Rising energy costs are prompting European companies to see the business side of being green
Every year, Holcim, a Swiss-based global building materials company, sets aside CHF100m to improve the group’s energy efficiency. The company allocates funds from the sale of excess CO2 emissions certificates, although this is not about boosting its green credentials. Cutting electricity consumption can have a big impact on the bottom line for heavy industries.
Energy has long been a large part of cost structures for minerals, metals, mining or processing companies. “They’ve focused on it for many years,” says Stefan Heck, a McKinsey director who leads the consultancy’s work in clean technology. “The standards are tightening from a regulatory point of view but also the cost pressures are increasing. So it’s directly translatable to the bottom line.”
Yet heavy industry is no longer alone in focusing on energy efficiency. In fact, the range of industries doing so has been increasing in recent years, particularly as energy prices in Europe continue to rise and companies look to strip costs from their operations. Whereas at one time it was largely a matter of establishing “green” credentials, reducing energy costs is now becoming a business priority.
“The most important driver for our business to pursue energy efficiency is cost management,” explains Peter Jonkers, who manages the Global Green Brewery Programme at Heineken, a Dutch brewer for whom brewing and production processes account for roughly 90% of direct energy consumption.
In many industries, the biggest source of energy use is in buildings, thought to represent about 40% of the European Union’s energy consumption. As a result, there is a strong profit motive in the construction industry to turn out highly energy efficient commercial buildings: corporate tenants want to save money on operating their offices while landlords are keen to make their buildings more competitive by lowering energy bills for tenants and offering healthier “green” office and residential spaces.
It is also shaping EU policy, too. A directive on the energy performance of buildings has, for example, prompted rules such as UK requirements that call for public buildings to display efficiency-rated energy certificates.
Alternative energy efficiency
With energy consumption concentrated in different areas for different types of businesses, the way each company approaches energy efficiency also varies.
For companies with large property portfolios, a range of technologies is available, from low-energy lighting to upgrades in air-conditioning and heating systems. Even “virtual” businesses such as online retailers or social media websites have significant property and energy footprints, because their server farms generate heat and require energy for cooling.
Among the measures taken by TelecityGroup, Europe’s largest data-centre operator, is the separation of hot from cold air in data centre aisles, making cooling more energy efficient. The company also uses technology to measure air and heat streams, allowing it to advise customers on the most energy-efficient configurations for their equipment.
Others industries are turning to alternative energies, particularly heavy industries, where the difficulty of making incremental energy cuts means renewables are by necessity part of the picture. Take cement production. Converting limestone to clinker – cement’s main component – requires raising kiln temperatures to almost 1,500 degrees centigrade. “That’s where a mix of energy efficiency and renewables make sense,” says Mr Heck.
However, renewable energy is also part of some retailers’ strategy. IKEA, a Swedish furniture retailer, aims to generate 100% of its energy from renewable sources by 2020. In the UK, supermarket retailer Sainsbury’s is using renewable technologies in its stores, including solar power, biomass boilers and biofuel generators. At the end of last year, it opened an energy efficient store in Kings Lynn to promote these technologies.
Paul Crewe, Sainsbury’s head of engineering, sustainability, energy and environment, stresses the importance of finding a strong business driver for each technology. “They need to be commercially viable in the long-term and have pay-back rates that fit within our financial business case,” he says.
At Heineken, the approach is to set individual targets – monitored and tightened each year – for its operating companies and sites. “We have very few offices that are not linked to a production site, so while these offices clearly have their own KPIs [key performance indicators], they are not where we focus our attention at this stage,” explains Mr Jonkers.
Technology, targets and alternative energy is only part of the energy efficiency equation, of course. At many companies, responsibility for powering down equipment often remains in the hands of individuals. Upgraded heating and cooling systems, for instance, are only as efficient as the facilities managers operating them. Pulling down the blinds on fridges every night can help a store to save thousands of pounds a year in energy consumption, says Mr Crewe.
To promote such activities, Sainsbury’s offers staff tips on reducing energy and provides end-of-day energy checklists. Through its Carbon Academy, it offers training on climate change and how to make energy savings in stores and at home. Meanwhile at Heineken, energy efficiency targets and key performance indicators are even integrated into employee bonus structures and incentives schemes.
Still, changing internal company practises is only the first stage. Right across Europe, companies like Sainsbury’s and Heineken are looking at energy efficiency beyond their own operations. For the more than 2,500 farmers from whom it sources, Sainsbury’s has developed a carbon footprinting tool that can cut a farm’s annual energy costs by 10%.
Heineken takes into account its power suppliers’ consumption when measuring its own energy footprint. “If we want to make serious headway in reducing our footprint, it is crucial that we have constructive conversations with our suppliers,” says Mr Jonkers.
The next challenge, in Mr Heck’s view, is for companies to tackle the third stage of energy efficiency – the energy used by a product once in the hands of consumers (such as cars, LED lighting, computers and IT devices) and what is required to dispose of it at the end of its life. “That’s relatively nascent,” he says.