With the announcement of the new energy price cap for consumers this morning, this is a topical subject, especially for businesses who don’t have the benefit of a cap on energy prices. Jack Semple, Secretary of EAMA (of which MTA is a member) has taken a look at the subject and he notes that soaring energy costs is now the dominant issue in business and a strategic issue for the economy. Companies face healthy profitability being wiped out and a drain on resources if they cannot recover cost rises from customers.
The Financial Times reports that many firms are re-negotiating contracts this October and face a four-fold increase in prices.
The impact is not only being felt in the UK. The chart which is in the pdf file below shows a comparison of industrial electricity prices for extra-large energy consumers for the UK and the 4 largest EU economies. Since 2014, the UK has been at the top of this chart and in the latest reading which goes up to 2021, prices are 20% higher than in Germany which is, in turn, 25% higher than Italy.
Germany’s economy stagnated in Q2 2022, the worst performance in the Eurozone, and there are fears for energy supplies to industry this winter as gas supplies from Russia are reduced, adding to industry’s material and component supply problems. In France, known for relatively low energy costs, half the nuclear power stations are currently shut down for maintenance and repair and The Economist reports that their output is expected to be down 25% on usual levels this winter.
Energy costs have become a key element in large companies’ decisions about where to manufacture using existing resources, where to invest for the future, and where to source goods.
Business groups have been pressing energy cost support for firms on Liz Truss and Rishi Sunak, the two candidates competing to be the Conservative leader and prime minister. Government figures show that the UK now has much the most expensive energy costs for intensive users.
Given the current policy hiatus caused by the Conservative Party leadership campaign, there is little to offer at the moment, although BEIS has launched a review of the UK scheme to provide energy intensive industries with some relief on the indirect costs of funding renewable energy policies – you can find this consultation at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1097834/increase-of-subsidy-level-for-eii-exemption-schemes-consultation.pdf and it is open until 16th September.