Energy focus can save profits
2 min read
13 November 2007
Energy is one of the most risky items you’ll manage, says Peter Webster, director of the climate change team at energy consultancy Utilyx.
“For one company I know, energy accounts for two per cent of the budget. But profits are only two per cent. If energy costs double, that company’s profits disappear,” he said.
Webster says there are ways you can mitigate your energy risk. “The first one is making your own renewable energy. It’s surprising how easy it is. We’re putting up a very large wind turbine outside one company’s headquarters, which fortunately happens to be in a windy place.
“I’m working on another company that produces a lot of waste food through its processing facility. They’re gasifying that waste and turning it into fuel and electricity. That is a very good investment as far as they’re concerned as there is a high rate of return.”
If you don’t have the facilities to create your own energy, Webster advises fixing the price.
“FDs should focus on looking a lot further forward on energy and specifically carbon. Look at the oil price headlines. These are wake-up calls to say ‘let’s make a strategic decision’.
“Energy is part and parcel of what you do and you can’t do without it. Why not buy energy now for 20 years ahead? Think further forward because if you don’t, you’re at the mercy of the market, which could become incredibly volatile.
“Energy may be a small part of your total turnover but variations in the price of energy are very significant when it comes to the amount of profit a company makes.”