British business identifies uncertainty over return on investment as barrier to significant investment in energy-reduction measures

Investment by British business in energy-reduction measures is in danger of grinding to a halt new research has warned. The research, commissioned by Ernst & Young, which polled board members in 250 of Britain’s leading companies, revealed that whilst the overwhelming majority of companies have invested in low-cost measures such as improved temperature controls (75%) and lighting upgrades (71%), only 12% have made investment in measures with large upfront costs such as microgeneration.

The findings indicate that many of the easiest energy-efficiency measures have already been implemented, leaving businesses with options which either require more investment, more time and confidence, or are more operationally challenging. According to the research:

• 53% had made building fabric improvements such as double glazing and insulation, whilst a further 9% plan to invest shortly;
• 52% had made upgrades to air quality including improving ventilation systems, while a further 11% were planning to invest;
• On the other hand, more costly measures are either being completely ignored or dismissed due to their perceived cost. 33% of companies haven’t even considered microgeneration, whilst 39% had considered investing but ruled it out due to it being judged not economical at this time;
• Another significant measure to reduce energy costs – changing working practices – has also been rejected in British board rooms. 19% haven’t even considered this, while 39% had rejected it on economic grounds.

Richard Postance, Advisory Partner, Power & Utilities, Ernst & Young urged the Government to act now to give businesses a clearer picture of the future: “With the grid coming under increasing pressure the Government needs to give business certainty that investing in what are perceived to be higher cost measures such as microgeneration will be worthwhile. Developments like the smart grid represent a huge opportunity for businesses to take advantage of the move towards a lower-carbon economy, but too few businesses understand what it will, or could, mean for them. Without clarity on how upgrades to the nation’s energy infrastructure such as smart grid will facilitate return on investment, business will lack the confidence and security to take the next step on reducing their energy costs.”

The research reinforces Ernst & Young’s call to action, identifying two key barriers to business making significant investment in energy-efficiency measures:

• 79% of business expressed concern over the length of time it would take for their investment to show a return. Only 3% of businesses felt this wasn’t at all significant in the decision to make an investment;
• 77% also feared the scale of upfront investment required, again only a small proportion (4%) didn’t feel this was a significant barrier to investment.

Despite these concerns over the cost of investment, British business is well aware of the precarious situation it finds itself in with regard to energy costs. 95% of those polled believed that there will be a significant rise in energy costs in the next 5-10 years. Equally, whilst 70% stated that localised energy black outs would force them to act, only a quarter felt that this was an event that was likely to arise in the medium term.

Encouragingly, the research showed that businesses were more likely to implement measures requiring significant upfront investment if they had a clearer understanding of how future energy developments like the implementation of smart grids could impact them.

”British business investment in low carbon is at a sticking point,” says Postance. Many British businesses have taken first steps, but our study shows that without greater certainty on the return on investment, they are reluctant to commit further. If UK Plc wants to remain globally competitive while simultaneously reducing carbon emissions then providing this certainty must be a priority.”