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How UK Manufacturers Can Navigate Energy Cost Volatility and Net Zero Strategies

June 14, 2024 by PwC

The energy price spike in 2022 demonstrated the UK economy’s vulnerability to volatile energy costs. UK Industrial Manufacturers were no exception - their relatively higher dependence on energy for industrial processes meant they were also exposed to higher prices.

Our Energy Survey indicated that high energy costs had at least moderately reduced the ability of nearly six in 10 businesses to compete in the UK over the past two years, with 28% indicating it had affected their ability to compete significantly. It is no surprise that despite having fallen since 2022, energy prices remain the biggest risk to growth for UK Manufacturing, as outlined in our annual Executive Survey with Make UK.

In response, 38% of UK manufacturers have indicated that their top energy priority is to cut costs. This is 12% higher than the UK industry average, and more than double the sector’s focus on reducing consumption (18%). The fall in energy prices will help industrial and manufacturing businesses to address their cost bases. That said, organisations will still need to think through how they can reduce their impact to future energy price volatility. E.g. through measures to reduce energy demand, which has been adopted by 82% of UK manufacturers.

In addition to reducing costs, UK manufacturers will need to balance their decarbonisation agendas. Energy security is the main driver of decarbonisation for around two thirds of manufacturers, with many already adopting green measures, such as on-site renewable generation or signing a Power Purchase Agreement with an off site renewable generator. But four in five fear high energy bills could stall their net zero progress.

Harnessing data to better understand energy consumption

In an industry that gets tight tolerances and understands the importance of measurement, fine lines and digital adoption, it’s understandable that 72% said improving data and analytics on energy use is their most widely adopted approach to mitigating the business impact of high energy prices.

What is surprising is that three-quarters report a lack of clarity into where energy is being used across their operations as a major barrier to mitigating these costs.

Most things that can be measured can be adapted and improved, so this lack of data and transparency of information is clearly a problem.

It begs the question that, if the adoption of new digital technologies is seen by 71.2% of organisations as a means of boosting operational efficiency in our Make UK report, why aren’t more using smart tech to better understand their energy usage and drive decarbonisation progress?

An imperative to transform with technology

As digital adoption rapidly transforms operations, becoming cloud-enabled is crucial for seamless communication and collaboration across operations and to feed back energy consumption, unlock decisive shifts to quickly mirror demand and enable energy savings and tariff adjustments.

Optimising resource usage and asset monitoring through tools such as energy data management systems is key to knowing where savings can be made across the supply chain and to influence other areas such as workforce patterns and assembly processes. Improvements in information transparency can also help accelerate progress on other Environmental, Sustainability and Governance (ESG) goals.

Another challenge is legacy equipment, with many having poor energy credentials. A more transparent overview could help cut consumption costs for example, running motors at more efficient speeds, and identifying automation add-ons to improve energy outputs.

Manufacturers with a focus on cutting both cost and carbon coupled with creativity and clear, responsible reporting could see these small, simple data-driven changes drive marginal gains, and as we know all marginal gains add up. It’s clear that by embracing digital tech and taking decisive actions, organisations can gain better insights, reduce energy costs and get ahead, particularly in a challenging market.

To read more of our findings in the UK Energy Survey 2024 you can download the report.

Author Cara Haffey leads PwC's Manufacturing and Automotive sectors across all disciplines, is the Head of Private Business and Head of Deals in Northern Ireland. She is an M&A Deals Partner. Related: Read more PwC guest blogs here.

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