Food suppliers could bust energy monopoly of ‘big six’

12-Mar-2014 - Last updated on 12-Mar-2014 at 09:05 GMT

Generating and selling low-carbon energy to retailers could become an important revenue stream for food manufacturers and farmers

Britain’s food and drink manufacturers are missing out on potential new revenue streams now available through generating and selling low-carbon energy to retailers, alongside more traditional groceries, according to a leading environmental consultancy.

Manufacturers and farmers could become energy suppliers to the supermarkets by tapping into their unique position in generating energy from renewable sources using technologies such as anaerobic digestion (AD) and wind power, said Ricardo-AEA management consultant Paul Maryan.

“If 10% of Sainsbury’s suppliers generated a very modest amount of electricity they could more than match the whole demand of Sainsbury,” said Maryan.

“All of the retailers have done a massive amount with their supply chain to consolidate it on an environmental and sustainable basis,” said Christine St John Cox, knowledge leader for energy and carbon management with Ricardo-AEA. “What we haven’t seen is this next link to the generation of energy and actually the benefits of it are for everyone in the whole of the value chain.”

Incentive for more companies

As an incentive for more companies to get involved in this, the Department for Environment, Food and Rural Affairs has just launched a consultation on allowing firms to benefit more from their renewable energy purchases when it comes to the requirement for them to report their greenhouse gas emissions, said St John Cox.

“This kind of renewable generation that you could do within your supply chain is an ideal way of being able to report much, much lower emissions,” she said.

“The tipping point here is that low-carbon technologies are of a scale where they are very democratic – anyone can own them – so you are actually breaking the stranglehold of the big six energy suppliers by generating your own power. That’s a completely new thing and that’s the major driver in the market now.”

By working collaboratively with other manufacturers and farmers and in conjunction with third-party energy providers, firms would have the critical mass and “economies of scale” to supply the levels of energy required by retail customers through things such as AD plants and wind power, said Maryan.

“If you look across the supply chain, it’s actually got massive opportunities for energy generation that the retailers don’t have,” he added. “That supply chain is probably ideally placed to do that generation for [supermarkets]. And if you have a second trading piece [in addition to food supply] across the supply chain it will strengthen the supply chain and strengthen the rural communities.”

‘Opening their energy markets’

Maryan added: “It’s about the retailers and, even, the manufacturers opening their energy markets up to the food suppliers to be suppliers of energy to mutually benefit everyone who is in that supply chain.”

Manufacturers should be thinking more inventively about generating income from their waste streams by producing power from waste. “There is a whole lot of opportunity around anaerobic digestion to generate electricity which could be traded directly to the retailer,” said Maryan.

“There is a process called ‘sleeving’ where what you do is sell energy that you generate at point ‘a’ to a customer at point ‘b’ using the grid … If you are generating electricity and selling it wholesale, it’s about 5–6p/kWh but if you look at what a retailer is paying for energy, it’s a lot higher than that. So there is potential benefit in doing a direct trade.”

Retailers can gain an additional benefit of being able to say they are sourcing their energy from local and rural sources, said Maryan. The John Lewis Partnership has just embarked upon a similar approach, he added. “John Lewis has just decided to buy all its electricity from local suppliers.”