ENERGY SECURITY STRATEGY MUST BALANCE REALITY TODAY WITH FUTURE NEEDS

Chris Mould, Audit & Assurance Partner, in the Cheltenham office of national audit, tax, advisory and risk firm Crowe, looks at the future of energy for the UK’s manufacturing sector.

The UK’s future energy security strategy needs to tread a fine line between the practical needs of industry now and its medium to long-term targets.

Soaring energy costs are a huge challenge to the manufacturing industry.

This is not just a short-term cashflow issue, it is about the competitiveness and survival of UK manufacturing. There is a very real risk that factories will have to close as they become unviable with too-high energy prices.

It’s no good being ‘clean’ but importing products from countries that aren’t. It’s just creating poverty here while moving the problem elsewhere.

Not all countries are committed to net zero, let alone by 2030/2050, and this was behind the rumoured threat by Toyota to move manufacturing away from the UK (now denied). Others may follow, however.

We need a balanced and affordable approach from government that supports UK industry in the short term and incentivises investment for the future. This means grant funding as well as loans and it means listening to industry much more to inform policy-making.

I believe that an over-aggressive, early implemented, energy security strategy has grave short-term risks for business.

and the manufacturing sector’s short-term requirements, cannot be reconciled.

Yes, we want to secure the long-term future of our domestic energy supply so that we are not in thrall to world events and widely fluctuating markets, but it cannot be at the cost of short-term damage to the engine room of our economy - our industrial and manufacturing base.

We all support the call for the ambitious, quicker expansion of nuclear, wind, solar, hydrogen, oil and gas, but history and experience teach us that projects of this kind invariably take much longer than was originally thought.

It is admirable to have a strategy that envisages the creation of 40,000 more jobs in clean industries by 2030, but not at the cost of our manufacturing industry and many thousands of jobs in the next few years.

And there is the inherent risk of securing the UK’s domestic energy policy and committing to a greener future, while businesses simply import products from countries that pay only lip service to the environmental agenda.

It feels like manufacturing has been rather overlooked in the government’s new energy security strategy. Firms are given no support with immediate costs and no incentives to invest for the long-term.

As governments in other countries have been stepping in with support packages worth billions to support businesses through the energy crisis, we risk destroying our manufacturing base and seeing it go abroad

In the short-term there will undoubtedly be an impact on cashflow, on the return on capital employed, and an impact on profits which, ultimately, may risk the survival of some businesses.

Organisations with money will only invest in countries with the best incentives and a more realistic, balanced approach to net zero.

Industry has a key role to play here as an influencer, to help the UK government steer a viable path between ultimate energy security for the country, and the current practicalities facing manufacturing businesses.

There is no reason, with a great deal of careful thought and planning, why the government’s medium to long-term aims,

The Prime Minister has called for the offshore wind industry to deliver new power supplies in one year, rather than the 10 years that seem to be taken up mostly by planning issues.

He wants to see one nuclear power station a year coming on stream, against the current rate of one every ten years.

The cost and time overruns on Hinkley Point C do not fill you with confidence.

We all want clean energy and independence of power supply but beware of creating casualties in the rush to deliver an over-ambitious agenda by 2030.

Crowe works with a broad spectrum of businesses in manufacturing industries, and we advise on a wide range of issues.

To start the conversation on how we can help your business, call Chris Mould on 01242 234421, or email chris.mould@crowe.co.uk