The FINANCIAL — UK manufacturers could inject an additional £2.56bn into the UK economy, cut energy consumption by nearly a third (31.6%) and boost their energy resilience by increasing investment in energy technology over the course of the next decade, finds a new report by Barclays.
The Barclays Corporate Banking Powering On; Energy Resilience in UK Manufacturing report examines current attitudes of UK manufacturers towards energy supply and management and models how manufacturers could reduce their energy demand.
The research shows a growing concern about the availability, reliability and cost of energy with over a quarter of UK manufacturers surveyed (27%) saying that energy supply is more of a concern to their business now than at the start of 2016. These concerns have come to the fore as manufacturers feel squeezed by increases in the price of other raw materials, greater competitive pressure in the sector, and 28% of those who said their business is more concerned said this is because they are worried about the eventual impact of the UK leaving the European Union.
Mike Rigby, Head of Manufacturing, Transport and Logistics at Barclays, said:
“Energy resilience and costs are vital considerations for UK manufacturers and are a critical element of our manufacturing sector’s ability to compete internationally.
“In recent months, attention has focused on the future of energy supply but we need to look at all aspects of energy. By considering energy management on the demand side in intensive sectors such as manufacturing, we can ensure the UK remains competitive.”
Chief among manufacturers’ concerns today are energy prices, with 75% of respondents citing this as a worry. Almost half (46%) of manufacturers also believe that they are vulnerable to the effects of significant energy price increases, of which 19% believe that they are very vulnerable.
Reliability and availability of energy is also a worry with 58% and 45% of manufacturers citing these as concerns respectively.
Longer term, manufacturers are concerned that energy shortages will occur, with over half expecting these in the next ten years. Most of the sector (63%) believes that they are vulnerable to energy shortages, arguing that current preparations are likely to be insufficient. In addition, a majority (60%) also believe that the risk of cost increases and supply disruption will increase if the amount of energy the UK imports increases.
Investing in energy technology as a solution
Manufacturers are already investing time and money in a variety of energy management technologies and approaches, or planning to in the next 12 months, with energy efficiency measures (35%), negotiating lengthier energy supplier contracts (22%) material efficiency (21%) and self-generation (13%) measures topping the list.
The Barclays research reveals that if all manufacturers became as energy efficient as the leaders in the sector, this could create an industry worth £160bn to the wider economy by 2025. This represents an increase of 5.1% in value terms compared to 2015, and a £306m increase on the projected value of the manufacturing sector if it were to remain on its current trajectory, without improvement in energy efficiency.
This extra economic output will be achieved by the sector cutting costs and improving its international competitive position, but only if the sector can develop the leadership commitment and resources required.
Furthermore, as a single year comparison – in 2025 alone, this improvement in energy efficiency would result in a manufacturing sector using 7.9% less energy than expected. This is the equivalent of successfully cutting the electricity consumption of every house in the UK by 15% compared to today.*
The research also shows that at a regional level, the North West (£1.06bn), South East (0.96bn) and West Midlands (0.78bn) are the three regions within the UK that could benefit most from accelerated investment in energy technology and efficiency.
Mike Rigby, Head of Manufacturing, Transport and Logistics at Barclays, continued:
“We know manufacturers are already taking steps to improve their energy resilience, from investing in energy efficiency to self-generation and partnering with resource recovery parks.
“However, our research shows that increasing this investment will not only protect the sector from future fluctuations in energy supply, but will also benefit the wider economy by making the sector more internationally competitive through reduced costs and increased productivity.”
Government policy and incentivising investment
Manufacturers suggest that increasing access to external funding (36%), providing greater certainty on ROI (30%) and sharing best practice within the sector (17%) would be the most effective ways of driving further investment in energy technologies within the sector.
More widely, when asked for their views on priorities for UK energy policy, manufacturers are keen that efforts be focused on improving grid efficiency and stability (54%), cutting the cost of energy (47%) and decarbonisation (41%). Interestingly despite high profile potential investments such as Hinkley Point C, manufacturers were nearly as interested in efforts by the UK Government to focus on demand management and energy storage (32%) as they were in increases in the total amount of energy available (40%).