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 grid 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
Why Manufacturers Need an Energy Procurement Strategy
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 Importance of Strategic Energy Procurement for Business Energy Costs
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).
Energy Cost Management and the Lack of Protections for UK Manufacturers
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.”
Aligning Your Energy Procurement Strategy with Market Behaviour
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.
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Also, you can read the full report here:: Energy Procurement: The Cost of Complacency - Google Drive
