Energy costs sapping manufacturers

British manufacturers are facing an increasing threat to their competitiveness from rapidly escalating energy costs according to a survey published this week by EEF the manufacturers’ organisation.

The survey of 371 companies showed 93% had experienced an increase in energy prices over the last twelve months with average weighted increases in gas and electricity of 47% and 34% respectively. These rates are more than double the level of increases reported in 2004.

In addition, three quarters of companies saw the cost of gas increase in excess of 30%, whilst 40% of electricity consumers saw increases greater than 30%. The impact of higher prices has been particularly acute for energy intensive companies, which have experienced even higher increases in unit energy costs. Furthermore, not all large consumers are large companies.

As a result, large industrial users in the UK currently face the highest gas prices and, amongst the highest electricity prices in Europe. This is despite the fact the UK has a fully liberalised gas market and remains the largest producer of gas in the EU. Looking forward, companies see no respite with 80% expecting the cost of energy to increase further in the next twelve months.

Commenting on the survey, EEF Director General, Martin Temple, said: “Companies have already had to deal with a range of cost pressures and while some of these are felt internationally, the UK is being hit worse than most. Alarm bells should be ringing in government at the impact of higher energy costs, the threat posed to competitiveness and the future for some significant companies in the UK.”

The survey highlights that companies are responding to these increases in a number of ways, in particular by looking at how they buy energy and by pressing ahead with further energy efficiency measures.

Sixty percent of companies that had experienced energy price increases have either changed or investigated changing their energy supplier. Companies are changing either the period or contract length of energy purchases; and over half the companies have carried out an energy efficiency audit and most have followed up the audit with energy efficiency investments.

Virtually all companies found energy audits to be beneficial, with savings identified and actioned. However, the survey highlighted that attempts by smaller companies to improve their energy efficiency are being hampered by a lack of engagement with the agencies set up by government to deliver guidance. In particular, companies are excluded from a free energy survey by the Carbon Trust if their energy bills are less than £50,000.