Energy is about to become expensive and there is little the government can do about it
Politicians make vocal cries that consumers should switch supplier. This has been a traditional refrain, but the reality is that energy supply and costs are entering the perfect storm bringing a headache for British business.
Many have been raising this point for years, but always the argument has moved to the best price for consumers without addressing the fundamental problems the industry faces.
There are immediate issues that have raised costs, but these are exacerbated by a failure of all governments over the last 30 years to invest in generation. The first reason for price increases is Brexit and adding to the recent increase in commodity costs, this means that next year most companies will pay 10 to 20 per cent more for their energy. Scaremongering will be the immediate response, but the increases are already built into the system.
The post-Brexit collapse of sterling effectively raised commodity prices. The delay in the price rises is simply due to energy being purchased a year ahead and the increases taking time to come into effect.
Commodity price rises have also been brought about by producers reducing supply. The recent glut in supply, mainly caused by the Saudi Arabia increasing supply to drive down costs to destroy the shale oil industry, resulted in a crash in the price of oil from $110 a barrel to around $45. This has caused pain to all producers, especially as the glut has hindered a bounce back in price. An agreement to cut production has increased prices since and a steady increase is predicted.
These external factors are having the most immediate pressure on price, but there is a more worrying element that affects the cost of energy generation. Britain is facing a massive bill for building new generating assets and rebuilding the aged grid infrastructure to guarantee security of supply. Over the last couple of decades, we simply forgot to build almost any power stations. The privatisation of the sector has led to competitive prices for consumers mainly due to lack of investment in replacing our aged power stations that are knackered.
We have sweated the generating assets and now have to pick up the deferred bill. Consumers are waking up to the majority of their power bill being the cost of all the measures needed to finance to assure the lights stay on.
Improving energy efficiency and reducing energy demand is what all UK businesses should do right now to mitigate risks and maintain long term competitiveness.
For the last 3 years, EMEX organised in partnership with the Energy Managers Association (EMA, www.theema.org.uk), has helped thousands of businesses from all sectors to increase their energy efficiency and reduce their operational costs.
Taking place on Wednesday 22 and Thursday 23 November 2017 at ExCeL in London, EMEX is the energy management show that connects all energy users with leading experts, policy makers, suppliers and technical solutions. 80+ CPD accredited free seminars and 100+ Exhibitors. For more info, visit www.emexlondon.com
Lord Redesdale is CEO of the Energy Managers Association