking to green their supply chain, driving an electric van can send out a useful marketing message.  It is difficult to quantify this but plenty of firms will no doubt use this argument to tip an uncertain financial decision in favour of the electric van.

Does this mean electric vans will never dominate?

No.  Many of the drawbacks depend on things that will change.  Range will improve.  The differential between electricity and petrol / diesel prices may widen.  EV charging will get faster, cheaper, and more ubiquitous.  So the economics of electric vans will change, and they will undoubtedly change for the better.  Of course, by that time there may be hydrogen powered vans competing for our business buck, but that blog entry will have to wait until 2015.