In this article, Jodie Eaton, CEO of Shell Energy UK Limited, explores the impact of energy market volatility on the automotive manufacturing sector and explains how maximising energy efficiency and supporting long-term decarbonisation goals can be achieved in parallel.
Energy market volatility has been a defining feature of doing business in 2022. With prices reaching record rates, almost every company has felt the widespread impact of challenging global conditions – in particular, energy intensive users such as automotive manufacturing businesses who rely heavily on mains supply across their operations.
While the UK’s output has fallen behind other European nations in recent years, with component supply said to have hampered its post-COVID recovery, vehicle production is still big business. Indeed, the sector reports a total combined revenue of £82 billion, contributes more than £18.6 billion in value to the UK economy and produces more than one million vehicles every year.
There are 34 major assembly plants located in the UK, providing employment for 68,000 people and accounting for 14.4% of total UK exports – a significant proportion. Indeed, data from the European Automobile Manufacturers Association (ECEA) suggests that almost eight in every ten vehicles produced in the UK are now exported.
But figures from the Society of Motoring Manufacturers highlight that UK auto manufacturers have experienced an £90m uplift in energy bills this year, with costs surging 50%. The sector already spends £50m more per annum for energy than its EU counterparts, and is under increasing pressure to invest heavily to meet timelines for zero emission powertrain transformation.
It’s roadmap ‘From Full Throttle to Full Charge’ details why energy costs matter as it appeals to the Government to recognise it as a net-zero critical industry, noting that EVs are much more energy intensive to produce then ICE vehicles.
But while the rising cost of energy is a major consideration for manufacturers, regulation is also quickly climbing up the priority list.
While no longer strictly aligned to EU policy, the UK is still highly committed to reducing its national energy use, minimising carbon emissions wherever possible and embracing widespread decarbonisation.
Under the EU’s Green Deal, for example, businesses need to achieve carbon neutrality by 2030 – a tight deadline for many, in particular energy intensive users like automotive manufacturers. So, with regulation and market forces coming to a head in a way no-one could have predicted, how can the sector adapt? What’s more, should it be seen as yet another hurdle to overcome, or a cost-saving business opportunity?
At Shell Energy, we recognise the two business critical priorities of maximising operational efficiencies and navigating the transition to decarbonisation require intense rigour as cost and regulatory pressures make change ever more pressing.
Understand your starting point
The first stage in optimising your energy operations should be to establish your starting point. This will not only make it possible to map out short, medium and long-term goals, but also better understand the steps you need to take, how to finance them and the benefits (both financial and environmental) that they could deliver.
Technology has an important role to play here. You’ll need accurate metering; you’ll need to collect data and you’ll need to record your measurements. A detailed energy audit, an ESOS report for energy, or an SECR report for carbon are all valuable tools. It’s also worthwhile considering investing in a data analytics package.
Having access to real-time insight into energy use across your operations will highlight inefficiencies, flag areas for improvement and reveal opportunities for immediate savings.
Analyse opportunities for savings
While it might seem obvious, the cheapest kWh is always the one you don’t use. Once you have the means to measure your progress, the next step is to stop consuming energy whenever and wherever you can. If you can’t avoid energy usage, you should seek new ways to generate your own energy by investing in on-site renewable assets.
Can you move high energy processes to lower tariff times? Can you switch equipment off when it’s not being used, or change shift patterns to benefit from more daylight? Can you move production hours away from peak times to benefit from lower unit rates?
All these operational tactics to improve business efficiencies can dramatically reduce your energy consumption and reduce carbon emissions. Of course, they won’t happen overnight, but are almost guaranteed to result in notable financial savings and help your business to reduce its own carbon emissions.
Improve your asset efficiency
Next, you should consider replacing inefficient assets – a short-term spend, but a real enabler to long-term savings. Invest in smarter, more efficient plant, change out your lights for LEDs, fit the most efficient heating and ventilation systems, install a control system, update motors for more efficient models and look at the fabric or your buildings to exploit daylight use and minimise heat loss.
In short, do everything you can to reduce energy consumption in your day-to-day operations. While it will undoubtedly require up-front investment, payback will start the minute you switch on new equipment.
Leverage the opportunity of decarbonisation
Why stop there? Now you’ve eliminated unnecessary consumption and improved efficiencies across the board, it’s far easier to decarbonise what remains.
Measuring your carbon impact and considering Scope 1 (those you create through daily operations), Scope 2 (those created elsewhere, but that you directly import) and Scope 3 emissions (those you are indirectly responsible for creating – your value chain) is by far the best place to start.
To decarbonise Scope 1 emissions, businesses are already aiming to replace any hydrocarbon fuels with renewables, electrify heat wherever possible, install wind turbines and fit solar panels. To decarbonise Scope 2, work with your electricity supplier to buy carbon free, or lower carbon, power.
Scope 3 is the most challenging to tackle, but the answer lies in co-operation, teamwork and collaborating with your partners, suppliers and other stakeholders to manage your shared carbon responsibility. Ask your suppliers to report on their carbon footprint, ensure they can explain their energy usage and work together to reduce the carbon generated by doing business together.
Engaging a partner for the future
There is no single solution when it comes to optimising energy efficiency and working towards the long-term goal of achieving net-zero. Every business will therefore benefit from bringing in external expertise.
At Shell Energy, we offer a simple and reliable solution for managing your energy costs and planning your net-zero roadmap. We supply 100% renewable electricity, gas and cleaner energy options to businesses nationwide. We’re also on hand to offer a comprehensive suite of energy products and solutions for businesses and offer our own, in-house flexible financing options to help businesses make changes with confidence.
For energy intensive users, such as automotive manufacturers, the rising cost of energy will continue to impact finances for the foreseeable future. Embracing change to maximise efficiencies, while getting ahead of regulatory change, will prove pivotal in maintaining competitiveness at a time when transformation of operations across the board is critical.
To find out about Shell Energy and its integrated energy solutions offering for businesses, visit www.shellenergy.co.uk/business
About Shell Energy UK Limited
Shell Energy UK Limited, operating under the Shell Energy brand, supports British businesses with cleaner energy options. Supplying 100% renewable electricity (backed by Government certified guarantee of Origin certificates) as standard, alongside natural gas and the option of biomethane on request, Shell Energy delivers cleaner, affordable and simple solutions that help companies manage their energy spend, plan their sustainability roadmap and help to build a lower-carbon world. Shell Energy can tailor solutions to avoid, reduce and compensate emissions for UK businesses, helping them adapt to their own carbon reduction ambitions.
Shell’s global portfolio of gas, power and environmental products is designed to meet the current and future energy needs of customers, from micro business and sole traders to large commercial and industrial energy users across Britain. Shell Energy UK Limited was formed following the acquisition of Hudson Energy in November 2019 and represents an important part of Shell’s aim to build a significant global power business.
About Shell’s aim to become a significant global power business
Shell is building an interconnected power business: from generating electricity, to buying and selling it, storing it and supplying directly to customers to power homes, businesses and vehicles. Ultimately, we want to offer customers different options for cleaner energy based on their needs and location, as we lay the foundations for a flexible, sustainable business for the long term. We see power as a business that could in the future sit alongside Shell’s current offerings in oil, gas and chemicals.
About Shell Energy’s operations in the UK
Shell Energy operates via the following entities in the UK:
Shell Energy Retail Ltd: 100% renewable electricity as standard, as well as gas, smart home technology, fast and reliable broadband and access to exclusive discounts via the Shell Go+ rewards programme to home energy customers in Great Britain.
Shell Energy UK Limited: 100% renewable electricity as standard and natural gas to business energy customers in Great Britain, through a total energy solutions provision and tight-knit partnership approach. We can also source green gas and location and technology options for renewable electricity upon request.
Shell Energy Europe: Shell Energy Europe provides more and cleaner energy solutions across a global portfolio of gas, power and environmental products to meet current and future energy needs of our customers: energy producers, asset owners, traders, wholesalers and large commercial and industrial energy users.