The energy crisis could cause irreparable damage to an industry critical to delivering net zero goals if the government does not step up its support, argues Make UK’s Brigitte Amoruso
In the midst of the energy crisis, manufacturing businesses have been extremely worried for a long time at the looming prospect of a very rough winter period - over a third of manufacturers have seen their electricity and gas bills double in the last 12 months and another 40 percent or more expect to see them double in the next 12 months. So with today's announcement by government of the new Business Bill Relief Scheme the manufacturing sector is heaving an immense sigh of relief.
But the fact that the scheme will only function for six months - even though it will be revised in three to assess who is most vulnerable to qualify for longer - means that the level of uncertainty on their future beyond the winter remains very high. Businesses will likely still be having to take a precautionary approach until they know exactly what they will have to ‘play' with.
The fact cannot be escaped that manufacturing processes require more energy usage, simply due to the nature of the business and even with today's intervention, the reality is that their bills will continue to increase over the winter. At these price levels, energy costs, even capped, will continue to be a major concern with 60 per ent already considering them to be business threatening.
It is easy to think that businesses will survive the crisis one way or the other. However, this unprecedented situation is not just having an impact on businesses. Although manufacturers are doing their best to absorb their costs within the business, an increasing number are having to pass them onto the customer, meaning price increases. Having to reduce production doesn't just cut energy costs it also cuts jobs in a worrying 12 per cent of cases. Hopefully this winter truce will prevent more of this kind of irreparable damage.
Fortunately, some things can help and energy efficiency and maximising the use of renewable energy (whether for on-site generation or to sell it back into the grid), are seen as the main ways to cut on energy bills longer-term. The beauty is that this also contribute to the decarbonisation of the sector. Our spring survey showed that over 85 per cent of manufacturers had firm plans to invest in decarbonisation and a quarter had already moved to onsite generation. Unfortunately, for many some, these plans are being put on hold they need the money to pay for energy bills.
So what can be done to help an industry sector that has a crucial part to play in the economy in terms of GDP, employment, and trade? The very sector that, through the creation of innovative goods, processes and services, will be able to help the entire economy become more resilient to future health, energy and climate crises, and will take us on the path to a thriving low-carbon economy, attracting along the way thousands of highly skilled, well-paid, and rewarding exciting ‘green and technological' jobs throughout the UK.
Leaving it to market forces is no longer sufficient and even after today's immediate salvatory measures to stem energy costs for the winter, further government intervention will very likely still be needed beyond the winter as gas wholesale prices are predicted to stay very high for at least two years.
While a carbon price and other environmental levies are an absolute necessity to move forward on reducing global emissions and have enabled the UK to build a robust renewable energy generation platform, harsher UK levies on electricity prices have led our industry to paying the highest price of energy in Europe, gradually eroding its competitiveness. Energy Intensive Industries (EIIs) have been shielded from these high prices through specially designed schemes, but even for them, these have become insufficient and are rightly being reviewed. It's now time for the UK to put its manufacturing industry on an equal footing with its global competitors in terms of support and cost reduction.
But what about the bulk of the manufacturing sector, those mid-sized businesses, a quarter or which now have energy costs representing over 20 per cent of their overall business costs which would qualify them as EIIs? They haven't benefitted from any specific support to date.
Deeper reforms are equally urgently needed in parallel: An accelerated rehaul of the wholesale electricity market to decouple low-cost renewable electricity prices from gas, by resetting the current marginal price model. And to enable less reliance of the grid, we need incentives such as extending the 100 per cent business rates exemption for plant and machinery from 12 months to three years - reflecting much shorter pay-back times.
Only such a package of immediate measures and deep reforms will restore some certainty and enable our manufacturers re-start investing in a better, more resilient future.
Brigitte Amoruso is senior energy and climate change policy specialist at Make UK
* This article was originally published here