No business is immune from the energy price crisis, but manufacturers are particularly exposed. The manufacturing and industrial sector accounts for around a sixth of total energy consumption in the UK[1]. But in just the last few months, many manufacturers will have seen their energy bills triple or even quadruple[2].
It’s a situation that’s clearly unsustainable; almost six in ten told Make UK that increased energy costs are now business threatening.
So, as the industry awaits details of promised government support, what can manufacturers do to bring down their bills?
Some are responding by having to hike prices to pass on increased costs to customers, some have just been reducing their hours of operation, or even faced with making regrettable but unavoidable redundancies[3].
But others are thinking longer term.
Crunching the numbers
Even before the current crisis, the UK's wholesale electricity prices were already among the highest in Europe. And the current situation has prompted manufacturers to look at how they can minimise their exposure to the slings and arrows of unpredictable global markets.
Self-generation does just that and it’s becoming more viable for businesses of all sizes as energy prices remain elevated and the cost of renewable technologies continue to fall.
During 2022, UK gas prices have hit record highs of more than 700p a therm, compared with just over 100p a year ago[4]. But the cost of solar panels has fallen by 85% in the last decade, for example[5]. That means a much shorter return on investment for renewable energy systems; anecdotally, we’re hearing the payback has shortened from three to five years, to just a year.
Options for energy
Of course, switching to renewables also supports sustainable strategies, helping firms towards their net zero goals. So, businesses should be considering all their alternative energy options to help mitigate against future risks.
Like Welsh craft beer producer Tiny Rebel Brewery, which needed to boost capacity at its Newport brewery to meet increasing demand from its growing customer base after landing a listing with Sainsbury’s, as well as numerous pubs and bars across the UK. It installed five new fermentation tanks to increased production capacity by more than a quarter, along with 400 solar panels which will provide 100% of the power needed by the expanded operation. Not only has this reduced its carbon footprint and brought greater stability amid the current energy uncertainty, at a stroke it has cut Tiny Rebel’s energy bill by a third.
And family-owned manufacturing firm Bri-Stor Group, which makes commercial vehicles and construction equipment for customers including the AA, RAC and JCB. It has installed almost 2,000 solar panels covering cover more than 3,500 sq ft at its site 33-acre site in Stafford. It also processes all its non-recyclable waste in a compactor to create refuse diverted fuel, which means no waste to landfill and replaces the need to use fossil fuels such as coal, oil and gas, meaning more predictable energy bills.
Supporting sustainable strategies
Lenders are keen to help manufacturers invest in projects like these; at Lloyds Bank we have a £5 billion Clean Growth Financing Initiative, for example, which provides discounted funding to help businesses invest in sustainability, including renewable energy infrastructure.
And the Government and some local authorities offer loans, grants or subsidies to support sustainable investment too. Schemes come and go, but it’s worth checking what’s available in your area.
For example, until 31st March 2023, companies can claim 130% capital allowances on investments including solar panels through the so called ‘super deduction’.
If you don’t already have one, commissioning an assessor to complete an Energy Performance Certificate (EPC) is an effective way to identify opportunities to make your premises as energy efficient as possible.
The events of this year have shown how exposed British manufacturers are to unpredictable global energy markets. Acting sooner, rather than later, will help provide the certainty that firms need to plan for the future with confidence.
[1] https://www.sefe-energy.co.uk/blog/which-businesses-use-the-most-energy/
[2] https://www.theguardian.com/business/2022/aug/25/sleepless-nights-business-owners-energy-bills-quadruple
[3] https://www.makeuk.org/news-and-events/news/out-of-control-energy-bills-are-now-business-threatening-for-60-of-manufacturers
[4] https://www.theguardian.com/business/2022/aug/25/sleepless-nights-business-owners-energy-bills-quadruple
[5] https://www.lombardodier.com/contents/corporate-news/corporate/2022/september/unlocking-decarbonisation-the-ri.html
