Clear Energy Strategy Necessary for UK Manufacturers

Manufacturers are still being hit with rising gas and electricity prices, and while the record highs of early 2022 have abated, many businesses are struggling to meet the cost of their energy needs. However, according to Make UK, 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 organisation says that 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, the 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 latest research published by Make UK 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 putting their energy procurement strategy on the back burner, leaving them vulnerable to any potential subsequent crisis.

The UK imposes several energy-related taxes and levies (for example, the Climate Change Levy), which push up costs for industrial consumers further. Some European countries offset such levies for energy-intensive industries to maintain competitiveness and while the UK has introduced some levy exemption schemes to support the sector, Make UK says 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 also maintains tight control over energy pricing for industrial consumers through regulated tariffs tied to nuclear energy costs (for example ARENH in France).

 

‘Wild West’ of energy markets
James Brougham, a senior economist at 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 is little surprise that the sector struggles to remain competitive even when 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) at Inspired plc, added:

“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.”

Make UK concludes that the Government should also give stronger incentives for on-site energy generation alongside an industrial energy price cap. Equalising pricing to the Eurozone through a variable energy subsidy would also be hugely beneficial to drive industrial growth in the UK.

 

Source: Machinery Market