Manufacturing 2015: “Sky-high” energy costs are eating into competition
AS the manufacturing sector becomes ever more advanced and the pressure is on to bring production back to the UK, it seems inevitable that energy costs will rise.
Even standard energy costs are taking a bite out profits and the ability of businesses to stand up against international competitors.
A major manufacturing project by TheBusinessDesk.com and Squire Patton Boggs, which which was launched last week, has analysed the impact of energy costs and issues surrounding them in the region’s manufacturing sector.
Karen French of Squire Patton Boggs said that energy costs in Britain are “sky-high” compared to other countries and managing director of Kodak, Phil Ball, said that the main issue for many manufacturers remains energy costs.
He explained: “If you have an energy intensive business and you compete with the US then we’re at a tremendous disadvantage in this country.
“If you are working in an international business where you have comparable manufacturing processes across the globe, it’s a huge advantage to be based in a lower energy cost location.”
Paul Madin of Sheffield Forgemasters said that with energy bills into the millions, it makes it difficult for even the £80m-turnover Sheffield Forgemasters to compete with larger foreign businesses. 
As an energy-intensive manufacturer, ‘non-power’ costs are a bigger issue. What Mr Madin described as “UK-only” additional costs mean that energy can be nearly 50% cheaper in mainland Europe than on home soil.
The move to greener, more sustainable energy has been talked about and moves have been made towards it, in the hopes that it will create longer-lasting, cheaper energy in the future.
The implementation of green energy solutions itself has a price, and despite this consensus, manufacturers are open about the toll going green can take on businesses.
Andy Tuscher, regional director of the EEF, said that many manufacturers still see environmental compliance as a “cost” – although they’re fully aware that their obligations need to be fulfilled, there is no “joined-up thinking” across the sector.
He explained: “These days, all new buildings have to be constructed in the most environmentally friendly manner.
“I’m aware of some companies who’ve implemented these best practices and as a result, their business rates have tripled.
Mr Madin of SFIL however said there could be some “surprising” benefits to aiming for more sustainable practices in manufacturing.
At SFIL, a 100 tonne furnace expels metallic and nonmetallic dust, which until recently had been sent to landfill at a high cost.
Now the manufacturer has been able to sell it to a company in Poland, so “rather than it being sent to landfill, there’s a cost benefit for us,” said Mr Tomlinson.
“It’s surprising what can come out of being green – and I think that manufacturers are becoming increasingly aware of this,”he said.
Cutting carbon footprints will not only benefit the environment, but also cut out unnecessary links in the supply chain according to Karen French of Squire Patton Boggs.
She said: “If they’ve got a facility in Keighley – rather than one on the outskirts of Shanghai – then the supply chain is far easier to manage and a company is also likely to cut its carbon footprint in terms of moving products around. I do think that the process of reshoring can also be easier said than done – manufacturers looking to bring production back here are still going to find the skills gap an issue.”
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Complementary projects have been running in the North West and West Midlands. Click here to read their reports:
