Food and drink sector finds EMR costs unpalatable
As the government’s Electricity Market Reform (EMR) costs start to hit bills this month, our latest Energy Matters Briefing focuses on the reaction of food and drink manufacturers.
In a survey of 100 decision-makers from the sector, 75% now cite rising energy costs as a factor in deciding whether or not to expand their business. By comparison, tax policies were important to 44% of businesses and skills shortages to 41%, suggesting that the cost of energy has become a highly significant issue.
To cope with these costs increases:
- 26% say they have either planned cuts to employees or freezes on recruitment.
- 16% have considered moving production offshore.
- 15% say that they plan to offset the extra expense by charging customers more.
Policy costs add as much as 50% by 2020
As I outlined in my recent blog, two key EMR mechanisms –Contracts for Difference (CfD) and the Capacity Market (CM) – will add around £0.040/MWh and £0.012p/MWh respectively to bills in the 2015/16 year. However, these figures just represent the cost of administering these schemes, so while they start off small, they will increase over time as the full costs are added.
The Department of Energy and Climate Change (DECC) forecasts CfD costs will reach £8-£10/MWh by 2020, and CM costs will increase to around £3-£4/MWh by 2018/19. That’s a far more significant £11-14/MWh within the next few years.
Of course, CfD and CM are only two of many environmental policies impacting bills. By 2020, DECC estimates overall policy costs are set to add up to 50% to electricity bills for major energy users.
Among our Food and Drink survey respondents, 38% say that they have not had enough warning about these bill increases, while 65% feel that the Government is not providing enough financial compensation to business for the impact of funding UK energy policy through energy bills.
The best way to offset bill increases
Clearly, with an election looming, who can say what’s around the corner for energy policy (although I do plan to take a look at what the different parties have in store in a forthcoming blog later this month). But regardless of who’s in power, energy is not likely to become any cheaper.
For consumers, there are two key steps you can take to offset bill increases:
- Save money by using less energy.
- Make money by generating energy yourself onsite and participating in demand-side management incentives.
Based on our track record with many of the UK’s biggest brands, we know it’s entirely possible for most businesses to reduce their energy consumption by 20%. This represents annual savings of more than £4 billion for the UK – around the same as consumed by three million households or generated by seven power stations.
Installing on-site generation also helps to reduce your import consumption while providing an opportunity to earn revenue from any excess power you export to the Grid. Having this capability also provides back-up should you wish to participate in demand-side response initiatives, which provide additional revenue to companies willing to reduce consumption at peak times.
Equip yourself with the facts
If you, like many in the food and drink industry, find growing energy bills unpalatable, then let us help you find a tailor-made recipe for lower costs.
Wayne Mitchell is industrial & commercial markets director at npower.
This is a sponsored article.