Summary
Introducing the Empower podcast series, where our energy expert, Weightmans Partner, Nick Fothergill, will be providing valuable insight from across the industry to empower businesses with the tools they need to navigate their way through the current complexities of the energy crisis and towards Net-Zero.
In this first episode, Nick is joined by leading energy consultant, Chris Wilson, to discuss and share his perspective on the energy challenges currently faced by businesses in the UK.
Transcript
Nick Fothergill
Hello, everyone, and welcome to the latest in a series of Empower podcasts focusing on how UK businesses are facing the twin challenges of high energy costs and the drive to meet net zero. My name is Nick Fothergill and I am a partner in the energy and utilities team here at Weightmans I'm a corporate partner based in our London office.
My work primarily involves M&A, investment and commercial work in the energy sector and includes advising on the acquisition and sale of energy projects and businesses, helping clients with investment and joint venture transactions, advising on power purchase agreements and other commercial contracts, as well as regulatory issues all in the energy sector. Our energy team here at Whiteman's is drawn from across the firm and its offices and specialisms and covers real estate planning, construction, environmental, regulatory, commercial and corporate expertise.
It spans both the private and the public sector spheres. We work with large utilities, project developers, investors and funders, new energy service companies and major energy consumers. We help our clients to implement their key priorities, such as reducing their carbon emissions, generating income streams, protecting against volatile energy prices, reducing their utility costs and becoming more energy efficient and sustainable.
Our Empower campaign here at Weightmans brings together these decarbonization and energy service strands as we help guide our business clients on the road to net zero while reducing their energy costs in these difficult economic times. Today, I'm delighted to be joined by Chris Wilson, a leading energy consultant with an impressive track record of work in the sector. Chris is going to give us his perspectives on the energy challenges currently faced by businesses in the UK based on his experience in the market.
Chris, to kick us off, can I start by inviting you to introduce yourself and tell us a bit about your background and the work that you do.
Chris Wilson
Thanks, Nick. Thanks for the lovely intro. My background is quite varied really. I started off in environmental science and management and then I did a environmental law PhD while I was working in consultancy capacity, which was I guess focused around two businesses of all sizes and sectors with compliance requirements, resource energy efficiency projects, how to improve their green credentials through various standards.
And then in 2015, I set up my own consultancy, Chris Wilson Consulting, which isn't very imaginative, but that's where I was at the time. And we we support clients with, again, a wide range of compliance needs auditing, risk management, management system development, maintenance, energy surveys for schemes such as resource and sector submissions, energy contract reviews, renewable energy feasibility projects and another greenhouse gas emission net zero projects.
And then more recently just over a year ago, to find it's a company called Power and Energy Fields, which is a renewable energy design and installation company. And I guess it was you've taken all the theory, all the surveys you do, all the advice you give, and it's nice to actually then be able to to say this projects to to completion.
So we we specialize in, in solar, which includes ground and carports as well as when small scale hydro projects and off grid systems. They also can do EV charging stations, other electrical installation works including power upgrades, energy storage systems, and then all of the sort of project management. And that goes with that from concept design to installation, monitoring, maintenance, planning applications, environmental screening, flood risk assessments, impact assessments, etc..
Nick Fothergill
Thanks, Chris. As we all know, the last couple of years have been a difficult time for businesses as they've emerged out of the COVID pandemic, only to find themselves in a world of economic turbulence and financial uncertainty. We've had the combination of soaring inflation, high interest rates, a tight labour market and a destabilizing European war in the Ukraine.
At the same time, there's been an ever greater pressure from governments, consumers and other stakeholders for businesses to play a leading role in the transition to net zero, to decarbonize and to prove themselves to be sustainable. Many businesses want to do the right thing when it comes to net zero and are committed to doing what they can to be sustainable and good corporate citizens.
But this is a difficult environment to be operating in, and there can be a tension between those good intentions and the cold financial realities of the business world. Chris In light of this background, I'm conscious that businesses are going to be keen to hear about practical and achievable steps that can take towards achieving net zero and also reducing their their own operating costs at the same time.
Well, what sort of things have you been seeing? Companies doing and how effective have these actions been?
Chris Wilson
Yes, but there's a few things that come to mind, really. I think, you know, net zero is a term that has grown and used over the last few years. In some cases, it's been hijacked, redesigned and remodeled to whatever whatever people want it to mean. So we've got to be a bit aware of that. But clearly, the the understanding, the scientific understanding is there of the need for massive greenhouse gas reductions.
And it's really good to see that. You know, when I was delivering training ten plus years ago that we always had to have a bit of a, you know, this is in the future type thing. Whereas whereas nowadays, you know, there's there's no doubt that it has to be the action that we take now. And there's no kind of false bias that we have to portray the climate change.
And it's not something that is primarily human driven that we need to try and do do better. And so I think there's been a lot of education that's improved pretty good on that, and it's actually really difficult to do it. So, you know, and you'll know from a legal standpoint that you've got to be careful making false claims and going down sort of the greenwashing type thing I think is important, too.
So you have to have these ambitious goals, but also to realize that it's a massive commitment and it is not actually that easy. And you've almost got to throw everything at it in terms of of the opportunities that are identified from from some of the things we're going to mention. But the approach to that is that, you know, net zero reductions and energy reductions or any other resource reductions, it goes it goes hand-in-hand from an emission reduction point of view and also a cost point of view.
So to be more efficient is going to is going to save cost and emissions in many cases. So I think it's important to appreciate that that being more energy efficient, for instance, is it's going to do both cost savings and emission reductions and I think again, will be used to be something that certain businesses went for and they kind of saw as a cost to do it.
And now it's a case of what eventually become a license to operate. We're seeing that in tenders in procurement from from the government with the likes of the curve analysis of 621 and just other initiatives are out there. The license to operate is that you're going to have to do these things or they will be done done to you.
So really the thing to know is it's not how much is this going to cost me? It's what's the best way of doing it? And that that's quite a big mindset change because you're committed to doing it. It's just you've got to figure out how rather than then always thinking, Well, this is a big cost. So I think the best starting point is always to baseline.
The data is the key thing. You know, it's very difficult to to launch into big, ambitious targets without having that baseline data, that baseline understanding of what the kilowatt hours that we we use are, the miles that we do, the resources that we consume. So we need to top that baseline and we need to set a 12 month period, which is it's not too in the past, within the past few years, where we can get good data and do our best with the data that we have and then break that into sensible categories.
And there are standards and guidance on that that help us do that. These bids focus on range scope one, two and three emissions or go in a bit more granular and looking at transport, for instance, or heating or resources from whatever materials that we buy, the greenhouse gas protocol is as useful standard for, for, for breaking things down.
So we can say, you know, if we've got a thousand tonnes of emissions, where are the bulk of those coming from rather than perhaps focusing on the minutiae, whereas it's very difficult to do to have those those quick wins. So of being mindful of costs of these things as well, you know, a lot of this stuff is just good business sense to operational management program and whether things should around them be on maintenance.
You know, the second law of thermodynamics tells us that things always get worse. You know, equipment breaks down. You know, it's the same for people. We all get older, will deteriorate slowly and, you know, clearly. So good, good maintenance is going to arrest that to an extent. And it's something we should be doing anyway for business resilience and and compliance requirements in many cases.
So there are lots of low, low cost and low cost options right through to perhaps longer term investment decisions. I would call them, rather than high cost things, because I think we've got a sort of reframe I, I that's termed so I think start with the baseline is is is the most logical place to start to see what the size of the challenge is. Yeah.
Nick Fothergill
The data yeah naturally I mean a lot of businesses are going to be saying I'd like to invest to reduce my carbon footprint and my energy costs, but I haven't got access to a lot of spare capital at the moment and borrowing is expensive. What advice would you give in terms of practical quick wins or low hanging fruit that can be within the reach of capital constrained businesses and from which they can really see a benefit in the short term?
I mean, I'm thinking probably particularly here in terms of SMEs, I think some some recent research found where were not sort of progress, not not not advancing in towards net zero as quickly as some of the larger companies.
Chris Wilson
Yeah, you know, it's a start point and, you know, I can identify things and say that on paper this is a return on investment of 25% and you'll never get an interest rate as good as that. And likewise a business owner could say to me, well, actually I could buy another machine and that's worth twice the return to me.
So we've always got to be conscious that you can make suggestions that are really practical and and and with a very high return. But they've got to be in the context of other business activities that are going on. But clearly, if the business is making a commitment towards and net zero or a reduction of all the emissions, then there has to be a little bit of, I guess, reprioritizing of things.
What I would say is any energy survey, greenhouse gas, baseline report and strategy will always have a mix of of low and low cost options as well as a longer term paybacks. And I mean, there are funding options. You know, you'll be familiar yourself with page and things where where they are can they be cheaper access to finance because for one, the EPA funder knows that with a lot of renewable projects there's a massive lifetime asset value.
So they will be prepared to fund some projects like solar, for instance, or on roof tops, because they know that it's going to be good for a minimum 25 years. So that gives us a bit of an insight to say, well, if they think it's a good idea, then it should be a good idea for for me perhaps to finance.
But so there are there are funding options available and it's good to look at what the energy surveys are saying in terms of of of operational changes or main cements, behavioral change, education within the business. You know, if we know that we have a tariff where there's a big difference in the unit price between day and night energy, then are other things that we can shift in that business to in terms of activities.
You know, for a farm, a farming business, and we have a, you know, a double milking cycle early in the morning, a day to night. Is there things we can do to the contract so that we can have cheaper energy or can we look to energy storage systems where where we can take advantage of of of of cheaper rates to try and amend the business model to align that with where things are cheaper.
And if we can then release finance and the capital outlay and revenue savings outlay, then those can then be used to invest. I think the way we we review projects are longer term. Also we look at it on a simple, simple annual payback, which is really tell the full picture as a very basic Wales will be value and fast returns on longer term projects but with long asset lives.
So if we've got a a solar project or a hydro project and I'm working on a hydro at the minute and we're looking at a 75 year life, so if I measure a one year return on that, it's not really give me the big picture of what the huge lifetime savings are on that project because all the capital cost is upfront, but then the savings are for for decades, you know, get our heads around, we measure the lifecycle costs and things like net present values, which is a term I'm sure many people are aware of.
I know many that aren't. I know many bankers that aren't, and I know many of the consultants that we use regularly. But perhaps clients don't understand that, you know, it's a way of being able to factor in the future cost of the future value of money, along with the future maintenance costs of projects, disposal cost projects, but also factor in things like the fact that energy will increase in price.
Generally we see a 4.65% rule and ten year increase in energy. So we know that we know in ten years it's going to be at compounds quite a lot. When you add 4.65 every year, notwithstanding the last couple of years, which has been particularly turbulent. But we know that in ten years we might be spending 50% more on our energy energy.
So therefore that decision in year one seems more of a no brainer than than it does with livestock.
Nick Fothergill
Yeah, So it's taking taking the longer term view. I mean, in terms of energy procurement strategies, we sort of links into that. What sort of approaches are you seeing businesses adopting and how effective are these in terms of their contribution to net zero, an energy cost reduction? What would your recommendation be from a procurement strategy perspective?
Chris Wilson
I suppose it's difficult to give a one size fits all for this because it's very circumstantial. The last few years of it's not been good and it was certainly good at predicting anything really, and that put myself in that category. It was very much, you know, get, get, get whatever contract you can at some point. So we are going to have it seems always something that's disturbance in the market that's causing prices to spike.
So, you know, for most businesses, they tend to take advice from brokers and we'll know you will have that insight. You know, there's a much and there will be more clarity in the market in terms of of and regulation of brokers that will give us more confidence in using using them for for contract advice such as having to declare commissions and things like that.
So that gives people more confidence to use brokers. So it's it's been able to, I guess, understand the business operation model and then try and align contracts for the best best prices. But that depends on a whole host of factors. You know, if you've got your own generation on the roof or elsewhere, if you're a high net user versus a high day user, there's there's options there in terms of of of contracts being able to be able to use cheap night rates as an arbitrage service.
For instance, so that you're able to save on the higher rates. So it's very difficult to give to give any particular advice other than to give it to you, give it your full attention and understand when and how your energy is being used, and then try and align the strategies that best reduces those cost reductions. And if it's a net zero type objective, then we need to be looking at renewable procurement options, which in the past were much more expensive, but they're not really needed because we've got so much of our grid supplied from green sources.
Certainly from an electricity point of view, it can give us quite big, quite big carbon reduction savings because we can basically, you know, it's 200, 200 grams a kilowatt hour. Is the current figure approximately for electricity. So if we go to a green source, certainly from a scope two point of view, that goes down to zero and then we've only got a little bit of transmission and distribution losses, which is three grams, for instance, or whatever.
And it clearly if we make it off the roof ourselves, then then zero. And if you've got a big enough rich source of land, then there's certainly options to to slave that to other businesses you've got. And so you're able to then sort of offset your typical emissions with, with with green electricity. Green gas is much more of a challenge.
There's just less of it around because of the processes generated by, again, gas is a much more difficult challenge to move away from to electrify heating, for instance, or but again, that's that's a big part of the long term plan is that we across move away from from from gas and we have to change technology to be used to supply the heat and to replace that.
So we need to look at infrastructure on site if we've got the actual electrical capacity so we can apply for upgrades and things like that. So this is all why when we set out 20, 30, 40, 50 plan that we can't really just plan for one year ahead. You do have to have an eye on the short, medium and long term, if that's what what you're committed to and businesses will be challenged on that going forward.
Say, well, you committed to what was your plan as actually feasible or is it just a sort of short term marketing push?
Nick Fothergill
Yeah, well, it's I mean, it sounds like there are plenty of options out there potentially available for businesses and it will very much depend on the business and its plan. As you say, as to what was right for for that particular for that particular company. I mean, there's there's been a lot of discussion recently about the role of government in bringing about net zero in particular, what it could do to promote more onshore wind in England and Wales.
And there's also been some muttering about sudden changes in policy when it comes to net zero, creating uncertainty among potential investors and those developing projects. They've also been calls for the UK to adopt the equivalent of the US's Inflation Reduction Act, or the EU's European Green Deal to encourage investment in UK green energy and technology. What are some of the policies or changes in policy that you think government could make that would help businesses on the net zero journey?
Chris Wilson
Yeah, there's quite, quite a bit there to unpack. I mean, I think the consistency is one thing we do. We do see policies change much more frequently than we've done in the past and that that creates uncertainty. And so I suppose it's it's not it's a call to the government to not use net zero and greenhouse gas emissions as a kind of a political tennis ball to try to win score points, etc..
And, you know, we know what we need to do, so we need to be consistent and a not change in policies for for political gain. And I think we've seen that recently. And I think in some cases it just creates a media issue. It doesn't actually change what the industries are doing with it, with the carmakers, for instance, you know, they're not going to retool for the retooling for electric for the last number of years.
So just to extend the deadline is probably not going to really have much of an impact. But again, political points, which is, you know, it's having an impact there, but it's not really going to be too much of a negative impact in terms of the car. Car manufacturers. So think it can consistency of message and not sort of flip flopping on policy that is useful.
You're absolutely right about onshore wind. It is. I mean, I've got a half a dozen wind projects. You know, if you put it in context, you know, solar on the roof, you could you could apply for it. And assuming the structural and electrical on site and offsite upgrades or there's no need for for upgrades or reinforcement work, then you know, you could be looking at months for those projects to be deployed.
But with wind, that's just two years, you know, for hydro is probably three years. And those those deals sites those are enormously long for for I mean there's not many installers of wind for that reason because you've got to be prepared to do all the work around planning and spend. You know, the customer's got to pay for, for lots of surveys where the really the policy is is outdated.
And it's it's always easy to say no. And we've got to be brave and say, well, actually yes, this is this is good. This will make this customer off grid or reduce emissions by X, Y or Z. And I think rather than have an onshore wind as a as an immediate no to begin with, and then it's a huge battle for the customer or the installer too to win over a long period of time is is often for for everyone.
So that's that that's a big one. Another one would be the grid grid connection issues. So we're seeing the massive amount of the applications in AIMS for for generation to run parallel with the grid and that needs to be better resourced. We need to have quicker returns on that. We need to move away from arbitrary lines in the sand about size.
Why do we need to talk to National Grid when it's above nine, nine, nine kilowatts by 1999? What difference is one when it's a megawatt? We've got to talk to them. When it's nine, nine, nine, we don't know it's only one kilowatt. So there are certain lines for certain reasons. So we have to redefine what those are for and whether they need to be the same nationally.
The response times need to be quicker. Certainly some of the applications I'm involved in, where it's up to, say, for instance, five megawatt grid connection, we're being offered connection times of 20, 37, 2037. Do I can I, can you sign on and also they can that as a viable option for any business team to make that investment and and costs in the tens of millions for that connection alone.
So you think that you think the solar farm is expensive just try building a substation in Wales for 19.1 million and it's just crazy And it's that again, it's an arbitrary, arbitrary sort of number of in many regards to put investors off so in some cases is often the opposite. So I think there's a lot the do and National Grid in particular can do to speed up applications.
And how about clarity? Likewise in common, we've mentioned a little bit the onshore wind, but there is an ongoing review on permitted development for solar on rooves and at the minute we can do just less, we can do just less in the megawatt on a risk. The site site planning subject to a few conditions being met on the ground as nine meter square. We can put four solar panels on the ground with a site that's not even viable electrically. Really, to make it to make it work. So again, needs to be updated to consider these technologies are being deployed now. We need to look at the biggest of the land and if we always need to prioritize certain land for solar development, then then that's a good approach.
You know, in doing that character landscape character assessments to say this is great for agricultural land, let's let's say this is viable for four ground mine systems. So there's a it's just the regulators keeping up to date with technology as well as the planning policies reflecting that the here and now is a big thing also that the media has a big role to play.
And you see stuff about electrical fires and these and it's you know, the numbers are tiny, but it's on the news. It's you know, it's it's just being it being clear as to what in doing that diligence on research to make sure that there's not that sensationalism. Same for insurance companies. You know, we get insurance claims, not insurance solar systems on the roof, which I think is a fire hazard, and that there are controls in place and all good designed systems where where there are switches that will just isolate the power.
And that's that's that's been there for for years. But but there's been requirements on businesses to have additional systems in place when it's really, really a very, very small risk. That's what I probably mentioned is a bit of a rant. And I think and these are actually getting a lot of things off the charts. That's good. That's what might might be around the banks and the finance inside.
And it's it's understanding the technologies and perhaps not not in unnecessary constraints in place on businesses to to release the finance. I've certainly got some projects where it's been really useful where they've said give us the net present value connections, give us all your assumptions. And they've said, Yeah, we like that. It's really good. And in other cases they just said we want to do it, we do understand it, you know, not necessarily in those words, but they just didn't take the time to to want to look into it.
And so I think there's all parts of society have a role to play in this and in order to support these projects.
Nick Fothergill
Thanks, Chris. That was very interesting to round off. Perhaps I could ask you to reflect generally on your experience of helping businesses to decarbonize and become more energy efficient and what sort of attitudes your your coming across in the market.
Chris Wilson
I think in general is really positive. I've got to say from reflecting back 20 plus years ago, delivering training on things, and it was there was a lot more skepticism about the need to do, by the way, but also of net zero. And then that's pretty much gone, I've got to say, which is which is good. So I think there's been a massive, massive attitude change in terms of of leadership and businesses being interested in these things, greenhouse gas emissions and being an agenda item at the top board level and not just a big corpus in medium sized enterprises and small, small businesses, because they're being asked by the big corporate to help with the supply
chain emission reductions. So I'd say that's that's probably the overwhelming thing, is that the number of conversations you have, the number of people and the mix, they should change towards the the UN recognition of the need to do these things. So I think it's all going in the right direction on this.
Nick Fothergill
If you could give only one piece of advice to a business which wants to do the right thing when it comes to net zero and needs to reduce its energy costs, but but where it's mind full of capital outlay, what would that advice be?
Chris Wilson
I'd say to start with, with with understanding where you're at. So understanding your your data that doesn't take the time is a zero cost and outlay. Obviously appreciate people's time is important, but if we don't understand our starting point then then it's very difficult to to measure any improvements that we've made going forward. So get gather that, gather data that you hold, ask and work with suppliers and that that doesn't cost anything apart from someone's time.
So it's just given given that commitment to to resource it in that way, understand where you're at and then it's being able to prioritize where the biggest ticket items are from there. So yeah, I'd say all we start with, it's usually my DNA, any energy survey or piece of compliance work, you could ask for information and been able to it's a business can supply it to you quickly.
That's always a good insight that they're ready to make those and they can make those changes easily if they send you a box of lever arch files in the post with their energy bills on it with no idea of what their annual consumption is, that those does still happen, then, you know, it's difficult because you've just got a painful process of saying let's let's quantify where we're at. So I would say that.
Nick Fothergill
Chris, thank you very much for your time today. Your perspective on the energy and sustainability issues facing UK businesses has been really informative and enlightening. It's also good for our listeners to know that you're available to help them on a professional basis. Should they be interested. And we can we can put people in touch with you if, if, if they would like that.
In the meantime, I would encourage everyone to follow our Empower campaign here at Weightmans as we continue to help and advise our clients on decarbonization and developing their businesses, please feel free to contact either me or Chris Wilson. If you would like to hear more about any of the any of the points we've discussed today. Thank you very much for listening.