Cutting fuel demand is energy well spent

This article by Shaun Kingsbury, Chief Executive of the UK Green Investment Bank, first appeared in The Times in March 2014.

Last week the Chancellor dedicated his budget to 'makers, doers and savers'. At the heart of it was a commitment to lower energy costs for our most energy intensive industries. The types of industry that is so important to the UK economy and our recovery. Industries like food and drink, chemical production, ceramics and glass, cement and iron and steel.

The cost of energy, and the volatility in its price, is a major business concern that goes to the heart of the global competitiveness of these industries and the UK economy.

There are two ways to tackle this concern: cheaper energy and using less energy.

The Chancellor's £7bn package to reduce energy bills aims at the first of these. We want to augment it by helping firms aim at the second; using less energy.

This is basic housekeeping and good business sense. As businesses, the best pound we can spend is often the pound used to reduce our demand. It's an investment that pays back quickly and lasts forever. It's an investment in efficiency and productivity.

We're in a position of strength in the UK. Our industry is already less energy intensive than those based in our competitor countries. We've made good progress cutting our energy use, but that progress is slowing. And industry's energy demand continues to grow, not fall - the ultimate benchmark of success. We can do better. Studies show that we could cut the energy use in our industrial and manufacturing sectors by up to a further 20%, taking around £2bn off these companies' energy bills each year.

Energy efficiency technologies can be used to improve industrial processes such as pumps, refrigeration and heating, motors and how we use water. They can be used to generate heat and electricity on-site, often using renewable fuel sources. And small changes like a switch to low-energy lighting can add up quickly. We recently helped NCP to change all the light bulbs in their 149 car parks to low energy, saving themselves 65 per cent on their energy bill.

We don't have to look far for examples of good practice like these. Organisations like Unilever, Nestle and Marks & Spencer have led the way through their UK operations. And it doesn't have to be large multi-national companies. We recently helped Bernard Matthews install 179 renewable energy boilers in their turkey farms, helping them towards their target of sustainably generating 100% of their own energy. In the whisky industry we are working with a number of distilleries, helping them lower their costs and reduce their risks. Our first project at Tomatin distillery, just south of Inverness, cut the cost and carbon emissions of producing the single malt that's exported to 40 countries.

In policy terms, energy efficiency is a critical part of dealing with our energy trilemma. Over the past six months we've wrestled with each arm of it. Since last autumn the focus has been on household energy bills. The winter floods brought a renewed focus on climate change and the importance of decarbonisation. And the international events of the past few weeks have reminded us of the importance of improving our energy security. Reducing energy demand addresses all three challenges. It's not a panacea - on its own it won't be enough to solve our energy challenges - but it will make a real difference.

There's not a lot any industry or individual company can do to change the price of energy or its volatility. Last week, those who use most energy got some respite; they must use that time to make the changes that will reduce their costs well beyond the Chancellor's commitment for the rest of the decade.

The organisation I lead, the UK Green Investment Bank, has been given a mandate by the Government to help private and public sector organisations rights across the UK to improve their energy efficiency. We are working with them to help finance the investments that will cut their bills.

We have ring-fenced £400m to be used over the next two years to back non-domestic energy efficiency projects in the UK. Our experience shows that these investments can be made with little or no upfront cash outlay by the company, as we can fund the upfront capital costs.  Repayments of these capital loans can be more than covered by the expected energy cost savings. Investments can be paid back in as little as two years and we have the ability to provide long term finance for more ambitious projects.

The Chancellor has created some breathing room for our most energy hungry businesses. This creates a golden opportunity to use that time to bring about a revolution in our industrial practices. The UK is well placed to become a world leader in this area - a tremendous boost to industrial efficiency, productivity and employment in these industries and our wider economy. We, at the UK Green Investment Bank, have the expertise and capital to help make that happen.