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Business Energy Costs Glossed Over in Spring Statement

Much of the focus ahead of today’s Spring Statement was on what support could be provided to support the British public through a growing cost of living crisis. However, many businesses were concerned that an equally daunting cost of doing business crisis could end up being overlooked, leaving them to wait until the Autumn Budget for support that is in danger of being too late for many.

These fears were largely born out in a Statement that looked to provide reassurances for homes but provided little clarity for businesses. Sunak rightly identified energy affordability and efficiency as a key way to combat energy price increases, but its scope was limited to the scrapping of VAT for the installation of energy efficiency measures on houses, including solar panels, heat pumps and insulation.

A five pence per litre reduction in fuel duty will provide slight relief to businesses, but otherwise it looks like a long wait until the Autumn Budget for any meaningful support on energy costs. A windfall tax on the profits of energy companies, that many had called for to support homes and businesses to meet their energy costs, did not transpire. Shadow Chancellor Rachel Reeves was quick to point out this failure, stating that if enacted the tax would have represented over £3 billion in support for home and business energy costs.

Reeves also criticised the failure to address energy-intensive manufacturing sectors, leaving them in the dark in the face of spiralling energy costs. Her criticism of a statement that lacked a long-term plan for productivity, skills and growth will likely be echoed by many businesses that had hoped for meaningful support with their energy costs, with policy interventions in October at risk of being too late for many.

More clarity on how the UK intends to better secure our energy mix and reduce reliance on imports is expected to come next week. Initially slated for the 13th March, the Energy Security Strategy should lay out measures including increasing domestic fossil fuel production as well as ramping up solar and wind generation. Business and Energy Secretary Kwasi Kwarteng has stated that while Putin can influence global gas prices, he has no control over our renewable generation.

A small degree of comfort, or rather the tempering of previous bad news, came just ahead of the Spring Statement. Energy market analysts Cornwall Insight announced that they are revising down their forecast increase to the winter price cap, pulling back around £400 to £2,512. However, this still represents a further £500 increase, meaning that while the picture is not quite a dire as initially predicted, energy prices will continue to increase. While the price cap relates to domestic energy, it still provides a yard stick for business prices, with many companies now facing an increasingly nervous wait for support. More and more energy contracts will come up for renewal in the meantime, leaving businesses with a difficult choice on how to mitigate or at least spread out a major price hike.

Energy efficiency, as mentioned by Sunak during his statement, is key to minimising your organisation’s exposure to energy price rises. This includes voltage regulation, which can deliver a substantial reduction to your total energy consumption by conditioning incoming power end delivering lower, more optimal voltage levels to your equipment. At the same time, this technology protects your equipment from being disrupted by sudden surges or dips in voltage and increases its working life.

Battery energy storage has the potential to overhaul your site’s energy systems and the way you manage your energy, opening a number of flexibility options that can help to reduce costs. This includes purchasing power at off-peak times when prices are lower, then using stored power during peak times. Batteries can also be used to generate revenue through engaging with grid balancing mechanisms such as Demand Side Response, where end users receive payments in return for using their battery capacity to help National Grid balance supply and demand on the grid. Using battery storage and on-site generation to turn your site into a smart microgrid has the potential to completely insulate you from the volatility of the energy market.