Jonathan Maxwell, founder and CEO of Sustainable Development Capital LLP — one of the UK’s largest independent sustainability and climate-focussed investment firms — says that the ongoing energy crisis needs to be embraced by businesses as an opportunity to innovate and grow.
Good businesses, they say, solve problems.
That is fortunate, for Brexit, Covid, and the Russia-Ukraine crisis have left plenty of them in their wake.
Somewhere towards the top of the list for UK and European businesses is energy: the cost, the carbon, and even getting enough of it.
Indeed, the challenges that energy now represents for businesses and industry can be defining and, in some cases, existential in the long term.
But in the face of these challenges, good businesses may find some of their greatest opportunities.
These include deploying clean and renewable energy solutions on-site and delivering step changes in energy efficiency.
Our own research and investment portfolios — valued at over £1.5billion and linked to 50,000 properties worldwide — demonstrate that unless steps are taken, some 70% of primary energy can be lost before it even gets to the point of use.
Another 10–30% can be wasted at the point of use through inefficient equipment.
Take datacentres as an example. They are the one of largest and fastest growing users of energy in the modern economy, responsible for between one and two percent of final energy demand.
The energy is used mostly by servers and cooling, and they are so reliant on energy that datacentres are measured in units of it— megawatts — more often than their physical size (square feet).
What to do? On-site energy generation pairing cogeneration (replacing the grid for prime power and diesel for backup) with renewable energy solutions such as solar and storage have been proven to cut costs, reduce carbon intensity, and improve energy security by reducing reliance on the often-constrained electricity grid.
Newer immersion or liquid cooling solutions can reduce energy and water use by over 50% and, with it, the space needed for the datacentre itself — by focussing on cooling the server racks rather than the whole room.
Similar solutions, both on the supply and demand side, abound for other industries.
Recycling waste heat and gas from steel, cement, chemicals, and plastics facilities — so-called ‘hard-to-abate’ sectors that represent some 40% of human-made greenhouse gas emissions — has been proven to cut costs and emissions.
On-site solar and storage makes financial sense and is cheaper than the grid for large commercial buildings such as distribution centres, retail, and logistics facilities.
Since 2012, my firm, through the FTSE 250 investment trust, the SDCL Energy Efficiency Income Trust plc, and other funds under our management, has committed and invested over US$2billion to energy efficient projects worldwide.
This has provided us with privileged and deep insight into commercially attractive solutions that save money for business and industry, and we now publish much of this information publicly on the investment trust’s website: www.seeitplc.com.
Both the European Commission and the United States federal government, through the Inflation Reduction Act, now offer substantial market incentives, in the form of payments or tax credits, for energy efficiency projects.
One of the best open sources of data to illustrate the opportunity associated with business and industry is the ‘DEEP’ (which stands for De-risking Energy Efficiency Platform), sponsored by the European Commission.
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It provides data for over 20,000 building projects, with median payback periods of less than six years. The most cost-effective solutions such as motors, heating, cooling, and lighting all have payback period of less than five years. It also provides data for 17,000 industrial projects with median payback periods of less than three years.
After Russia invaded Ukraine, until which point it supplied some 40% of Europe’s natural gas, energy prices in Europe have been highly volatile and, at times, so high that it made businesses and industries dependent on it uncompetitive.
There are genuine questions about whether energy-intense industry can survive in certain parts of Europe and the real prospect of losing business to — as well as having to pay for liquified natural gas imports to — the United States and other markets.
London and Dublin are struggling to meet the needs of the fast-growing information and communications technology markets. Energy prices are eroding margins for businesses everywhere.
Wasting energy in this context is even more problematic.
The energy crisis in the immediate aftermath of Russia’s invasion of Ukraine amplified the need for ‘energy efficiency first’, a new mantra of European government policy.
So it should be for business — to cut costs, improve productivity, and, at the same time, achieve precious carbon emission reductions.
As they say, never waste a good crisis.