As society's expectation for lower emissions continues to impact on industrial regulations, energy use is becoming an even more critical commercial issue for many businesses in the agricultural sector.
On the ground, this is being felt through increasing climate change agreement targets set by the Department of Energy and Climate Change (DECC) and the NFU.
Glasshouse growers in particular will increasingly find themselves under the spotlight because protected crops account for a large percentage of the industry's carbon footprint.
By September 2010, growers of protected crops will have to demonstrate that they are using 20 per cent less energy per year - in terms of kW per sq m - than they did in 2004 to continue to qualify for an 80 per cent rebate on their climate change levy payments.
Target sets the bar at a higher level
This target was set at the beginning of this year and is eight per cent higher than the previous goal of 12 per cent. The scheme is a legal agreement between the industry and the DECC, negotiated by the NFU and administered by energy consultancy FEC Services. The DECC had been pushing for a new target of 28 per cent.
Some businesses have made inroads into meeting this challenge by becoming early adopters of energy-saving technology, such as thermal screens and efficient boilers. However, in the current economic climate, raising significant capital to invest in new equipment may not be feasible.
This is where the importance of energy management comes into play. The first step towards making efficiency savings has to be developing a thorough understanding of your business's consumption. This means regularly checking meters and recording readings to identify usage trends, spot anomalies and gain quality business management information.
This is fine in theory but in practice taking manual readings can be problematic and it does not always deliver the most accurate information. To help businesses in this endeavour, suppliers such as Shell Gas Direct (SGD) have introduced automated meter reading (AMR) technology.
The device is fitted to a gas meter and it communicates consumption data to the energy supplier via SMS. This is then made available to the customer through a secure website, where they can view graphical and numerical information about their gas use, compare different periods and sites and download the raw information for analysis.
For any business with a large annual energy spend, consumption data should be regarded as business-critical information. AMR allows this information to be accessed at the click of a mouse so it has huge implications for how companies approach energy procurement and budgeting.
One such business is tomato grower A Pearson and Sons. With more than 50,000sq m of glasshouses, producing 3,000 tons of tomatoes every year, energy is a significant out-cost for the Cheshire-based company.
The business is already renowned for its innovative approach to energy efficiency, having been one of the first to acknowledge the benefits of CO2 enrichment for crop production and install a combined heat and power system with CO2 extraction. AMR is its latest investment and the business has already experienced dramatic results.
Grower forecasts gas bill reduction
Pearsons partner Phil Pearson explains: "We're forecasting a saving of almost 20 per cent on our annual gas expenditure in our first year of using AMR, and that's a modest prediction."
He continues: "Our glasshouses are run with an environmental control system that automatically contacts the Met Office four times a day to prepare for incoming conditions, as well as reacting instantly to unexpected weather changes. This constant heating and cooling means that our gas consumption is very volatile.
"Before we installed AMR, budgeting for our energy use was largely guess-work. As a result, the business was exposed to additional costs for using more or less gas than we predicted.
"The information that AMR provides has given us a deep understanding of the relationship between what happens in the glasshouses and our gas use. The upshot is, we're no longer guessing - gas procurement has become educated decision-making."
AMR has the potential to completely alter the way in which a company procures its gas. In today's market, a credible supplier can develop flexible contracts that track market prices, offer fixed rates or provide a combination of the two to allow customers to purchase gas in advance.
By giving businesses a much deeper appreciation of the base load and volatility of their gas consumption, AMR allows them to work with their suppliers in an informed way to select the best contract. This minimises the risk of consuming too much or too little gas and the resultant costs and penalties.
The new insight offered by AMR enabled SGD to work with Pearsons to agree a bespoke gas contract that allows it to buy 90 per cent of its annual gas supply on a fixed cost. This has reduced its exposure to risk and opened up significant savings.
The technology also removes the need for estimated billing, replacing it with accurate invoicing that in turn allows for more precise budgeting and control at the customer's end.
The impact of AMR on energy management is profound. Tracking gas consumption in this way enables managers to monitor their energy trends and the relative success of any efficiency drive to be benchmarked, charted and its ultimate benefit judged with greater precision.
Accurate monitoring holds appeal
For businesses such as Pearsons, it is this ability to more accurately monitor their future energy-efficiency projects that they find particularly appealing.
"Ultimately, the technology is helping free-up cash flow for us to reinvest back into energy-efficiency initiatives," says Pearson. "It is also going to be invaluable in providing the data that we need to change staff behaviour and generally hone our practices to be as efficient as possible. We have been so impressed with the results that we have now installed a second AMR device in our packaging site."
TACKLING THE CREDIT CRUNCH
The global credit crisis has led to some energy suppliers seeking to reduce their exposure to risk by rethinking the credit terms they offer.
This has made it even more of a challenge for some energy-intensive businesses to secure their supply contracts.
This is an issue that suppliers and customers need to tackle together, but there are some simple steps that businesses can take to ensure that they are in the best position possible when approaching a supplier:
- Opening up a dialogue as early as possible is key. Leaving negotiations to the 11th hour, for example, will not help. By bringing finance teams to the table together early in credit discussions, all parties can ensure that their efforts focus on workable solutions to any credit problems. Wasting time negotiating the terms of a deal that could later fall through due to financial issues benefits neither party.
- It is paramount that discussions are as complete and transparent as possible, so producing up-to-date financial data is crucial. It is understandable that some businesses may be reluctant to divulge sensitive information, but any credible supplier will be happy to sign a confidentiality agreement if it means that they can be apprised of the full facts.
- This commitment to transparency needs to continue beyond a contract being signed. Giving your supplier an early warning about possible financial difficulties will raise fewer alarm bells than waiting until after a payment has fallen due. Admitting weakness is always a sign of strength and will help to ensure that your supplier is onside when negotiating.
Mike Hogg can be contacted on 0800 056 8109 or email SGD-Enquiries@shell.com.