Stemming The Tide – Reducing Hotel Overheads

Hoteliers need to prioritise utilities as a cost-cutting measure, advises Donald Maclean, Managing Director at Business Cost Consultants. Over the past few years hoteliers have seen the costs of electricity, gas and water soar, putting pressure on already tight profit margins.

These rises, coupled with the introduction of the mandatory Carbon Reduction Commitment (CRC), the cap and trade scheme proposed to cut carbon emissions by 1.2 million tonnes of carbon per year by 2020, will have a huge impact on hotels.

Some hotels will pass these costs on to their paying customers, but those that succeed in reducing energy costs will thrive in the increasingly competitive hotel landscape.

Hoteliers may feel everything possible has been done to rein in utility consumption and spend but there is always scope for further savings.

DON’T ASSUME BILLS ARE CORRECT

Research carried out by Glasgow-based utility consultants, Business Cost Consultants, estimates that some 80% of hotels in the UK are unaware that they are paying too much for their electricity, gas and water due to flaws in their procurement procedures and errors on bills. This can be quite significant given that utility costs, on average, account for between 5 and 10% of most hotels’ annual budgets.
Most hotels do not have the time or specialist expertise to audit their own utility bills accurately. Electricity and water bills can be quite complex. The result is that mistakes, inaccuracies and energy wastage occur with the net result that hotels pay too much for supplies. Many hoteliers are therefore turning to independent utility consultants to thoroughly check bills for inaccuracies as well as recoup any overcharges from previous years.

DON’T MISS RENEWAL DATES

It can be difficult to keep track of all termination dates and contract end dates, especially for hotels with a large portfolio of sites. However, hotels that unwittingly allow gas, electricity and telecoms contracts to simply roll over without review can end up paying as much as 15-20% more on new contracts in comparison to existing rates.

Suppliers terms and conditions are tough and generally not in favour of the customer. Usually, suppliers will require written notification to terminate an existing agreement at the end of the contract. In general, they require more than 30 days notice, but some suppliers state that they need up to 90 days notice. If this notice period is missed, the supplier can extend the contract for 1 or 2 years at a higher rate without the need for a further contract of agreement.

Therefore, it is crucial for hoteliers to know when all contracts are due to end and look into alternative suppliers well in advance of contract renewal dates. Utility consultants can manage this on behalf of hotels and ensure that there is ample time to put the supply contracts out to tender.

CONSIDER “TIME TO MARKET” – WHEN TO FIX THE PRICE OF ENERGY CONTRACTS

The electricity and gas markets are particularly volatile, and have been for the past 5-6 years – the highest price in one year can be twice that of the lowest price that year. So basically, you can go to market at a bad time and end up paying a much higher price than necessary. It is recommended you monitor the energy markets for at least 12 months before energy contracts are due for renewal. However, this will vary depending on the size of the supply – small supplies might not be able to get prices from suppliers more than three months in advance.

Many hotels, especially in this economic climate with tight resources, can lack the time to search the market for better deals. However, this is definitely worthwhile, because some suppliers may be particularly keen for certain types of business, depending on the mix of their client portfolio at that time. How you present your consumption data to potential suppliers is also important. The more detail the better, as far as suppliers are concerned.

MONITOR CONSUMPTION

Until you know how much energy and water you use you can’t measure savings. One of the best ways to monitor energy and water consumption is through smart meters or smart data loggers, which transmit half-hourly data to a central computer on a daily basis. By April 2014, smart metering will be mandatory for sites with an electricity profile class of 5-8 and sites with a gas consumption of between 732 and 58,600 MWh per annum. Many hotels with larger supplies will already have a “half-hourly” meter, but aren’t making full use of the data.

Analysis of the data will not only ensure that you are being billed correctly, but can highlight if equipment is left on overnight or if thermostat settings are wrong. Also gas and water leaks can often go undetected for long periods of time resulting in large bills at the end of a month, or a quarter. Experts can use smart data meters to automatically spot such anomalies and immediately alert the user by SMS or email.

BECOME GREENER

Due to the Climate Change Act, which has set legally binding targets to reduce carbon emissions by 34% by 2020 and 80% by 2050, the UK government has introduced a number of schemes to encourage large organisations to reduce their carbon emissions. One such scheme is the Carbon Reduction Commitment (CRC) which is due to be launched in April 2012. This scheme requires large energy users to purchase carbon credits to offset their carbon emissions. If organisations don’t purchase enough credits they will be taxed for every additional tonne of carbon dioxide produced.

It is therefore in the best interest of hotels to lower energy usage, not only to save money on their electricity and gas bills, but also to reduce their carbon emissions. Hoteliers should draw up an energy policy recommending actions on such things as recycling and how employees travel (car sharing and cycle schemes, for example).

It is worth considering buying “green energy” instead of “brown energy” through suppliers or installing an on-site source of renewable energy such as wind, solar, heat pumps or biomass boilers. It is also worthwhile considering a rainwater harvesting system which collects rainwater in large tanks which is then filtered and can be used for flushing toilets, washing hands or in production processes (e.g. cooling machinery). There are also a host of energy conservation measures which can be implemented such as boiler controls, draught-proofing, insulation, variable speed drives, voltage optimisation, power factor correction, energy efficient lighting and lighting controls. Specialist loans are sometimes available for hotels and other organisations buying and sourcing environmentally sustainable technologies.
In addition, it is possible to offset your carbon through buying trees and investing in renewables.

CONSULT AN EXPERT

There are many steps that hoteliers can take to reduce carbon emissions and reduce utility costs. The above only outlines some examples. Utility consultants can help with all of the above and more. In most cases there is no net cost as fees are taken from the savings achieved. They have access to daily market information, have years of experience dealing with suppliers and can help devise and support energy management plans making prioritising utilities as a cost-cutting measure easy.