Manufacturers must act to avoid 50% energy price rises

According to Inenco’s latest research, by 2020, manufacturers could face power bills up to 60% higher than they were in 2016. David Oliver discusses strategies for minimising energy costs.

In recent years, UK energy price rises have been driven by ‘non-commodity’ charges – predominantly green taxes on bills that support low-carbon generation and the growing charges required to cover the costs of upgrading the UK’s network infrastructure.

Power Generation Electricity Bills Energy energy price rises Increase Non-Commodity Costs Charges - image courtesy of Depositphotos.

These non-commodity charges have risen 25% in the past two years alone, but flat or falling wholesale costs over this period softened the impact.

However, a return to higher wholesale costs means manufacturers are now facing a ‘double-whammy’ of rising energy costs.

Continued energy price rises

Depending on their size and energy consumption, manufacturers may be eligible for exemptions from some elements of their energy bill.

If they operate in an energy intensive industry, for example, they may qualify for an exemption from up to 85% of renewable levies through the Energy Intensive Industries (EII) scheme.

In our Energy Costs Outlook report, we’ve explored different scenarios to consider how energy costs may change for manufacturers over the next 15 years. We applied these scenarios to three examples of manufacturers, each with an identical load profile but with differing exemptions.

Depending on the exemptions they hold, we found that manufacturing businesses could see their costs rise by 41% – 60% by 2020, compared with 2016 levels.

So, the high prices they are already paying for their energy will only increase over the next year. This winter, for instance, wholesale cost rises and increases in indirect charges mean that they could see their total energy costs rise by more than 10% compared to last winter.

Power Generation Electricity Bills Energy energy price rises Increase Non-Commodity Costs Charges - image courtesy of Depositphotos.

Energy costs will be compounded in 2019, due to the currency fluctuations we can expect around Brexit and changes to several energy policies.

And the outlook doesn’t improve in the long-term – prices could continue to rise faster than inflation, as our energy system evolves to accommodate changing consumer usage.

Review and refocus

It’s vital for manufacturers to take action now if they want to avoid spiralling energy costs – starting with reassessing their existing energy strategy.

The best way to mitigate rising energy bills is to simply use less energy, so we’d recommend that manufacturers refocus their efforts on energy efficiency, get to grips with their electricity demand profiles and explore demand-management opportunities to reduce their peak charges.

We’re also advising manufacturers to ensure they’re taking advantage of any government relief schemes available to them.

There’s a marked difference between the forecast costs of industrial users with exemptions, and those users required to pay renewable levies in full – by 2020, smaller users could find themselves paying 65% more for every unit of energy compared to those with EII exemptions.

Manufacturers that don’t already hold an EII exemption should check whether they’re eligible for one as soon as possible, as savings can’t be backdated.

Inenco has created a dedicated EII hub to guide businesses, so those interested in finding out more should visit: inenco.com/eiihub