The price of power

16 October 2008
The price of power

Fuel bills have rocketed in the past year, and while you could shop around between various suppliers to find the best option, it's frequently a choice between very expensive and even more so. Until recently the industry has been held back from taking greener options by the cost of new equipment, but Katie Puckett finds that the sums add up to taking a different approach now

To its guests, the Nare hotel at Veryan-in-Roseland, Cornwall, presents a staunchly traditional front, with daily cream teas and ties preferred for gentlemen in the dining room. But behind the scenes it's a pioneer, one of a handful of establishments breaking new ground to solve a very 21st-century problem. Only if they venture down to the seafront and squint directly back towards its beach huts will they notice 20 solar slates glinting in the sunlight, which, between them, generate enough energy to heat the Nare's water to 60°C before it even reaches the boilers.

Proprietor Toby Ashworth is one of a growing number of hospitality operators who are turning to alternative sources of energy to beat the spiralling costs of fuel. He spent about £20,000 installing the solar slates on the beach huts and on other south-facing spots on the hotel buildings when he replaced his two old boilers last winter, on the basis that they would pay for themselves within five or six years.

But the volatility of oil prices has already halved that - in the past two months he's saved 1,650 litres of oil, worth £6,500. "It's all behind the scenes, guests don't even see. If you incorporate these things as you do refurbishment, it doesn't have to cost a lot. Our boilers were as efficient as they could be, but they were never going to pay for themselves, as we had to keep pouring oil into them."

With an annual energy bill of more than £1b, the hospitality industry is particularly vulnerable to price rises. Fuel used to be an accepted, and often overlooked, cost of running a business, like rent or rates, but now it's one of the most pressing challenges managers face. Since April 2003, electricity prices have more than doubled and gas prices have nearly tripled, and the market is so volatile that businesses renegotiating their contracts have only hours to snap up deals before they're withdrawn and the rates go up even more.

Energy efficiency was a foreign concept just a few years ago now it's an essential survival skill. Many companies have started to examine exactly where electricity, oil and gas are leaking out of their businesses, and they've begun to plug the holes. But others, like Ashworth, have taken it a step further and invested in the technology that will allow them to generate their own fuel from nothing.

At a very basic level, the Carbon Trust estimates that hospitality businesses waste £540,000 a day through poor housekeeping, and that they could cut their bills by 16% straight away with minimal effort and investment.

Dominic Burbridge, hospitality sector leader at the Carbon Trust, recommends that managers start by setting reduction targets over three to five years and invest in better metering of their power use. "You start to see where you're wasting power. Outside of opening or cleaning hours, loads should be very low, and if they're not, something's wrong."

Some energy-efficiency measures cost nothing, such as talking to staff and asking them to switch off lights or appliances when they're not using them. "People tend to turn everything on when they arrive in the morning, but there isn't a single customer yet in the restaurant. This doesn't cost it's just good housekeeping," says Burbridge.

Then there are a series of low-cost investments that he reckons will pay for themselves in less than two years, such as better insulation, low-energy or motion-sensitive lighting fixtures, and more sophisticated controls for ventilation and heating. "For example, with the smoking ban, there's no longer a requirement to change all of the air in a building so frequently. Your ventilation system can be modified to use less energy while still providing a pleasant environment."

That 16% is a start, but it's not enough to remain profitable in the face of rising costs in every area of a business. At Michelin-starred City restaurant 1 Lombard Street, executive chef Herbert Berger has seen his food bills rise by 15-20%. He just signed a new three-year electricity contract, taking his annual bill from £7,000 to well over £15,000, but he can't afford to pass any of that on to his customers. Situated right next to the Bank of England and dependent on a healthy, and hungry, financial sector for his 500 covers a day, Berger is feeling vulnerable. "With the crisis in the City, we're not in a position to pass on any of the price rises at the moment. We have to manage better and control it. We've got 36 heat lamps burning 300-500W each that used to be on all day, but now we are much more aware about switching off everything that we don't need."

But he feels there is a limit to the savings he can make within a listed building and without making drastic changes to the fittings he installed only 10 years ago. Berger would like to incorporate technologies to recycle the heat from the extraction system, for example, but a refit would be prohibitively expensive.

Across Britain, many hospitality businesses are in the same position. Renewable sources of energy such as solar panels, wind turbines or biomass boilers may make a valuable contribution towards fuel bills, but retrofitting them to existing buildings still doesn't stack up. David Clarke, chair of the voluntary industry body Catering for a Sustainable Future, and a catering design consultant at CDIS-KARM, says that most firms aren't prepared to make investments they won't recoup within five years. "If you can recover the costs in three years, most people will act on it straight away. Four, they're a little more hesitant five probably. After that, it's a no."

Most renewables do still fall into this five-year-plus bracket, but they are becoming more viable by the day. According to consultancy Carbon Descent, which offers free advice to hospitality businesses in London through its Greener Food programme, back in April 2003, a 140-suite hotel in London installing a 5MW wind turbine in April 2003 would have expected to wait 66 years for it to generate enough power to pay for the initial outlay. But today's prices have slashed that to 29 years, and from next April, when utility companies will be encouraged to buy renewable energy from microgenerators, it could be as low as 18.

For the same hotel, the payback period for solar photovoltaic (PV) panels has also dropped from 138 years to 37, and for solar thermal heating from 47 to 17. As Carbon Descent's managing director Chris Dunham points out: "Every time prices double, the payback period for renewables halves. It's definitely still worth doing it even if the overall contribution is small."

Those payback periods are still unlikely to convince some of Clarke's caterers, but a combined heating and power (CHP) system, which makes use of the heat produced during electricity generation, might look more attractive. Recent price rises have cut the payback period for an investment of about £100,000 to four years at today's prices and, in the admittedly unlikely instance that there is surplus energy to sell on, to just two.

You can reduce payback periods further by taking advantage of an interest-free loan from the Carbon Trust. It also offers a free carbon footprinting and implementation service to businesses than spend between £50,000 and £1m on energy a year.

Burbridge says there are other factors that can contribute to the business case, including several regulatory "sticks". Larger companies that spend more than £500,000 a year on energy will be required to monitor and reduce their usage under the Department for the Environment, Food and Rural Affairs' Carbon Reduction Commitment, which begins in April 2010.

The EU's Energy Performance Certificates (EPC) scheme has also just come into force, the equivalent of home information packs for non-domestic buildings. Burbridge suggests that buildings with poor efficiency will be less attractive to prospective buyers or renters. "All of this is good business sense. It's future-proofing you, and it's an opportunity to increase the intrinsic value of the business," he says.

Burbridge also thinks there will be intangible reputational benefits for businesses that spot the opportunity to differentiate themselves. "At the moment the focus is on regulation and efficiency, and people don't fully understand the reputational benefits," he says. "There's increasing consumer awareness of the impact of their choices on the environment. Renewable energy is a demonstration of your commitment."

At Down Hall Country House Hotel in Hertfordshire, general manager Sean Quinney has already noticed new custom as a result of its "Going Green" strategy. Since January, Quinney says it has invested £100,000 to take the 100-bedroom hotel towards carbon neutrality, including £50,000 on a fruit and vegetable garden and £20,000 on a brand-new Toyota Prius.

"There's a very clear business case to go green," says Quinney. "My business is 70% residential conferences, and the majority comes through conference agents. More and more agents are now asked to find places with green policies. We've had two small-scale events come to us because of that in the last couple of months, and we've only just started putting it out there. There will come a point when blue-chip companies won't be allowed to visit hotels that don't have these things in place, because it will contravene their own environmental policy."

On top of a 20% rise on his electricity deal in April, Quinney took an extra 8p-per-unit hit to guarantee that all its power comes from renewable sources, but the bills have remained roughly the same through greater energy efficiency.


In August he took advantage of an interest-free loan from the Carbon Trust to install a transformer to his electricity supply to reduce the voltage and, therefore, consumption. "When you get electricity from the mains they give you more voltage than you need. Everything is supposed to work on 240V, but you don't need that. You can't tell the difference at all. This cost £27,000, but it will save up £1,300-£1,400 a month, so it's less than a two-year payback."

But when he looked into renewable energy, Quinney says it just didn't make financial or practical sense. For example, he's about to replace three old boilers and looked into getting wood chip-burning versions instead, but they would cost more than 20 times the most efficient conventional models - £250,000 compared with £10,000-£12,000.

"We wanted to become a green business, but not at all costs," he says. "It's just not viable for a business of this size. We'd be talking about five tonnes of wood pellets a week, and we'd have to store them - without all the space the boilers take up."

Quinney also looked at harvesting rainwater to flush Down Hall's toilets, but found that it was too expensive to retrofit. "It would be pennies to install in a new-build, but here it would cost £1m but save only 20% of our bill."

However, Ashworth thinks the industry should stop worrying about getting all its money back. "It's completely irrelevant. There are very few things in this hotel that I get payback from. Boilers don't provide any - you just pump oil into them.

"When you buy a new car, you don't carry out that sort of calculation. If you were looking at a vehicle that cut petrol costs by 10%, you wouldn't think twice about snapping it up."

What's the payback?

ScenarioPrice per kWhPayback period (years)
ElectricityGasWindSolar PVSolar thermalCHP
Using April 2003 energy prices5.3p1.4p66138478
Using current energy prices, without claiming any ROCs12p3.8p2961174
If generator claims back ROCs under current scheme16p3.8p2246173
If generator claims back ROCs under scheme from next April20p3.8p1837172
Note 1 The payback period for wind installations is heavily dependent on average wind speed. This payback period has been calculated assuming a 6m/s average wind speed. Note 2 Payback periods have been calculated assuming no grant funding. It is possible that a project would be eligible for grant funding, which would decrease the payback period accordingly. Note 3 An ROC (Renewable Obligation Certificate) can be obtained from Ofgem, and allows for payment from utility providers when you supply them with surplus energy. Gas versus electricity
78-bedroom hotel458,00713.58p£62,197.351,103,7553.78p£41,721.94
Small restaurant42,43814.77p£6,268.09174,7623.93p£6,868.15
The Longmynd hotel Lee Chapman can congratulate himself on a business decision well made. The wood-fired boiler he has installed to heat his 50-bedroom hotel is generating heat for half the price of oil, and he calculates it will now pay for itself within five years, rather than 10. The Longmynd hotel in Shropshire used to spend £37,000 a year on oil and gas for heating and hot water, but last September Chapman took out an interest-free loan for £60,000 from the Carbon Trust and spent £150,000 to replace his four old boilers with a 150kWh wood-fuelled heating system. "My view is that, generally, the Government takes a carrot-and-stick approach. It starts with the carrot, and if you don't take an opportunity in the early days, it turns into a stick," he says. "I think sustainability is going to become increasingly significant, and there will come a stage when the industry and individual businesses are called upon to account for their carbon footprint." Even with Chapman's shrewd prediction that oil prices weren't likely to come down, the wood boiler was still a gamble. "In this country, at this kind of establishment, they're largely untested. There wasn't a great number of installations I could go to look at." Chapman had heard that wood-chip boilers were most efficient when they were used steadily all day, and were prone to break down - hardly suitable for a hotel with peaks of demand. Even his plumbing consultants were unsure. Since the switchover, though, the system has worked fine, and Chapman says guests are none the wiser. Included in the initial outlay was a plate heat exchanger, a contraption no larger than a briefcase that heats water on demand. "I was very sceptical when they first showed it to me, but it works. I don't store hot water now. I used to have two enormous tanks, 8ft tall by 4ft diameter, full of hot water all the time - imagine how much that was costing me." Chapman doesn't have to worry about buying and storing his wood pellets, as he pays by the amount of energy he uses. He has signed a 12-month contract with a local company that delivers every two or three weeks to keep the system well stocked. In the past year the hotel has used 130 tonnes of wood, which worked out as 3p per kWh - half what he would pay for oil, and three-quarters of the gas equivalent. But he accepts he won't know the real saving for some time. "It would be very difficult to work out what it would have cost me. I don't know unless I do the equation every month. I do know it's more efficient, and I'm not paying 65p a litre for oil, because I don't use it." The Longmynd Hotel, Church Stretton, Shropshire SY6 6AG. Tel: 01694 722244.   Â
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