Food stores are some of the biggest energy users in the country, but as prices soar and net zero targets loom, can they find new ways to power themselves?
Going ‘off-grid’ has long had a certain idealism associated with it. A quiet cabin in the woods. A small stream out the back. A fireplace for entertainment on those long winter evenings.
The reality is not always so glamorous. Just ask Sainsbury’s, whose Cannock store in the West Midlands has run off grid since 2014. The shop runs entirely on rubbish, converting unused food waste into biogas in a nearby anaerobic digester and transporting the resultant power to the nearby site. When it launched, Sainsbury’s said the move was not only good for the environment, but made financial sense given the cost of sending waste to landfill. Yet for eight years no one has followed suit. Sainsbury’s remains the only supermarket with a store run entirely off-grid.
But with net zero targets looming and energy prices now at record highs, there is a sense of change in the air. With aisles packed full of energy-burning fridges and freezers, often working doubly hard in summers that are getting hotter by the year, supermarkets are some of the biggest energy consumers in the country – and desperate to cut back.
The impact of current energy prices is already readily apparent on them. While large retailers typically purchase energy in advance to help manage shifting prices, that protection can only go so far. Across John Lewis and Waitrose, for example, the total spend on gas and electricity is up by 38% this year, far below the market rate. That is expected to change, however, with the retailer predicting that over the next two years its energy costs will roughly double.
Ocado too is now facing a £25m rise in annual costs this year due to electricity rises, while Iceland put its expansion plans on hold and warned of potential store closures after its energy bill ballooned by £20m – more than double the previous total. “We are good at selling frozen peas,” boss Richard Walker told the Mail on Sunday. “We are not electricity traders.”
Under Liz Truss’s new plans, however, that may have to change. Last month, after confirming that an energy cap on domestic energy bills will also apply to businesses for six months, the prime minister urged the private sector to take matters into their own hands when it comes to dealing with soaring bills.
“Companies with the wherewithal need to be looking for ways they can improve energy efficiency and increase direct energy generation,” she told the House of Commons.
The race for net zero has already led some retailers to make moves towards self-generated power, with Morrisons recently becoming the first supermarket to start work on its own solar farms. It is installing a network of 230,000 panels across two-thirds of its sites. By the times it’s completed in 2025, it will cover almost 125 acres and generate over 100 megawatts – enough to supply approximately 20% of the power to the stores and sites it sits on.
It’s estimated the investment will cut 21,000 tonnes of CO2 a year from the retailer’s emissions – equivalent to around 4% of emissions across its own operations (see p45). Already, it’s pumping out about 21 MW of electricity across 75 Morrisons sites.
Still, Ian Gadsby, MD at Ylem, a global energy generation company, says today’s energy prices only further the argument for more supermarkets to put solar farms on top of their expansive roof space.
“It always surprises me that more people have never embraced the concept of on-site generation,” he says.
Previously, supermarkets might have had eight to 10 years’ payback, but with electricity prices having doubled in the past 12 months, the payback time has roughly halved. “We might be delivering solar energy at say 12 pence a kilowatt hour, compared to current PPA [power purchase agreement] prices, which could be north of 50p.”
A big part of the savings will be the non-commodity costs in retailers’ bills – costs such as ‘wheeling fees’ for transporting electricity from the power plant to the shop, which can add up to 40% of the total costs. This percentage will likely have fallen as raw energy prices have risen, but they could still form a significant part of the bill, which can be prevented by generating more energy on-site, Gadsby says.
How does the new price cap work?
The UK government confirmed last week that it will cut the wholesale price of energy for businesses by more than half this winter to try and stave off a wave of insolvencies. Chancellor Kwasi Kwarteng said it “stepped in to stop businesses collapsing, protect jobs and limit inflation”.
The scheme will cap wholesale prices at £211 per megawatt hour for electricity and £75 per MWh for gas. This will roughly halve their expected price, with electricity and gas contracts for this winter currently trading at about £490 per MWh and £170 per MWh respectively.
Yet even with the cap, electricity prices for businesses will still be about double what they were in October 2021 when the prices stood at around £117 per MWh for electricity, for example.
Under the plan, all businesses will be given support for six months to protect them from soaring bills, though Liz Truss has vowed it will be extended beyond March for the most vulnerable businesses, including pubs and shops. She has ordered a review to identify which industries should be granted extended support.
Under the scheme, the level of price reduction will vary depending on each business’s contract type and circumstances. Most companies are on fixed price energy deals and will benefit. However, those on variable tariffs — estimated to be around 25% of the market — will receive a per unit discount on energy costs up to a maximum of “around £405 per MWh for electricity and £115 per MWh for gas, subject to wholesale market developments,” the government said.
The cost to the government is unknown as it will depend on wholesale energy markets. Consultants Cornwall Insight estimated it would cost £25bn.
Karen Betts, CEO of the Food & Drink Federation, says that “although some aspects of the scheme are still to be clarified, it offers relief to food and drink manufacturers across the UK”.
While some, like Morrisons, either may be unable to, or may not want to, cover their whole estate with solar farms, that doesn’t mean they can’t still be fuelled by it. The concept of peer-to-peer energy trading has grown in recent years, with the idea quite simply that where businesses have one substantial site that can be used to generate a lot of energy, they can then transfer it through the grid to a sister site that doesn’t have the capacity to generate its own power.
The model is particular applicable to multi-site businesses such as supermarkets, which could use out-of-town superstores to generate energy and transfer it to smaller sites in dense urban spaces. Nonetheless, many supermarkets are wary, with Gadsby conceding that “a lot of businesses we talk to are very slow making a decision about it”.
This is not helped by a planning and connectivity process that can take months, if not years, to implement. The actual physical implementation of solar panels is often the easy part, Gadsby explains. It’s acquiring planning permission and negotiating a price for supplying that energy into the wider National Grid that can take up time.
That can be costly for businesses, particularly now. “We estimate at the moment for a typical intensive energy business, we’re talking savings worth around £2,000 a day. So each day of delay typically costs £2,000.”
There are other reasons some supermarkets are hesitant about generating their own energy. Some, including Tesco, Sainsbury’s and Aldi, have all transitioned to 100% renewable energy from the grid in recent years, a move primarily intended to support their net zero ambitions.
Now, however, with the price of renewables pegged to those of gas, prices are also at record highs. Liz Truss has indicated this will be decoupled, but for now, it is proving costly.
There are also issues with supply. While renewable sources now contribute around 40% of National Grid energy supplies, the price parity with oil and gas in recent years has driven up demand. That has only been strained further in recent months, according to a director at one big four supermarket, who claims the government is buying up large swathes of the available renewable energy to the cost of businesses.
“No one will want to do the capital-intensive projects [like solar] with no immediate payback at the moment,” they suggest. “It made total sense to go to renewables when we started this process. But now the price of renewables has doubled and there’s no supply.”
It is difficult to say exactly how much energy the average supermarket uses. According to a survey of non-domestic buildings in 2014-15, it ranges from 400-740 KWh per square metre per year, with the average at 565 KWh. Nearly all supermarkets have made a number of efficiency improvements in the years since, however, meaning this estimate has likely fallen. Regardless, it remains the most recent comprehensive estimate of the types of costs facing supermarkets.
Based on these figures, at the new electricity price cap of £211/MWh, a superstore of around 60,000 sq ft could be paying up to £870k per year on electricity alone. A modest inner city store of 16,000 sq ft could be paying up to £232k.
This energy use is also coming at a serious cost to their net zero ambitions. The total annual CO2 emissions associated with the energy consumption of the major retail food outlets in the UK amount to around four million tonnes of CO2, according to a paper published in Applied Thermal Engineering in 2011, one of the few comprehensive studies of its kind.
That means with official figures putting the UK’s annual CO2 emissions at 342 million tonnes, supermarket properties alone account for approximately 2% of the country’s total emissions. If supermarkets are to address this, energy generation can therefore only go so far. Companies must, as Liz Truss said, also be looking for ways to boost their energy efficiency, arguably even making this the priority.
“Efficiency should always sit above generation in the energy hierarchy,” says David Tobin, associate director at the Carbon Trust, which works with companies on their energy systems. “There’s a good way to go on improving efficiency – in terms of investment – before supermarkets really start going at self-generation in earnest.”
The old fishing village of Høruphav in southern Denmark is a quiet place, nestled on the shores of the island of Als and home to less than 3,000 people for much of the year. But in its local food store, it could be helping to pioneer a modern revolution.
Since 2019, local retailer SuperBrugsen has been using a heat recovery unit to capture the heat expelled from its fridges and freezers, reusing it to power the rest of its store. Since it started, 78% of SuperBrugsen’s heat consumption has been covered by reused heat, a total of 523 MWh, worth £110k at today’s UK prices.
In the UK, Morrisons is doing something similar, using heat created by refrigeration to provide hot water in store. For now, these are just small steps in what some claim could be an economy-shifting technology. “It’s free heat,” says Dan Scott, UK general manager at Danfoss, a supplier of energy-efficient technologies. “It’s already been created and will be wasted.”
Scott says that while the technology is still very much in its infancy, he is now seeing a number of big supermarkets starting to order the technology.
The draw is not just that the heat can be used to keep supermarkets warm through winter, but that it can also produce enough energy to heat nearby buildings too. Previously, this heat has simply evaporated into the outside air. “Where it gets really interesting is when you start feeding it back into a district energy source” – a system by which heat produced by major energy consumers like supermarkets and datacentres can be pumped to nearby buildings and provide heating all year round – says Scott.
In the UK, district heating only accounts for 3% of heating but in Copenhagen, home to the world’s largest district heating network, it now serves 98% of buildings, according to local figures.
“The concept alters the entire business model,” says Tuomas Paaso from VTT, a leading research centre based in Finland. “The supermarket does not buy heating energy. Instead, the district heating company invests in the equipment inside the market and agrees to buy the resulting energy, while guaranteeing the supermarket the service that it needs.”
In order to maximise the benefits, however, it is essential supermarkets maximise their efficiency to ensure potential energy is not lost to the surrounding air. For many British supermarkets, this has been an ongoing project for many years, with some, like the John Lewis Partnership, developing systems to monitor energy usage on a half-hourly basis, thereby enabling remote teams to identify opportunities for improvements.
“No one will want to do the capital-intensive project with no immediate payback at the moment”
In most cases, these improvements will revolve around refrigeration, which makes up around 60% of a supermarket’s energy use, says Tobin. Aldi, for example, made the seemingly simple act of installing fridge doors across its new stores and refurbishments last year, in a move it claimed would cut energy consumption across participating stores by around 20% and save the equivalent of over 2,000 tonnes of carbon emissions a year. That equated to each store saving up to 20 tonnes of carbon emissions annually, the discounter said at the time.
The case for doors is strong. Research last year by the Environmental Investigation Agency found the UK’s total electricity usage could fall by almost 1% if the top five British supermarkets installed fridge doors, slashing the supermarkets’ own electricity bills by an average of 33%. Yet so far many have resisted.
Instead, they are relying on other means. Sainsbury’s, for example, has been implementing aerofoils – a technology initially designed to divert air over and around Formula 1 racing cars but reimagined to prevent cold air leaving fridge cabinets – since 2017. Sainsbury’s claims they save energy, keep aisles warmer and reduce food waste by maintaining products at their optimal temperature. Tesco, Sainsbury’s, Morrisons, Waitrose and M&S are all now using similar systems.
The evidence, however, is seemingly to the contrary. Research by Sweden’s University of Borås in 2018 found that not only did fridges with doors outperform even the most efficient open cabinet technology, but most shoppers prefer doors as it gives an impression of fresher food. As Tobin puts it, while aerofoils are no doubt impressive, “it can’t be as efficient as a door”.
In the grand scheme of supermarkets’ net zero plans, the energy use of their own stores could in many ways be seen as relatively insignificant. Yet with food stores up and down the country using about 2% of the UK’s total energy, the need for change is clear. Add in sky-high energy prices that seem likely to stick around for at least the foreseeable future, and it’s no surprise that many retailers are now accelerating their plans.
British supermarkets don’t have to look far to see what can be achieved. In Finland, ‘the world’s most energy-efficient supermarket’ has instigated a range of energy-saving and making technologies and now consumes only 40% of the energy of a normal grocery store. This saves the retailer a total of around €180,000 in energy costs each year.
The regional supermarket – Osuuskauppa Arina – has cut its annual electricity consumption to around 240 KWh per square metre – close to the consumption of a normal residential property, it says. That means that with solar panels on its roof, on a sunny day half of its electricity can be self-generated on site. While in Finland, just like the UK, these sunny days could be few and far between for much of the year at least, it’s a step towards a destination many are aiming for.