Does the UK’s energy strategy add up for businesses?

The panel came after Business Secretary, Peter Kyle, announced an eight-week consultation on the British Industrial Competitiveness Scheme (BICS). As one of the measures included in the Industrial Strategy, BICS is designed to support 7000 energy-intensive businesses with a reduction in charges and levies that are currently making their energy costs uncompetitive.

As a result, energy and its impact on businesses was one of the hot topics of the day, particularly so close to the Budget.

Following the announcement on BICS, the issue of energy non-commodity costs was something that was discussed at length. These are the non-supply costs - the network, policy and system charges - that are added to business energy invoices to fund the necessary infrastructure as the UK transitions to clean power by 2030.

Taking a look at the context, the government’s Clean Power 2030 Action Plan sets out a clear ambition of what needs to be done to achieve a low carbon energy system by the start of the next decade.

To give you an idea of the scale of the challenge, approximately 5,500 kilometres of new grid capacity will be needed over the next five years. That comes at a cost.

Firstly, it should be said that businesses broadly back clean power. Insight from our Business Energy Tracker shows that they understand the benefits it will bring in terms of greater energy stability, lower emissions and reduced costs. Many also accept that businesses hold a certain amount of responsibility to fund the transition.

However, at the moment, UK businesses are dealing with the highest industrial energy prices out of 24 countries reporting to the International Energy Association (IEA).

According to the latest figures, electricity prices for UK industrial users were almost 50% higher than in France and Germany, and four times higher than the United States and Canada.

In the government’s own words, for very large industrial users in the UK, policy costs are around £61 per MWh, compared to £2 per MWh in France and £10 per MWh in Germany.

So, while the ultimate aim of a homegrown clean energy system is to tackle this challenge, in the short term, businesses are facing steep increases in their non-commodity costs to achieve this goal.

In fact, new analysis from organisations that have tried out our Energy Cost Calculator, shows that businesses could be facing far sharper increases in non-commodity energy costs than many currently expect.

The initial data reveals an average projected increase of 84.2% in non-commodity costs. When you consider these could account for around 75% of a business’s energy invoice by 2030, that is a big cost to bear.

So yes, while BICS is welcome, many high energy users are operating outside of the proposed directly supported industries. Businesses told us they would either want broader eligibility criteria, or a ‘sliding scale’ of eligibility, so more businesses can benefit from reduced levies, as well as incentives to invest in on-site energy generation to reduce the number of non-commodity charges being paid.

This feedback will be submitted as part of our consultation response to the Department for Business and Trade. What is clear though is that more support is needed, either in this Budget or beyond, to make clean power add up for businesses.

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Anthony Ainswroth is Chief Operating Officer (COO) of npower Business Solutions (nBS), which is one of the largest business energy suppliers in the UK