Britain’s manufacturers could slash their utility bills if they developed a clear energy strategy, a new report has revealed.
According to Make UK’s latest report — Energy Procurement: The Cost of Complacency — produced in partnership with Inspired PLC, manufacturers are still being hit with soaring gas and electricity prices, and while the record highs of early 2022 have abated, many businesses are struggling to meet their energy needs.
However, one in five manufacturers has still not put a clear energy procurement strategy in place to protect them from the volatility in Britain’s energy market.
The industrial energy market does not have the protections afforded to domestic consumers through the price cap, so working without an energy strategy leaves companies catastrophically exposed to energy market disruption. The lack of a “fall back price” like the domestic energy cap as protection means that future charges for industry could theoretically be limitless. To further mitigate, Government should also look at creating an industrial energy market regulator to protect businesses, particularly Britain’s SMEs from the impacts of poor behaviour on the part of energy companies.
The report shows that one in three manufacturers haven’t revised their energy procurement strategy since the energy crisis of 2022. While this still may be prudent for those on longer-term fixed contracts, the abatement of the crisis risks businesses de-prioritising energy procurement strategy, leaving them vulnerable to any potential subsequent crisis.
The UK imposes several energy-related taxes and levies (e.g. Climate Change Levy), which add to costs for industrial consumers. Some European countries offset such levies for energy-intensive industries to maintain competitiveness and whilst the UK has introduced some levy exemption schemes to support the sector, there is more to be done. Furthermore, European countries like Germany and France provide more substantial subsidies or compensatory frameworks for industries exposed to high energy costs such as partial exemption for energy-intensive industries from certain grid fees or renewable energy surcharges.
France goes further still, maintaining tight control over energy pricing for industrial consumers through regulated tariffs tied to nuclear energy costs (e.g. ARENH in France).
James Brougham, Senior Economist Make UK said:“Energy forms a huge part of UK manufacturers’ input mix, subsequently accounting for a large proportion of production costs. With differing playing fields for UK producers when compared to those abroad, even in our closest neighbours within Europe, it’s little surprise that the sector struggles to remain competitive even where productivity enhancements elsewhere have been sought.
“Compounding the risk, the significant proportion of the sector that is exposed to what is effectively the ‘wild west’ of energy markets in terms of regulation and support without a formal strategy in place further highlights the need for intervention lest we see the UK’s production base continue to erode.”
Manufacturers that want to learn more about protecting their businesses from soaring energy costs should sign up to Make UK & Inspired PLC’s webinar: www.eventbrite.co.uk/e/1053543630359
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