Does Government support mean the end of energy surcharges?

Is the Government pledge to cut energy bills for business to around half of expected levels enough to put an end to energy surcharges?

The Government unveiled its energy package for business at the end of September.

Under the scheme, wholesale gas and electricity prices for firms will be fixed for six-months from the start of October, offering businesses protection from spiralling energy prices – something which had threatened many with collapse.

“To be fair, the Government has responded very quickly to the energy shock which had been looking catastrophic for a lot of businesses,” says Ryan Johnson, group managing director, Emplas.

“Business is not going to see the same level of cost pressures but energy costs will remain high, so it’s not a silver bullet and there are still some pinch points for the industry on the horizon.”

Under the new government scheme, wholesale energy prices, which are paid by suppliers for energy in bulk before they distribute it to customers, will be fixed for all non-domestic energy customers at £211 per MWh for electricity and £75 per MWh for gas.

Those rates will be the base cost, to which other add-ons, such as standing charges will be added by suppliers.

According to independent analysts, Cornwall Insight, the plan amounts to what is effectively a 45% discount on what firms would otherwise have paid.

“It’s a big win for business in comparison to the shotgun barrel that we were previously staring down,” continues Ryan, “but to put it into context, some areas of our industry have seen energy price increases of 350% this year.

“Glass is clearly one of the biggest energy users in float glass and IGU manufacture and toughening. That 45% discount is a big help but we need to be realistic – energy is still going to be a challenge and surcharges aren’t going to go away.”

Emplas has continued to invest significantly to drive efficiencies throughout its operation. This has included a redesign of its factory floor; investment in its fleet; and an ambitious factory floor leadership programme.

Combined, this has contributed to year-on-year efficiency gains of between 12 and 15% across its business – a saving which has been passed directly to its customers in the form of a six-month price freeze since February.

As part of this strategy, Emplas is also continuing to invest in its IGU business and will take receipt of a state-of-the-art Forel Vertical IGU-line this autumn. The £1m plus investment will deliver a 45% uplift in capacity on its current 10,000 IGU a week capability.

“Glass is going to be one of the crunch points going into 2023,” says Ryan. “There’s growing commercial demand domestically and in Europe, which is contributing to an underlying supply issue.

“Despite the current package of measures, glass companies, and particularly single process tougheners are going to struggle with rising energy costs – even at the discounted level.

“We expect that to take capacity out of the market, something which would bring further disruption to supply into the home improvement sector.

“Having our own glass business and continuing to invest in it, gives us and our customers a greater level of security as well as control on cost,” Ryan adds.

Its strategy to control costs and deliver savings to installers has also included Emplas’ decision to instate 110 solar panels on the roof of its main Wellingborough site, while it is also exploring other ways to lower its carbon footprint.

“Solar has definitely helped us in lowering our energy costs but it’s not a complete fix and we’ll continue to explore other ways to lower what we pay,” Ryan says.

“For us it’s gone hand-in-hand with being a responsible manufacturer and working towards lowering our carbon emissions.

“This has included investment in our fleet, with new trucks helping to improve fuel efficiency by 50% compared to older models.”

“Looking to the longer term there is an opportunity for everyone to lower energy costs and carbon emissions by investing in more efficient machinery and improving the insulation of buildings,” continues Ryan.

“The cash-saving on energy that we’re getting from government over the next six-months is really important, but we would also like to see longer term incentives for green and energy efficient investments.

“We’ve argued that a VAT cut for energy efficient domestic home improvements would be a great way of supporting homeowners, but it would also work for business,” he concludes.

“We’d also urge the Government to consider an extension of the Super-deduction, which was introduced as a response to COVID-19 to encourage companies to invest in increasing productivity through capital investment, to low energy and green operational improvements.”