Businesses face energy crunches and higher operating costs that could last for up to three years, according to the UK’s National Grid.
Proposals – reported by the Telegraph – suggest National Grid could make payments of up to £5 million to factories willing to cut production if the gas crisis worsens due to the war in Ukraine. In addition, factories failing to submit bids for such Demand Side Response (DSR) payments could face compulsory gas rationing.
“The gas supply picture is different for this winter, given the current uncertainty about whether sufficient Russian gas will be available to supply continental Europe,” a National Grid document reportedly said. “We therefore believe that there is a need to incentivise the take-up of the DSR products so that the scheme can be utilised this winter if required.”
Price hikesConsultancy Cornwall Insight estimates that some businesses could see prices rise five times higher than now when they renew contracts this October. In addition to the war in Ukraine, higher electricity prices in Europe and lower supplies of liquified gas are also pushing prices up. The consultancy said the rises could tip businesses over the edge.
“Higher energy costs could force business closures, with the corresponding job losses reverberating throughout the economy,” it said. It warned that wholesale prices may not return to 2021 prices until 2030.
The British Chambers of Commerce recently lobbied government with a five-point plan to help deal with the issue. The plan gives Ofgem (the regulator) more powers to support business. But it also suggests cutting taxes and reducing restrictions on migrant labour to help tackle the country’s labour and skills shortages.
In fact, the energy shock comes at a time when inflation has topped 10 per cent – a 40-year high. In addition, governments are increasing interest rates. Shevaun Haviland, BCC’s director general, said: “The impact of these challenges on consumers, businesses and wider society cannot be overstated.”
Risk mitigationIn the short term, businesses have limited options to mitigate risk. But a recent paper by the consultancy McKinsey suggests that businesses consider generating their own power at local sites. Such measures could include installing small-scale photo-voltaic systems or biogas plants. In addition, the consultancy said that better hedging strategies and other measures could help.