Small Business Sustainability: Energy Cost Control and Renewable Solutions in a Changing World
Energy costs have risen in recent years, impacting businesses worldwide. These increases can be particularly challenging to manage for small businesses with already-tight budgets. In this blog post, we’ll explore the impact of rising energy costs on small businesses, the reasons behind the increase, and alternatives to fossil fuels that businesses can consider, including the use of new technologies.
Impact of Rising Energy Costs on Small Businesses:
The impact of rising energy costs on small businesses can be significant, as they often have limited resources to manage such expenses. Small businesses may have to cut back on other expenses, including employee salaries and benefits, to compensate for the increased energy costs. In some cases, this can lead to decreased profitability, lower investment in growth, and potentially even the closure of the business. As a result, small business owners must take measures to control and reduce energy costs to stay competitive in the market.
For instance, a small business in the United States spends around 4-5% of its budget on energy costs, whereas, in the United Kingdom, it can go up to 10-12%.
The table below shows some more countries and the energy cost spent levels.
Country
Percentage of energy cost
USA (4-5%) – UK (0-12%) – Australia (6-7%) – Pakistan (12-14%) – South Africa (12-15%) – Brazil (8-9%) – Mexico (10-11%) – Nigeria (15-17%).
Reasons Why Energy Costs Increased in Recent Years:
Global Conflicts and Natural Disasters:
Global conflicts, such as the ongoing conflict in Ukraine, and natural disasters, such as hurricanes and floods, have disrupted oil and gas supplies in recent years, increasing energy prices.
The Ukraine conflict significantly impacted energy costs globally, particularly for natural gas prices. Ukraine is an important transit country for Russian gas exports to Europe, and the conflict between Ukraine and Russia disrupted the flow of natural gas supplies to the continent.
The uncertainty and geopolitical tensions surrounding the conflict caused concerns about potential supply disruptions, which led to increased demand for natural gas storage and hedging activities. As a result, natural gas prices experienced volatility and periodically rose throughout the conflict.
Additionally, the sanctions imposed on Russia by Western countries in response to the conflict also had an impact on energy prices. Russian companies, including those in the energy sector, were subjected to sanctions that limited their access to international financing and technology. This constrained their ability to develop new oil and gas fields, leading to reduced global supply and higher prices.
Furthermore, the conflict also affected the European Union’s energy security policy, leading to increased efforts to diversify energy sources and reduce dependence on Russian gas. This involved investing in renewable energy, developing new gas pipelines, and expanding liquefied natural gas (LNG) imports from other countries.
Overall, the Ukraine conflict significantly impacted energy costs globally, highlighting the geopolitical risks associated with energy dependence on a few dominant suppliers and the importance of energy security policies.
OPEC Policies:
OPEC, or the Organization of the Petroleum Exporting Countries, plays a crucial role in the global energy market as it controls a significant proportion of the world’s oil supply. OPEC’s policies can significantly impact energy costs globally, particularly on the price of crude oil. When OPEC decides to decrease its oil production, it reduces the supply of oil in the global market. This reduction in supply can lead to an increase in oil prices due to the increased competition among buyers for the limited supply of oil. Conversely, when OPEC decides to increase its oil production, it increases the supply of oil in the global market, leading to a decrease in oil prices.
OPEC’s decisions can also impact the global energy market indirectly. For instance, if OPEC decides to cut oil production, it can trigger an increase in the price of other forms of energy, such as natural gas or renewable energy sources, as consumers and businesses seek alternative energy sources. Additionally, OPEC’s policies can influence the investment decisions of oil and gas companies globally. If OPEC signals a decrease in oil production in the future, it may lead to reduced investment in oil and gas exploration and production, which can further constrain global supply and drive up prices.
Overall, OPEC’s policies can have a significant impact on energy costs globally, and its decisions are closely watched by energy markets and policymakers alike.
In 2021 and 2022, OPEC and its allies implemented production cuts in response to the COVID-19 pandemic and concerns over global oil demand. These production cuts led to a reduction in global oil supply, which, combined with an increase in demand as the global economy recovered, led to an increase in energy costs, particularly for crude oil. In October 2021, Brent crude oil prices reached a three-year high of $80 per barrel, and in February 2022, prices surpassed $90 per barrel, their highest level in four years. The impact of these production cuts on energy costs demonstrates the significant influence that OPEC and its allies have on the global energy market.
Increase in Renewable Energy Costs:
While renewable energy costs have been decreasing in recent years, the initial investment required to set up renewable energy infrastructure can be high, leading to an increase in energy costs. In 2020, the cost of solar power increased due to supply chain disruptions caused by the pandemic, further contributing to energy costs.
Inflation and Currency Exchange Rates:
Inflation and fluctuations in currency exchange rates can impact energy costs, as many commodities, including oil and natural gas, are traded in US dollars. In 2021, the inflation rate in the United States increased to 7%, the highest in four decades, contributing to the rise in energy costs.
By understanding the reasons behind the increase in energy costs, businesses can take steps to mitigate their impact on their bottom line.
Green Energy
Green energy, also known as renewable energy, is becoming increasingly popular worldwide due to its environmental benefits and the need to transition away from fossil fuels. Here are some additional details on different sources of green energy:
Solar Energy
This is energy derived from sunlight using solar panels. Solar energy is the most abundant renewable energy source on Earth, and it has the potential to power the entire world several times over. Germany is one of the countries leading the way in solar energy, generating around 8% of its total electricity from solar power.
Wind Energy
This is energy generated from the wind through the use of wind turbines. Wind energy is another popular form of renewable energy and has the potential to power many homes and businesses. Denmark generates around 50% of its electricity from wind energy, making it a global leader in this area.
Geothermal Energy
This is energy generated from the heat of the Earth’s core. Geothermal energy is commonly used to heat homes and buildings in countries such as Iceland and the United States. Iceland generates nearly 100% of its electricity from renewable sources, with geothermal energy accounting for around 25% of its total energy production.
Hydro Energy
This is energy derived from moving water, such as rivers and oceans. Hydro energy is one of the oldest forms of renewable energy and has been used for centuries to power mills and other machines. Norway generates around 98% of its electricity from renewable sources, with hydropower accounting for a significant portion of its total energy production.
Biomass Energy
This is energy derived from organic matter such as wood chips, plant waste, and agricultural waste. Biomass energy is becoming increasingly popular as a source of renewable energy, especially in countries such as Brazil, which generates around 40% of its total energy from biomass.
Now let’s look at some country-specific data:
China
China is the world’s largest emitter of greenhouse gases but also the largest producer of renewable energy. China generated around 28% of its electricity from renewable sources in 2020, with hydropower accounting for the majority of this energy production.
Germany
Germany is a global leader in solar energy, generating around 8% of its total electricity from solar power. The country also generates significant energy from wind and biomass sources.
India
India is rapidly expanding its renewable energy sector and is on track to achieve its goal of generating 40% of its total electricity from renewable sources by 2030. The country is currently the world’s third-largest producer of solar energy.
United States
The United States generates around 11% of its total electricity from renewable sources, with wind and solar energy accounting for the majority of this production. The country has set a goal of achieving net-zero emissions by 2050.
Brazil
Brazil generates around 40% of its total energy from biomass sources, such as sugarcane and wood chips. The country is also a significant producer of hydropower and has one of the world’s largest renewable energy sectors.
Overall, green energy is a rapidly growing sector worldwide, and there is still a lot of untapped potentials for businesses and individuals to switch to renewable sources and reduce their carbon footprint.
Controlling or Reducing Energy Costs Strategy
There are several strategies businesses can use to control or reduce their energy costs. These include:
Conducting an energy audit
An energy audit is a comprehensive assessment of a building’s energy consumption, including electricity, heating, and cooling. This audit helps businesses identify areas where energy consumption can be reduced, such as inefficient equipment, air leaks, or outdated insulation. After identifying these areas, businesses can take action to improve energy efficiencies, such as upgrading to energy-efficient lighting and appliances.
Upgrading to energy-efficient lighting and appliances
Energy-efficient lighting and appliances consume less energy, resulting in lower energy costs. LED bulbs, for example, are much more efficient than traditional incandescent bulbs and can save up to 75% on lighting costs. Similarly, energy-efficient appliances such as refrigerators, air conditioners, and water heaters can also save a considerable amount of energy.
Using smart technology to monitor and optimize energy use
Smart technology, such as smart thermostats and lighting controls, can help businesses monitor and optimize their energy use. These devices can automatically adjust temperature and lighting based on occupancy, reducing energy consumption when a room is empty. Smart technology can also help businesses identify areas where energy consumption can be reduced, such as identifying when energy is being used during off-peak hours.
Implementing renewable energy solutions
Renewable energy solutions like solar panels or wind turbines can provide businesses with a sustainable source of energy and help reduce energy costs over the long term. Although the initial investment may be significant, the long-term benefits can be significant, including lower energy bills, reduced reliance on the grid, and reduced carbon footprint.
Negotiating with energy suppliers for better rates
Businesses can negotiate with energy suppliers for better rates, which can help reduce energy costs. This can be done by comparing rates from different suppliers and negotiating a better rate based on usage and demand. By doing so, businesses can potentially save money on energy bills and reduce their overall energy costs.
Overall, these strategies can be effective in helping small businesses control or reduce their energy costs. Businesses can save money and reduce their carbon footprint by identifying areas where energy consumption can be reduced, using energy-efficient technology, and implementing renewable energy solutions.
Use of New Technologies and Reduction in Energy Cost
Artificial intelligence (AI) and machine learning (ML)
AI and ML can be used to optimize energy usage in buildings and factories. These technologies can analyze energy consumption patterns and make real-time adjustments to reduce waste. For example, AI can analyze data from sensors that monitor temperature, humidity, and occupancy to optimize heating, ventilation, and air conditioning (HVAC) systems.
Internet of Things (IoT) devices:
IoT devices can be used to monitor and control energy use in real-time. These devices can be integrated into building automation systems to provide real-time data on energy consumption. This data can then be used to optimize energy usage and reduce waste. For example, smart thermostats can be used to adjust temperature settings based on occupancy patterns automatically.
Energy storage solutions
Energy storage solutions like batteries can be used to store excess energy generated by renewable energy sources such as solar panels or wind turbines. This stored energy can then be used during times when energy demand is high or when renewable energy sources are not generating enough energy. This can help businesses reduce their reliance on traditional energy sources and lower energy costs.
Energy-efficient building materials and designs
Energy-efficient building materials and designs can help reduce energy consumption in buildings. For example, buildings can be designed to maximize natural lighting and ventilation to reduce the need for artificial lighting and HVAC systems. Energy-efficient building materials like insulation and windows can also help reduce energy loss and improve energy efficiency.
Today Energy Cost control is tomorrow’s profit
“Today Energy Cost control is tomorrow’s profit” suggests that by managing and controlling energy costs today, businesses can reap long-term benefits and generate profits in the future. Here are some potential ways that this could happen:
Cost Savings
By implementing energy-saving strategies, businesses can reduce their energy consumption and save money on their energy bills. This could include measures such as upgrading to energy-efficient lighting, using smart thermostats to regulate heating and cooling, or installing insulation to reduce heat loss. These cost savings can be reinvested into the business or used to improve the bottom line.
Improved Efficiency
Energy efficiency can improve a business’s overall efficiency, making it more productive and competitive. For example, using energy-efficient equipment can reduce downtime and maintenance costs, while efficient heating and cooling systems can create a more comfortable working environment for employees. This improved efficiency can translate into higher profits and a more successful business in the long term.
Positive Public Image
In today’s world, consumers are increasingly conscious of the environmental impact of their purchases. By investing in green energy and reducing their carbon footprint, businesses can improve their public image and attract environmentally conscious customers. This can lead to increased sales and revenue in the long run.
Regulatory Compliance
As governments around the world continue to introduce environmental regulations and taxes, businesses that invest in green energy and energy-efficient technologies will be better positioned to comply with these regulations and avoid potential penalties. This can help businesses avoid legal and financial risks and improve their long-term profitability.
By controlling or reducing energy costs, businesses can improve their financial performance today and position themselves for long-term success. Investing in green energy and new technologies can help businesses stay competitive, attract customers, and improve their bottom line in the long run.