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Industry turns to efficiency to tackle soaring energy prices
Published:  01 October, 2005

Industry turns to efficiency to tackle soaring energy prices

British manufacturers are increasingly adopting energy efficiency measures to combat escalating energy prices, a new study has revealed. The survey, conducted by EEF, the manufacturers` organisation, found that more than half of the 371 manufacturers quizzed had carried out energy efficiency audits (with a further 22% considering such a move), and most have followed up the audit with energy efficiency investments.

The survey also showed that, over the past year, the companies` gas bills had gone up by an average of 47%, and they are having to pay 34% more for their electricity. These rises were twice as large as during 2004.

Energy-intensive companies and medium-sized companies have experienced even larger increases in their energy costs, says EEF (as shown in the chart above). Although some companies can pass these increases on to their customers, it adds, most cannot.

The EEF survey was conducted before the devastation wreaked by hurricanes Katrina and Rita in the US pushed energy prices even higher. The EEF and the Confederation of British Industry have since issued dire warnings over the potentially damaging effects on British industry of the hurricanes, and the forecasts of a severe winter with possible power shortages in the UK.

CBI director-general Sir Digby Jones warned that the cold winter being predicted by meteorologists could result in the UK`s limited gas reserves being diverted to domestic users, with industry having to endure power cuts as a result. The UK holds just 11 days of gas reserves, compared to an average of 55 days in other European countries.

"If we have a cold winter, we are going to have to throw the switch, businesses will shut down, and people will lose their jobs," Sir Digby predicted.

At the EEF, director-general Martin Temple (above) said that "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, 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."

According to the EEF, large industrial users in the UK now face the highest gas prices and, among the highest electricity prices in Europe. This is despite the fact the UK has a liberalised gas market and remains the largest producer of gas in the EU. Looking forward, the surveyed companies see no respite, with 80% of them expecting the cost of energy to rise further in the coming 12 months.

The survey shows that companies are responding to these increases in several ways. In particular, they are looking at how they buy energy and are pressing ahead with energy efficiency measures (see chart above).

Almost all of the companies in the EEF survey said that they found energy audits to be beneficial, resulting in savings being identified and implemented. However, the survey also found that attempts by smaller companies to improve their energy efficiency are often hampered by difficulties in getting help from the agencies set up by the Government to deliver guidance. In particular, companies do not qualify for a free Carbon Trust energy survey if their energy bills are less than £50,000. EEF argues that all firms should have access to this publicly-funded facility.

The high-profile publicity campaign for the Carbon Trust appears to be paying off. More than 40% of the companies surveyed by the EEF have used, or made contact with the Trust, and a further 30% are aware of it. But only about a third of the companies have made contact with Action Energy, which provides free energy-saving advice. Smaller companies are less aware of the Carbon Trust and are less likely to have used its services (see chart below).

The EEF believes that there is scope for improving the ECA (Enhanced Capital Allowances) tax-rebate scheme that was introduced in April 2001 to encourage more companies to invest in energy-efficient equipment. In 2003/2004, just 1,500 firms are estimated to have received ECAs.

In a recent submission to government, EEF recommends a more streamlined approach to determining which technologies qualify for ECAs. "Currently," it says, "there is an overly prescriptive and bureaucratic approach for technology developers wanting to include a new technology on the eligibility list." The EEF argues that as long as a business can demonstrate that the equipment will result in the required level of energy efficiency, it should qualify.

The ECA scheme is currently being reviewed and the Treasury is due to publish a report on it next year.

The EEF cautions that while energy efficiency measures are important, they will not, by themselves, address the long-term problem of rising energy prices. The organisation believes that the government must develop a sustainable, long-term energy policy and press for faster liberalisation of EU energy markets.

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