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⚠ Energy special: Cost vs. supply, what's really going on?

Manufacturing Mondays
Manufacturing Mondays
It is unavoidable.
The energy price increase is now impacting all manufacturers.
In today’s issue, we take a look at what is driving the soaring prices, the impact it is now having on all manufacturers, not just energy-intensive ones, and what Government can do about it.
It has been clear for some time now action to address the rising cost of energy is needed, but it shouldn’t come at the expense of abandoning our net-zero ambitions as a country. If anything, it is more of a reason to prioritise it.

Energy prices continue to rise
We know that price hikes are a result of a mismatch between supply and demand. And with increasing gas supply shortages, electricity and gas prices have now increased in the UK and across the rest of Europe to unprecedented levels.
🔌 It is increasingly likely that we will see extreme price levels during peak hours over the winter. But what is driving this?
Naturally, it is a combination of things. A perfect storm with the risk of Russia further reducing supply over the winter, the French nuclear fleet operating at half its usual capacity, and drought reducing Norwegian hydropower and shutting French nuclear plants further.
While the UK does not use Russian gas, it is connected to the European energy market and dependent on interconnectors to the continent for its electricity supply. If Russia shuts off the gas supply to mainland Europe, it is less likely that France, Belgium, and the Netherlands will be able to supply the UK with power in times of peak demand.
↗ Most energy analysts expect current price levels to remain for the next several years.
Cornwall Insights have even predicted that UK wholesale prices are unlikely to return to their pre-pandemic levels before 2030, providing manufacturers little comfort! Make UK data shows:
  • 36% of manufacturers have seen their energy bills increase by over 50% in the past 12 months; and
  • 7 in 10 expect energy costs to increase again in the next 12 months.
Make UK Campaigns
⚠ 1 in 10 manufacturers have admitted that rising energy costs were business threatening.

We're urging the Government to lower VAT on energy bills, as they have done in Spain, and delay green levies on businesses.

We spoke to @TheSun's @AArmstrong_says.
Energy supply failure is now a real risk
We are seeing and hearing more warnings from energy experts increasingly concerned about supply security for the coming winter. Many have raised alarms about the lack of Government actions to protect against blackouts and energy rationing.
🛑 The immediate impact on manufacturers would be a substantial increase in electricity and gas prices.
If it is a particularly cold winter, prices will rise to unprecedented levels, forcing some businesses to discontinue operations. There would also be higher risks than normal of blackouts at times of peak demand if electricity cannot flow from mainland Europe to the UK when the continental gas power plants would be short of gas.
Given it isn’t just energy-intensive users feeling the impact, but all manufacturers, here are a few things that can support businesses…
Policy recommendations: Short term
✂ Cut VAT on business energy bills: To alleviate the cost of energy to business, Government should cut VAT on business energy bills with immediate effect.
🥶 Suspend the Carbon Price Support: Government should also explore a suspension of the carbon price support for 18 months. This would help free up cash for investments needed to accelerate decarbonisation.
Policy recommendations: Long-term
⚙ Expand the R&D tax credit to include capital equipment: Capital equipment to support industrial decarbonisation should be included within the qualifying expenditure for R&D tax credit reliefs. 
🌳 Introduce a Help to Grow Green programme: Modelled on Help to Grow, encompassing vouchers for businesses to spend on products and services to make their firms greener and support to train leaders and managers in industrial decarbonisation
💷 Take forward plans with the Net Zero Review on UK carbon prices and electricity price structure: The Government should look to work with industry to explore a broader carbon tax mechanism. The UK ETS should be extended to other sectors and link it to wider ETS schemes to increase the market size. In addition, the Government must look at electricity network charges and policy costs in a bid to decrease costs, including exploring compensation and exemptions to current schemes.
Co-written by Frank Aaskov, Senior Energy, Climate & Environment Advisor, UK Steel. Read more about UK Steel’s work here.
Is levelling up still a priority?
It certainly is for Mayors.
Make UK research focusing on how manufacturers can support levelling up, shows that 25% of manufacturers say they want Mayors to have responsibility for levelling up followed closely by Local Councillors (22%).
This emphasises the need for national Government to focus on how to empower local leaders and their role in making levelling up a success. Devolution will be central to not only achieving the ambitions of the levelling up agenda but more importantly, sustaining the importance of local solutions to local challenges years ahead, particularly labour shortages.
As Senior Policy Manager Jamie Cater explains…
Mayors and combined authorities would inherently have a better idea of what’s happening in their area and local labour markets, than central Government.
England’s metro mayors seek powers to train up regional workforces
We 💚 policy and manufacturing, so let’s talk:
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🔗 Linktr
Copy editor: Bhavina Bharkhada, Make UK Head of Policy & Campaigns
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Manufacturing Mondays
Manufacturing Mondays @MakeUKCampaigns

We discuss the big issues impacting the UK manufacturing sector, and our policy ideas to overcome them.

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