As one of the world’s most energy-intensive sectors, food and drink manufacturing faces a triple challenge: rising costs, tightening margins and mounting climate targets. But there’s untapped potential in the machinery already running on factory floors. Enel X’s Wayne Davies explains how demand response and energy flexibility schemes are helping manufacturers earn new revenue, strengthen energy security and accelerate the shift towards a cleaner, greener grid.

The economy may have partially recovered from the inflationary effect of 2022’s energy price spikes, but consumer spending is still in shock – and convalescing slowly. Real household disposable income grew an average of 3% each year from 2000-2007. Yet from 2024-2029, the Office for Budget Responsibility forecasts yearly growth of just 1.25%.

With consumers still feeling the pinch, food manufacturers are under pressure to avoid raising their prices, yet this comes at a time when costs have increased throughout food and beverage production. Manufacturers are already seeing their margins squeezed, falling to 5.3% against a historical average of 6.3%. This leaves them between a rock and a hard place, with a choice of protecting sales by absorbing rising costs, or risking the displeasure of retailers and consumers by passing on the increase.

Against this backdrop, it’s no surprise the industry is looking for innovative avenues to reduce its overheads. Some manufacturers are going further, exploring how they can engage their existing infrastructure and equipment in new revenue streams. One solution capable of meeting both requirements is energy flexibility.

Addressing the energy trilemma

The UK’s food and drink sector is the country’s second-highest industrial user of energy, according to 2023 figures from Statista. Most of the sector’s energy usage is accounted for by refrigeration, heating and processing, with energy typically comprising 15% of total operational expenses for manufacturers.

An energy-intensive industry, the food and beverage sector is particularly vulnerable to volatile energy costs and threats to energy security as a result of global politico-economic instability. The additional pressure on the energy sector – meeting the Net Zero target – creates what has become known as the ‘Energy Trilemma’.

Together, energy affordability, energy security and sustainability make up this energy trilemma. Essentially, it requires businesses to reduce energy costs, ensure operational resilience and decrease carbon emissions. This final goal is recognised by the Food and Drink Federation (FDF), which has set a Net Zero by 2040 Ambition – 10 years ahead of the UK’s legislated target date.

Despite a concerted rise in the importance of corporate environment, social and governance (ESG) strategies across the sector, a recent survey showed that 41% of food and drink companies believe they are not fulfilling their promise of sustainable product delivery.

Using flexibility to deliver ESG commitments

The National Energy System Operator (NESO) has multiple energy market mechanisms that address the challenges of the trilemma, and the UK’s food and drink producers are ideally placed to take advantage of participation in these markets.

One way in which they can actively make a difference is by taking part in energy flexibility programmes. Through their participation, food and drink producers can help accelerate the integration of renewable energy sources onto the national grid, while generating additional revenue from their existing assets.

Energy flexibility mechanisms offer an incentive to business owners to make their existing infrastructure and equipment available to help protect the electricity grid stability. By participating in energy flexibility markets, food and drink businesses can lower energy costs without impacting their operational performance.

Here’s how it works…

Although largely predictable, renewable energy sources are intermittent. To balance fluctuating generation with demand, grid operators need to collaborate with their largest energy users to maintain grid stability. The heavy equipment in processes such as refrigeration and cold storage, for example, has a high energy demand. The natural inertia in the refrigeration process makes these assets prime candidates for flexibility, as their power consumption can be reduced temporarily with a negligible change in temperature. When these seemingly small actions are taken simultaneously across multiple large-energy users, demand on the grid decreases, which allows it to stabilise.

On-site power generation and energy storage assets like battery energy storage systems (BESS) – used to provide backup in case of a power outage – are also ideal as they can be dispatched to meet increases in demand. This turns an idle asset into an active facilitator of electricity grid stability and a new source of income for the business.

The alternative to energy flexibility programmes for grid balancing is to ramp up production at a fossil-fuel power station. Instead, energy flexibility programmes act as a “virtual power plant”, reducing the need to burn non-renewable fuels and the associated costs and emissions.

Getting started in energy flexibility

The Capacity Market is an ideal starting point for manufacturing companies looking to advance their ESG strategies and generate revenue to offset energy costs or invest in other environmental programmes.

At times of peak electricity demand or reduced levels of production from renewable sources, an energy-intensive facility that can temporarily adjust its overall electricity consumption can receive significant payments without impacting its business operations. Think of the Capacity Market as NESO’s last line of defence against major issues on the network; it’s an insurance policy used only after other demand response measures are exhausted.

Participating in the Capacity Market is easy and low-risk, and it can be set up at virtually no cost. Any business with the ability to turn down or switch on one megawatt (1MW) or more of electricity capacity across one or more sites can take part. In our experience, businesses tend to have more flexible capacity than they may realise. If treated as an additional resource, it can provide significant returns to the business.

Ensuring capacity for the years ahead

Because of the long-term, predictable revenue stability it offers, the Capacity Market represents a simple, lucrative and low-effort opportunity for organisations with high energy consumption to get paid for electricity they do not use, while helping to decarbonise the grid.

For example, in the event of a grid stress event, batch processing operations such as bottling, canning, baking, brewing and fermentation may be strategically rescheduled without affecting production or quality. This makes capacity available to the grid and doesn’t impact operations or standards. Likewise, many mixers, grinders and pumps have adjustable speeds or may be rescheduled around peak times. Cold storage and refrigeration can temporarily reduce power consumption, as can thermal processing with thermal storage capacity. Alternatively, some sites may prefer to switch from continuous processes to batch processes, and instead temporarily store liquids in holding tanks while a grid stress occurs.

From milling to extrusion to evaporation and compression, the range of critical assets means there is no one-size-fits-all approach. But a general rule of thumb is that processes that use large amounts of electricity for heating and cooling are ideal candidates for the Capacity Market. So too are processes that can be adjusted up or down. This makes assets like ovens, proofing chambers and brewing and fermentation tanks perfectly suited because they are energy-intensive, and have adjustable cycles.

Many of the critical assets used in food and drink manufacturing remain in near-constant or regular use, and as such, they are continuously checked and maintained. This regular checking also makes them ideal candidates for participating in the Capacity Market, where payments are made for always being on standby to respond to a system stress event.

Extended opportunities for wholesale market participation

Energy flexibility opportunities for the food and drink sector have recently been extended. Previously, food and drink manufacturers couldn’t obtain value from flexibility within the wholesale market unless they entered into specific arrangements with their existing energy supplier.

Since November 2024, a modification to Ofgem’s Balancing and Settlement Codes (BSC), P415, has allowed commercial energy consumers to access the wholesale electricity market through numerous aggregators. In particular, P415 allows the growing number of businesses with their own energy generation facilities – onsite wind or solar power, for example – to trade their flexible electricity capacity in the wholesale market. Some businesses may find the assessment process daunting or rule it out based on assumptions around operational disruption. That’s where an experienced partner provides valuable support.

Good for manufacturers, good for the grid

As comparatively large users of energy, with many processes that can be scheduled or deferred, food and drink companies are ideally placed to benefit from participation in energy flexibility schemes such as the Capacity Market. Doing so can create new revenue streams for the business, providing stable, long-term income that helps offset rising operational costs and the erosion of margins.

Additionally, by contributing to resilience in the electricity grid, food and beverage producers can help prevent outages in the national or regional system. This reduces operational risks from unplanned downtime due to power cuts, such as failed processes, spoiled ingredients or over-reliance on backup power.

Finally, demand-side response schemes, such as the Capacity Market, are key to providing additional flexibility and protection that the grid needs to accommodate more renewable energy. Through participation, food and drink manufacturers can play a fundamental role in the UK’s journey towards Net Zero, meeting their ESG goals in the process and taking meaningful action on climate change.