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Strategic Energy Planning is Crucial for UK Manufacturers Facing High Costs
UK manufacturers are grappling with ongoing challenges due to high gas and electricity prices. Although there has been a decrease from the record highs seen in early 2022, many businesses still find it difficult to manage their energy costs effectively. Alarmingly, one in five manufacturers lack a clear energy procurement strategy, which leaves them exposed to the fluctuations of the UK’s unregulated industrial energy market.
Unlike residential consumers, industrial energy users do not have the benefit of a price cap, making them susceptible to potentially unlimited cost changes. The lack of a “fallback price” underscores the pressing need for strategic planning. Without protective measures in place, companies are at risk of facing significant market disruptions. Make UK has urged the Government to create an industrial energy market regulator to protect businesses, especially SMEs, from exploitative practices by energy suppliers.
The Argument for Government Support and Intervention
To ensure a fair competitive environment with European counterparts, Make UK is calling on the Government to provide comprehensive support for industrial energy users. This support should include:
- Removal or offsetting of levies: Such as the Climate Change Levy and other renewable energy surcharges that place an undue burden on manufacturers.
- Faster upgrades to grid capacity: To prevent UK businesses from moving abroad due to inadequate network infrastructure.
- Improved incentives for on-site energy generation: Promoting self-sufficiency and decreasing reliance on the unpredictable energy market.
The UK currently has various energy-related taxes and levies that raise costs for industrial consumers. In contrast, countries like Germany and France provide more significant subsidies or compensatory frameworks, which include partial exemptions for energy-intensive industries from specific grid fees and renewable energy surcharges. Additionally, France exercises strict regulatory control over energy pricing for industrial consumers through tariffs that are linked to nuclear energy costs.
Industry Insights on Energy Procurement Strategies
Make UK’s recent report, Energy Procurement: The Cost of Complacency, created in collaboration with Inspired PLC, indicates that one-third of manufacturers have not revised their energy procurement strategies since the energy crisis in 2022. This hesitance to reevaluate energy strategies puts them at risk of future market disruptions, even with the current decline in prices.
Dan Hulme, Head of Sales: Key Accounts at Inspired PLC, highlighted the necessity of proactive energy management:
“While energy prices are significantly lower than they were at the peak of the energy crisis, they remain about twice the pre-pandemic average. This is not a time for complacency. Given the market's sensitivity, manufacturers must reassess their strategies to ensure they align with their objectives and the dynamics of the energy markets. These strategies should be flexible and frequently reviewed to ensure they continue to meet their goals and provide protection in a constantly evolving market.”
The Competitive Disadvantage for UK Manufacturers
James Brougham, Senior Economist at Make UK, pointed out the competitive hurdles that UK manufacturers are facing:
“Energy constitutes a significant part of the input mix for UK manufacturers, leading to a considerable share of production costs. Given the uneven playing field for UK producers compared to their international counterparts, even those in nearby European countries, it’s not surprising that the sector finds it hard to stay competitive, especially when productivity improvements are being pursued elsewhere.
Adding to the challenge, a large segment of the sector is subject to what can be described as the ‘wild west’ of energy markets, lacking proper regulation and support without a clear strategy. This situation underscores the urgent need for intervention to prevent further erosion of the UK’s production base.”
Recommendations for Policy Changes and Strategic Planning
To enhance the competitiveness of UK manufacturers, the report suggests:
- Implementing an industrial energy price cap: This would offer stability and predictability in energy expenses.
- Introducing a variable energy subsidy: This would help align UK industrial energy prices with those in the Eurozone, fostering domestic industrial growth and expansion.
Opportunities for Manufacturers to Learn More
Make UK and Inspired PLC are organizing a webinar aimed at helping manufacturers with strategic energy procurement. The event will offer valuable insights into effective methods for managing energy costs and navigating the complexities of the UK energy market.
Access the Full Report and Webinar Registration
Full Report: Energy Procurement: The Cost of Complacency
Webinar Registration: Protect Your Business from High Energy Costs
By implementing strong energy strategies and pushing for supportive policies, UK manufacturers can lessen the effects of rising energy costs and secure long-term competitiveness and sustainability.
