SMEs can do bit for energy conservation, too

This article is contributed by Chua Wen Hao, Energy Analyst with the Energy and the Environment Division, Energy Studies Institute.

Energy efficiency has been earmarked as an integral part of Singapore’s energy policy. Efficiency gains are acknowledged to be one of the quickest and most cost-effective tools to achieve various policy goals, such as improving energy security, enhancing economic competitiveness or promoting environmental sustainability. To this end, the Singapore government has announced the implementation of the Energy Conservation Act, which will introduce minimum energy management standards for large industrial energy users from 2013.

The industrial sector accounts for almost 60 percent of Singapore’s total energy consumption. As the Act applies to just companies which consume more than 15 gigawatt-hours per year, only those operating on a large scale–generally MNCs (multinational corporations)–will be affected. However, SMEs should and can be doing their bit to save energy and consume energy more efficiently. The European Union, notably France and the UK, has such policies for its SMEs, and in the US, Industrial Assessment Centres have been established with the aim of improving SME energy management.

Studies show potential savings

From a government’s viewpoint, asking SMEs to improve their energy efficiency may seem counter-intuitive as SMEs are relatively small consumers. For the same reason, the managers of SMEs may see little value in implementing energy efficiency measures due to the perception that there are limited cost savings to be achieved. However, studies and programmes carried out for SMEs in Sweden, Norway, the European Union and India have found potential savings to be in the range of 7-22 percent of the energy bill.

Some argue that the unique characteristics of SMEs mean they face different barriers to energy efficiency compared with MNCs. SMEs are frequently short on manpower, finances and time. The shortage of manpower means staff cannot take time out to look into energy management, thus they achieve poorer results in terms of energy efficiency compared with their MNC counterparts.

The lack of finances means SMEs face financial difficulties in implementing energy efficiency projects. While there are grants and incentives made available by the Energy Efficiency Programme Office in Singapore, SMEs may not be able to pursue them because they lack the time to find out more information and deal with the administrative procedures involved.

Singapore needs measures tailored to suit the unique needs of its SMEs. In its 2008 publication on Energy Efficiency Policy Recommendations, the International Energy Agency (IEA) called for a package of policies and measures for SMEs, including easily accessible energy audits, benchmarking information, provision of high quality and relevant information together with appropriate incentives.

Singapore SMEs a substantial workforce

Singapore’s SMEs, defined as businesses with annual sales turnover of not more than S$100 million, contribute significantly to the economy, employing nearly six in 10 workers and generating almost half of the value added from all enterprises. Manufacturing SMEs, while constituting only 5 percent of total SMEs, generated 17 percent of SMEs’ total value-added in 2007.

For SME clusters within sectors that are homogeneous, policies which target individual sectors would be applicable to all companies and hence make for cost-effective implementation. A 10 percent savings in SMEs’ energy bills would definitely help the economy as a whole become more competitive, especially if the savings are passed on to consumers.

Indeed, most SMEs function in a highly-competitive environment and many are suppliers to foreign transnational companies, which make them likely to be price-takers.

Energy intensities

While it is true that SMEs generally have lower energy costs, energy costs alone are not reflective of the potential for efficiency measures. Thus, we ought to look at indexed measures such as energy intensity. It is significant that the energy intensities of SMEs involved in paper production, printing and the manufacture of electrical machinery are comparable to those of MNCs. SMEs in these sectors should not be neglected and specific policies could be targeted at them.

In fact, SMEs have an advantage over MNCs when it comes to decision-making with respect to the adoption of energy efficiency measures. Their smaller size–they are often run by one or a few individuals–means they can make informed decisions quickly without the multiple levels of bureaucracy and red tape faced in larger corporations. With this flexibility, SMEs can implement efficiency measures and achieve cost savings very quickly.

A bigger holistic energy picture

At this point in time, the potential for energy efficiency gains in Singapore-based SMEs is unknown. Technical, financial, organisational and information barriers have prevented many companies from implementing energy efficiency measures thus far. Moreover, the heterogeneous nature of SMEs across different sectors poses a challenge to policymakers.

Singapore’s SMEs face a highly competitive environment. Thus, measures that enhance their financial survivability can benefit not only themselves but also the economy as a whole and must be given serious consideration. From both micro and macro perspectives, it is feasible to pursue SME energy efficiency gains in Singapore. Indeed, from any government’s perspective, helping SMEs improve their energy efficiency should be a part of a holistic energy policy aimed at enhancing national economic competitiveness and energy security as well as promoting environmental sustainability.

Source: Energy Studies Institute

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