Energy savings at the margins soon add up

23 February 2012

by Graeme Davies

The new secretary of state for energy and climate change Ed Davey was greeted upon his arrival in the department by a letter demanding a revision in financial support for onshore wind farms, signed by 101 Conservative MPs and a handful of supporters.

Although a change in the short term is unlikely, the weight of support among the largest party in the House of Commons was indicative of a shift in attitudes towards expensive subsidies for emissions-reduction schemes in these straitened times.

The move follows on from the government’s troubled attempt to slash feed-in tariffs offered to solar power installations which, in itself, mirrored tariff reductions enacted by governments in Germany and Italy after the notable success of their subsidy schemes.

The slashing of solar tariffs is more likely to be problematic to FM companies than any threat to wind farm support – many FMs set up subsidiaries to take advantage of generous tariffs that they could claim for fitting solar panels to social housing projects they were already working on.

But such big-ticket government gestures do not necessarily offer the best value for money. Indeed, the long-term business opportunities lie not in areas where government support makes the installation of technologies viable, but in enacting smaller, more incremental energy efficiency schemes that offer more tangible, lasting benefits.

Governments now understand that concentrating on a large number of smaller but easier wins will collectively add up to a major saving. Indeed, the Carbon Trust estimates that buildings account for 40 per cent of the UK’s carbon emissions. Thus for homeowners, the Green Deal has been devised to support energy efficiency measures, such as better insulation and more efficient boilers.

But, if the sight of office towers with all their lights blazing on a weekend are anything to go by, business premises are as big a problem. This is where the FM opportunity comes in. Not only is improving building energy efficiency a good marketing ploy for a business, in this age of carbon reduction commitments and soaring energy pricing, it can also make major financial sense.

In this respect, companies such as Mitie and Carillion from the middle tier of the UK’s FM industry may be stealing a march on their rivals, given how well-developed their energy efficiency offerings are. Mitie’s CarbonCare offering has been built both organically and through the notable acquisition of Dalkia in 2009, while Carillion’s services were boosted significantly by the acquisition of eaga.

On a much smaller scale, technology providers can also benefit from the boom in energy efficiency by selling into the FMs. A prime example here is Sabien Technology, which has, of late, rapidly grown sales of its M2G device, which helps commercial boilers run more efficiently. In the six months to 31 December, its sales grew by 32 per cent and profits by 63 per cent, albeit from low levels.
Sabien’s pipeline has risen to £9.5 million of opportunities as clients, who are primarily FMs and local authorities, catch on to the quick payback and long-term benefits its products offer. This is an example of an incremental measure, which is part of a wider programme of energy efficiency.

There are a myriad other technology providers that sell widgets and gadgets into the FM industry, some of whom will find themselves targets for larger operators who wish to bring them in house. Businesses are being increasingly ‘encouraged’ by government to improve their energy efficiency and this can only play into the hands of specialists who offer services into this area.

Graeme Davies writes for Investors Chronicle