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Why innovation is needed to finance energy efficiency

It’s environment focus week on Bdaily, and we are looking at what the low-carbon economy really means for UK SMEs, as well as picking apart the nuts and bolts of adapting business to “go-green.“ Here Simon Leggett, managing director of Light Planet, shares his thoughts on financing energy efficiency for business.

It is now widely accepted that if we are going to create a secure future we must address our relationship with energy and find ways to temper our use of it. Energy efficiency — providing the same service for less energy — is a crucial step towards improved, intelligent energy management. However, this recognition has yet to give rise to a finance model that effectively breaks down the barriers to widespread adoption of energy efficient technologies.

The role that businesses will play in this future should not be under stated. Not only do businesses have the most to gain financially, they are generally high consumers of energy with a significant environmental impact and have a unique platform to drive behaviour change and energy awareness amongst employees.

This is not currently a widespread practice however, particularly amongst SMEs. A recent report by energy giant E.On has found that just 22% of Chief Executives believe it is their responsibility to ensure that a business is energy efficient – a surprising statistic considering that a previous report revealed that energy inefficiency costs SMEs a staggering £7.7 billion a year. Companies have the opportunity to lead the way in the energy efficiency stakes, but action needs to be taken to make it easier for them to fulfil this role.

Funding presents a serious problem. Securing funds for efficiency measures such as lighting retrofits has always been a challenge, but the current economic climate is making it more difficult than ever. When a functioning (although inefficient) system is already in place there is often little will to produce the upfront investment required to replace it, particularly in straitened times. Even the energy savings and ROI that such measures offer are often insufficient to sway the balance.

The government has attempted to tackle the problem in the domestic sector by developing the Green Deal initiative, which comes into effect this autumn and will provide householders with loans to undertake energy saving measures. However, the fires of controversy were stoked when it was suggested that interest rates could see participants in the scheme repaying double the amount borrowed. Furthermore, although the Green Deal is theoretically open to business participation, details are far from clear and its “golden rule” of the charge attached to the bill not exceeding financial savings is far more difficult to calculate in relation to business properties. Unsurprisingly, it has been plagued by doubts over its practicality and projected uptake rates.

Businesses need a model that will allow them to unlock the financial savings of energy efficiency without painful upfront investment and without punishing loan terms. A potential answer is a pay-as-you-save scheme, such as that offered by LED lighting specialists Light Planet, which provides energy saving LED packages of up to £150,000 and recoups the cost directly from savings on energy bills. The potential monetary rewards for businesses are impressive and the environmental impact significant: the time has come for organisations to finally overcome the problem of energy efficiency.

Here are some other environment focus articles that may be of interest to you: carbon reporting in logistics firms; what are the benefits of electric vehicles?; we talk to a print business about why SMEs need to go green; find out how one innovative business is using ozone as a cleaning tool; what does sustainability really mean to your business?; funding support for green businesses; and a green adaptation case study.

This was posted in Bdaily's Members' News section by Simon Leggett .