The current energy crisis has resulted in a dramatic, never before seen, increase to the wholesale price of gas and electricity.
At the time of writing natural gas wholesale prices were between 400%-800% higher than March last year (Source OEM) – a clear indication of the extreme volatility of the energy market in times of crisis.
The ability to control energy costs and secure energy independence is now of critical importance and as legislation comes in for strategic divergence away from fossil fuels, organisations who act now will future proof their business operations against further energy shocks in the years ahead.
What caused the current energy crisis?
The energy market is complex and each country has its own dependencies on gas and electricity based on a multitude of factors. We have a nervous retail supply industry which is at the mercy of national and international events that cause uncertainty. Ultimately it’s that uncertainty that causes the volatility in the energy market.
COVID and subsequent lockdowns reduced overall demand for energy but commodity base load costs are now up 283% from March 2021 (Source OEM) as life swings back into normal. Due to decisions to reduce gas storage, countries like the UK depleted existing reserves in 2020-2021 and have since been scrambling to secure gas as energy demand increased post lockdown.
The Russian invasion of Ukraine has exacerbated the crisis as distressing global events tend to impact energy and stock markets due to the uncertainty caused. Russia threatened to switch off the gas supply; causing more market volatility and higher prices. The UK doesn’t procure much Russian gas and oil however the European reluctance to use Russian fossil fuels has meant more countries are now competing for the same non-Russian sources.
How are businesses being affected?
The impact of the energy crisis has already seen many smaller UK energy suppliers go under, this is due to being unable to produce enough credit to cover the increased wholesale costs. The cost of heating homes and maintaining buildings has increased but the impact of this energy crisis won’t just be confined to rising energy bills; financial strain and operational uncertainty is mounting for heavy industry, factories and farmers.
Overheads are higher than they have ever been and those operating in energy intensive, industrial companies are facing increasing operational difficulties and inability to price effectively. How much does a car cost if the cost to make that car increases dramatically? Any increase in the cost of production squeezes profit margins and affects the bottom line.
Energy intensive buildings with high service charges will become unattractive and harder to let
For asset managers, building owners and tenants, operating costs have soared. Like in any crisis – existing issues and problems are amplified. An inefficient building is now a very expensive building – with the energy bills to prove it. As corporate tenants look to reduce their own overhead costs, energy intensive buildings with high service charges will become unattractive and harder to let. Lease agreements could be at risk of not being renewed and without rent coming in, yields will decrease.
What action can businesses take?
Improving the energy performance of your buildings and operations should now be of paramount importance. We’ve seen how volatile the energy market can be, and even though prices will come back down, future events and the impacts of climate change will cause prices to spike again.
Building optimisation is the quickest intervention a business can take to soften the blow of future energy shocks.
Asset level intervention and having a clear view insight into energy hotspots across a portfolio will strategically inform your disposal and retrofit strategy as well as avoid energy costs and save carbon through making immediate, necessary operational changes. Building optimisation is the quickest intervention a business can take to soften the blow of future energy shocks.
Smart buildings will play an essential role in not only ensuring your buildings run efficiently but also in improving the quality and comfort of a building within the tenant engagement programme, improving occupier wellbeing. Smart buildings can extend the life of plant and equipment, saving cost and embodied carbon from replacements. They can support more targeted capital expenditure within the building, to invest in plant and equipment which meets the requirements of the building rather than being oversized, costly and inefficient.
Our experts can identify, reduce current energy usage, spend and carbon and by ongoing monitoring can quickly spot and eliminate any future energy and building operational issues. Contact our team today.