Government must give companies support comparable to European
counterparts and regulate the industrial energy market
- 1 in 5 manufacturers don't have a clear energy procurement
strategy or do not know what it means to have one – leaving them
at the mercy of Britain's unprotected industrial energy market
- Government should introduce support for industrial energy
users that levels the playing field with our European competitors
and remove/offset levies such as the Climate Change Levy for
manufacturers along with other renewable energy surcharges
- Accelerate gird capacity upgrades so UK-based businesses
aren't forced to expand abroad for lack of network capacity
- Give stronger incentives for on-site generation of energy
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.
Make UK's latest research in partnership with Inspired PLC,
Energy Procurement: The Cost of Complacency,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.”
Dan Hulme, Head of Sales: Key Accounts from Inspired PLC said:
“While energy prices are much lower than they were during the
peak of the energy crisis, they are still around twice the
pre-pandemic average. This is not a time to be complacent.
Given how sensitive the market remains, manufacturers need to
review their strategies and ensure they are aligned with their
goals and the behaviour of the energy markets. These strategies
should be dynamic and regularly revisited to ensure they continue
to achieve their goals and provide protection in an ever-changing
market.”
Government should also give stronger incentives for on-site
energy generation alongside an industrial energy price cap.
Equalising pricing to Eurozone pricing through a variable energy
subsidy would also be hugely beneficial to drive growth and
industrial expansion here in the UK.
Read the full report here: Energy Procurement: The
Cost of Complacency - Google Drive
