RECHARGING ENERGY EFFICIENCY

Energy efficiency has consistently come up as one of the top priorities for energy executives and investors in our energy transition survey for the last four years. In expanding our survey to cover commercial energy consumers this year, it’s clear to see that trend extending to this group too.

Hearing perspectives on both sides of the supplier/user coin is absolutely vital to the success of the UK’s energy transition. Energy suppliers and investors play a crucial role in tackling the challenges faced by users, and effective dialogue between all involved is crucial to moving forward.

We must avoid addressing problems in isolation and instead foster collaboration across different sectors and throughout the supply chain. It’s clear that some sectors are further along the energy transition journey than others, and encouraging learning between typically siloed sectors can be incredibly beneficial.

Sarah Daun, Partner, Womble Bond Dickinson

In decarbonising their operations, UK commercial consumers highlighted a mix of strategies ranging from streamlining processes (42%) to use of low carbon fuel (41%) and recycling waste to produce products or clean energy (40%). However, over half (54%) were focused on energy efficiency and energy saving methods.

At first glance, this may not seem surprising. Yet it is notable when the costs associated with energy efficiency measures have historically led to a lack of enthusiasm by UK firms, despite the potential for quick wins. Several factors could be at play here, but our findings suggest that, while cutting overall business costs, operational efficiencies are more increasingly recognised for their environmental benefits in reducing the carbon footprint of commercial energy users.

These positions are largely driven by a strong focus on environmental protection, cited by 58% of respondents. Additionally, 36% highlighted the moral imperative of doing the right thing, and another 36% pointed to the operational efficiencies decarbonisation brings - all in all, an approach which allows firms to tick both ethical and financial boxes.

It’s important that we all recognise the distinction between decarbonisation as a result of improvements and energy transition projects on the one hand and the closure of large scale industrial assets on the other.

Simply shutting down big emitters may superficially reduce emissions but will only get us so far and will be detrimental to the UK as a whole both economically and for our skilled workforce.

A holistic approach to energy transition that champions change and turns more closely to the all-important Scope 3 emissions is needed. To make this happen, agreements on data sharing, governance and accuracy of data are essential.

As it stands, some businesses either haven’t set Scope 3 targets or have targets which are less ambitious for Scope 3 than Scope 1 or 2, due, perhaps in part, to uncertainty and measurement challenges.

Looking ahead, collaboration is vital to tackling Scope 3 emissions, particularly for sectors that have complex supply chains.

Sarah Daun, Partner, Womble Bond Dickinson

Politically, energy efficiency in this context was not prioritised by the previous UK government. Recent policies like the 2022 British Energy Security Strategy and the 2023 Powering Up Britain have only updated or extended several schemes and support introduced under the 2012 UK Energy Efficiency Strategy. Furthermore, an Energy Efficiency Taskforce that would mainly oversee energy efficiency measures in buildings and heating was scrapped within six months after it was established in 2023.

However, the new UK government has tasked Great British Energy with investing in energy efficiency campaigns and measures, providing businesses with further impetus to prioritise it.

Investors warm to heat networks

As the chart above shows, heat networks were also listed as a decarbonisation strategy by commercial consumers. Currently, just 13% of those we surveyed mentioned this technology but it is an area where we believe there will be significant growth in the coming years. Some 43% of energy suppliers and investors agree, telling us that they expect to have more focus on heat networks as part of their energy mix in future years.

Heat recovery systems and heat networks have stood in the shadow of carbon capture and storage for many years. But plans to accelerate the development of this relatively low cost-low carbon energy are starting to attract considerable interest from investors.

The government’s aim to create city-sized heat network zones have the potential to transform the returns available.

Networks will use a range of heat sources including the waste heat, from data centres industrial processes and energy from waste plants as well a heat from sources such as mine water and rivers.

As a consequence, we’ve already seen new entrants in the market and increasing investor appetite that simply wasn’t there five years ago. In some respects, it’s like the early days of the electricity market with firms jostling for position to reap the rewards.

Andrew Hirst, Partner, Womble Bond Dickinson

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