To be reliant on costly fossil fuels is the last thing struggling retailers want, but is renewable energy a feasible solution to soaring bills?

As retailers find themselves staring at another pile of astronomical utility bills, the idea of tapping into the earth’s natural resources for fuel sounds like an appealing solution.

Indeed, it’s an option that many retailers – Marks & Spencer, Tesco, the John Lewis Partnership and Sainsbury’s, to name a few – are employing within their businesses. But once you delve a little deeper into the logistics of switching to renewable sources, it quickly becomes clear why so few businesses have yet to make the move.

Natural sources such as wind and sunshine may be free, but it’s costly either to produce your own energy from them, or buy it from others who do. One option is to purchase it from a renewable operator, but this costs more than traditional forms of energy. As John Lewis Partnership corporate energy and environment manager Bill Wright says: “There is intense competition for electricity from green sources, which is driving the price up.”

As much as possible, the partnership procures green electricity directly from suppliers such as wind farm operators and hydro schemes. In Southampton, it sources heat from the local geothermal district heating scheme, which is energy derived from heat that occurs naturally underground. Its Waitrose branch in Rickmansworth is indirectly powered by energy from tomatoes – the heat generated by units used to feed tomatoes at two farms is used to drive an electricity turbine. “This electricity is fully sustainable and meets all the branch’s electricity needs,” says Wright.

Another option is to generate renewable energy on site, but the investment required to buy the kit and fund any planning costs usually takes somewhere between 10 and 20 years to pay back. To put that cost in perspective, last year Tesco invested£86 million on energy efficiency and renewable energy. It plans to spend£12 million alone on developing renewable energy on site at its distribution centre in Goole, Yorkshire.

A Tesco spokeswoman says that investing in generating its own renewable energy is a priority. “Our view is that it’s not enough to be burning what little renewable energy is available. To move to a low-carbon economy there has to be significant investment in generating our own,” she explains.

Selling back to the grid

It’s also simpler when you have Tesco’s scale. It has sufficient stores and distribution centres in rural locations to build large-scale turbines without running into too many planning permission problems. It has just secured planning consent for two large wind turbines at its Daventry distribution centre. Both are 90 m tall and each will generate 800 kilowatts of power at its peak – enough to power one of Tesco’s superstores. The spokeswoman says that payback on large turbines can be as quick as five years.

However, for smaller retailers – the majority of whose stores are in inner-city locations – it is far more difficult to create energy on site. Chris Davenport, corporate manager for energy and environmental services at energy management consultancy McKinnon & Clarke, insists that more needs to be done by the Government to make the use of renewable energy more economically viable for businesses. On the Continent – most notably Germany – there is a “feed-in tariff” (FIT) system in operation. Companies can, as Tesco does, sell excess renewable energy back to the grid. But the key difference is that FITs offer to pay them guaranteed prices that are far greater – as much as 10 times more than what would be paid to buy from the grid – thus significantly speeding up the return on investment.

Davenport says: “Germany uses the most renewable energy in Europe, so you can see the significant differences that feed-in tariffs can have.” Ultimately, argues Davenport, renewable energy needs to be cost-effective so that switching to it is more than just the result of a CSR decision. “It is something that the Government needs to be lobbied on,” he says. Wright adds that the John Lewis Partnership would welcome an FIT scheme. “We would like to see more availability of green power at a competitive rate,” he says.

In the meantime, the incentive for retailers to switch to renewable energy continues to be largely based on their CSR agenda, rather than financial reasons. Wright says: “We believe that using electricity from green sources provides a more sustainable alternative to burning fossil fuels.” Despite paying a premium for green electricity, he says that doing so “will encourage investment in new sources of generation”.

Not everyone can adopt John Lewis’s stance; using renewable energy will not be feasible for many retailers until government financial incentives to help businesses are implemented and the financial situation improves, easing the pressure on retail budgets. Until then, it’s a case of back to basics.

As EDF head of marketing strategy Jim Butler says: “Power prices are notoriously volatile. If you reduce your usage, you’re significantly reducing your exposure to future volatility. The best way of meeting your carbon-reduction objectives is to reduce the amount of energy you’re using in the first place.”