Energy Strategies should start with a Profit-centric Approach

With the long-awaited Carbon Tax Bill now expected to be implemented in June of 2019, businesses still have some time to develop new energy strategies that can help to reduce their carbon footprint. To add to the woes of a carbon intensive footprint, the National Energy Regulator of South Africa (Nersa) has also approved a 4% increase in electricity tariffs from April 2019, along with a R32.7 billion approval for Eskom’s Regulatory Clearing Account applications – which is expected to effectively hike the electricity tariff increases to 12% for the next 3 consecutive years. One of the avenues available to businesses to fight these increases, is to find ways of curbing their energy consumption.

With this in mind, the ideal strategy to contain and manage the energy spend of a business, should start by looking at the relationship between the company’s profits and its energy expenditure. This is according to Barry Drotsche, Head of Energy Partners engineering – a division of Energy Partners and part of the PSG Group.

“There are a wide variety of energy saving and renewable energy generation technologies available. However, each operation is different and a business owner has to know whether a chosen solution will provide the best return on investment. It is therefore important to understand how much of one’s energy costs are absorbed by the business, how much can be passed on to the customer, and which parts of the operation is responsible for unrecovered energy spend.”

To demonstrate this, Drotsche points to the example of a shopping mall. “The property owner’s primary motivation should be to increase profits by reducing operational costs. When devising an energy strategy, it is important to remember that all of the tenants in the mall are billed individually for the electricity they use in their shops. If they use more electricity, or if tariffs increase, tenants are billed more for what they consume. It is therefore clear that any changes in energy cost in this regard are passed on directly to the tenants and have no effect on the profits of the property owner.”

He continues to explain that the energy use in the communal areas are a different matter. “To a large extent, the costs of managing the communal areas in the mall are not passed to the tenants directly, meaning that if the energy assets in these areas are not managed efficiently, the associated expenditures are eating away at the profits of the property owner.

“It would therefore make sense to invest in energy saving measures that are primarily focused on this aspect of the operation. Installing a solar photovoltaic (PV) system is a great first step to reducing the impact that the common area operations could have on the cost of overall operations, but interventions should not be limited to this. Recommissioning air conditioning systems (which is a major energy consumer) with active control measures, replacing inefficient lighting with LED lamps, and running the air conditioning system during the off-peak hours in the morning to pre-cool the building before opening could have a more pronounced effect on profit margins when compared to the benefits realised from a PV system,” Drotsche explains.

On the other hand, he says that businesses that have to absorb more of their daily energy costs, could benefit more from investing in generation capacity (i.e. PV or hybrid energy solutions) that are more cost effective when compared to the grid. “A manufacturing operation or a business that has to keep its own pricing low for customers in order to remain competitive, will see a direct link between its total energy expenditure and its profit margin. Investing in a PV system to reduce the amount of electricity that it takes from the national grid during the daylight hours, may therefore be the logical first step in this instance.”

Drotsche adds that in both of the above mentioned cases, effectively measuring electricity consumption and being able to quantify the effect of different energy saving interventions is paramount.

He points out that involving a reputable partner, with an in-depth understanding of energy saving strategies from the start, will allow a business to build a solution around its individual needs. “Having a thorough understanding of what a company needs in order to grow its profit margin, already increases the ability to innovate around existing challenges and obtain the most profitable solution for the business,” Drotsche concludes.

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