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Coming to terms with energy policy

Published: 15 October 2014 - Marianne Evans

When it comes to energy policy the governments of today are caught between a rock and a hard place. On the one hand is the imperative to act against climate change and to help move the UK towards a cleaner energy future. On the other is the need to ensure that UK businesses do not suffer as a result and that they remain competitive in the global marketplace. It is a tough balancing act, and according to the results of recent npower research, one that UK businesses do not believe has been achieved.

The research, carried out on our behalf by YouGov, surveyed 633 senior decision makers at industrial and commercial businesses in the UK and found that many doubt that the economic case for the UK’s energy policy has been made.

Crucially, the survey demonstrates that businesses aren’t willing for their energy bills to increase in order to financially support low carbon energy schemes, such as those proposed through the Government’s flagship Electricity Market Reform (EMR) measures. Indeed, 81% of the 600 senior decision makers surveyed by npower ranked affordability as the most important energy related issue for their businesses, ahead of security of supply (77%) and the move to a low carbon economy (41%).

Put simply UK businesses are stating their belief that the Government has not yet made the case for its low carbon, high cost approach to the UK’s energy environment.

This position is understandable. Higher energy bills put pressure on business profitability, particularly for energy intensive sectors such as manufacturing. It is easy to see why such businesses may wish to relocate their operations to countries where the cost of energy is less expensive. Some have even gone on the record to state that is exactly what they intend to do – Tata Steel for example.

To some extent however these findings suggest an awareness gap when it comes to the detail of the Government’s policy and what it is attempting to achieve.

The Government had already realised the importance of this issue and has adjusted its energy policy to compensate energy intensive industries for some of the costs arising from its energy strategy. Such measures will have a hugely beneficial impact on businesses but more will need to be done to assist businesses with their costs long into the future. If UK plc is to remain competitive then the Government and the wider energy industry need to work closely together to better educate businesses about both policy initiatives and energy consumption in general.

The reality is that bills are increasing and the onus is now on energy suppliers and businesses to limit the impact of this. The good news for businesses is that much can be done to reduce their energy costs with minimal disruption to their operations and only small-scale investments.

Indeed, our forthcoming report: The Twenty Per Cent Imperative, sets out how the UK’s larger businesses could collectively realise annual savings in excess of £4bn if they reduced energy consumption by 20% (£3bn per annum in reduced electricity costs and £1bn in gas bills). A 20% energy saving in energy consumption by the UK’s I&C sector would represent a 34.2tWh cut in all of the UK’s annual electricity consumption (a 10% drop in total consumption and equivalent to 15,000,000 tonnes of carbon emissions).

Such a reduction is consumption may sound difficult to achieve but it really is not. Simple measures such as investing in on-site embedded and renewable energy generation, recycling energy waste and engaging your workforce about energy efficiency can reap huge rewards. The exact energy solution will vary according to the specific facilities and operational needs of each individual business, but we have seen from our work with customers that the 20% efficiency target should be easily achievable by most businesses.

There is no escaping the fact that the energy market is complex and energy policy more complex yet. Some tough decisions have been made and will continue to be made in the years ahead. In the light of this it is not surprising that many businesses are failing to see the economic case for higher energy costs. Yet this is now the nature of the market and something we must all adapt to. That is why you have providers like npower actively helping customers to use less of its product. It is something we are happy to do as the long term profitability of UK businesses is absolutely essential to our own business success.

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