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Energy: Part of the Problem, or Part of the Solution?

Mike Hogg, managing director, DONG Energy Sales

After several years of economic gloom, it is heartening to see positive indicators starting to emerge throughout the Eurozone. In the UK, the outlook for manufacturing is getting brighter, with EEF, the manufacturer’s organisation, forecasting a return to growth for the metal products sector at a rate of 3.3 per cent in 2014(1). 

A CHALLENGING LANDSCAPE
Nonetheless, despite this improving picture the global cast metals industry continues to face a whole raft of challenges - from sustainability issues and the changing regulatory context to intense competitive dynamics and the need to invest in innovation. On top of this, there is an increasingly urgent requirement to actively demonstrate sound corporate citizenship to all stakeholder groups, including customers, investors, supply chain partners and current and future employees. This encompasses responsible sourcing, community engagement and environmental sustainability. At the same time, markets have never been more competitive nor the focus on the bottom line more acute.

ENERGY AS PART OF THE SOLUTION
So, if businesses need to find a way to make money whilst supporting the physical and social environments of which they are a part, energy is a key component of either the problem or the solution. 
Clearly, energy efficiency is of growing importance for all energy-intensive industries. This has been recognised within the legislative environment, both at European and member state levels. In the UK, the government has awarded £39 million for energy efficiency research to cut carbon use in manufacturing. This backs up a raft of regulatory measures such as the Energy Savings Opportunity Scheme (ESOS), which comes into effect next year and obliges large enterprises to undertake an energy audit every four years. The intention is that every audit will recommend cost-effective measures to help organisations reduce energy costs and consumption. At a macro level, this will increase the competitiveness of UK businesses whilst reducing the load on Britain’s energy infrastructure and contribute to meeting greenhouse gas reduction targets. At an organisational level, this supports the twin objectives of making money and behaving responsibly. 

FROM SUPPLY CHAINS TO VALUE CHAINS
ESOS is just one of a range of policy initiatives designed to encourage businesses to adopt energy efficiency measures, with the policy landscape constantly evolving with new obligations and opportunities. For industrial energy users, this can feel like a burden but those who look to the supply chain for support are well-placed to realise the benefits on offer. This requires a focus on the entire supply chain as a key creator of value and an understanding that sustained profitability depends on supply chains competing successfully with other supply chains - rather than companies competing with each other. Clearly, this approach demands a rigorous selection process and involves long-term supply relationships with trusted partners.
As a supply chain partner, energy suppliers play a crucial role. Through the right partnership, companies can identify the optimum contract that fits their risk appetite and internal competencies and realise the long term benefits of access to meaningful and actionable data and information. For example, by tracking energy consumption per unit of output produced, managers can accurately forecast energy usage, identify inefficient practices and set realistic reduction targets. For the cast metals industry, this is critical because energy normally accounts for a significant portion of the total cost base - so any opportunity to reduce consumption and shift any flexible consumption load to cheaper hours has a positive impact on the bottom line and sustainable competitive advantage. Data can also help to identify anomalies, errors and opportunities for greater focus: ensuring equipment, lights and heating are switched off when not in use, for example. Obviously, advanced meter technology is making this data more accessible but it is also something that energy suppliers can and should help with - data solutions are a key part of the service requirement and customers should make sure they get what they need from their supplier. In this way, energy supply gives way to energy solutions - a full and customised package of supply and services that drive down energy costs and increase competitiveness. 

TRANSFORMING EFFICIENCY INTO GROWTH
For me, what it all comes down to is the simple fact that the best electron or molecule is the one we don’t use. Whilst that might sound odd coming from the MD of an energy supply company, the efficient use of resources is an essential driver of profitable growth. By focusing on the demand side, businesses can meaningfully reduce energy consumption - and therefore costs which, for energy-intensive businesses, can have a very significant impact on the bottom line.
Day-to-day energy management is vital but a long-term energy strategy is needed to achieve maximum efficiencies. This means understanding the role energy plays in the business and ensuring that the resources and processes are in place to manage it. It means selecting a supplier that takes the time to understand your business and delivers a product that is the right fit. It means helping staff to understand what behaviours are valued and incentivising them accordingly. It means having a clear and shared vision of the company''s short- and long-term energy reduction goals. It means staying abreast with the regulatory and compliance environment and making the most of opportunities. Here again, this is an area where suppliers should provide advice and solutions - ideally as part of a long-term partnership approach which can encompass data-based solutions, third party arrangements, renewables investment and CSR support.
This may sound overly complex and far removed from the day-to-day demands of running a business. But essentially, organisations need to use all resources responsibly and efficiently to secure sustained profitability. Only by bringing together the right combination of competences, technologies and appetite for change is this feasible and this, as all successful manufacturers know, is best achieved through supply partnerships that are built on shared goals and values.

Contact: DONG Energy, 1-3 Strand, London WC2N 5EJ UK. Tel: +44 (0) 20 7451 1925, email:NOGAR@dongenergy.co.uk web: www.dongenergysales.co.uk

(1. http://www.bdo.co.uk/__data/assets/pdf_file/0007/176506/Manufacturing-Outlook-March-2014.pdf)