SMEs account for an overwhelming three fifths of employment and over half the turnover for the UK private sector (£2.3 trillion) as cited in a study by catapult energy when looking at the barriers to innovation in delivering ‘smart energy’ to SME’s.
So we weren’t surprised to read an insightful and topical piece in the Times earlier this month, on the challenges SME’s (and even larger corporates) in the manufacturing sector are facing, with the current surge in energy prices and other inflationary pressures.Indeed the recent decision by Russia to close Nord Stream 1 pipeline will further exacerbate the issue. Although the UK is not directly impacted by the gas supply disruption this may cause (as it imports less than 5% of its gas from Russia), it would be affected by prices rising in the global markets as demand in Europe increases.
The impact this is having on manufacturing and SME businesses is really quite distressing for those affected. One manufacturing Company in the midlands with 340 staff found themselves facing a cost increase across their business of £1million a year for energy consumption alone, whilst a £1 million turnover hospitality company has seen increases on monthly costs of 46%; clearly overwhelming to bottom line profitability. So what does all this mean? That businesses will need to get smarter, adapt, evolve or die – that is what it will likely mean in the short to medium term.
According to ING, energy prices are set to remain high for a prolonged period of time, so directors and corporate decision makers will need to find new tools to help them mitigate these price increases and survive. These tools could include practical measures such as reduced consumption, seeking different energy providers with initiatives such as fixed rates and investing in innovation such as wind or solar energy (touched on below).
So where is the good news? People are being forced to look at cheaper alternatives that benefit the environment. Much like the auto-industry in the move to electric vehicles, whilst these alternatives face expensive initial outlays, they ultimately result in cheaper green resources – ‘the net zero journey’. Some are already reaping the benefits; Solar energy is leading the charge for cheaper alternatives – Tiny Rebel is a £20million turnover business that has 168 staff – a bread and butter SME business. They installed solar panels and saw their monthly energy bills slashed from £12,500 to £5,000.
So, it is a win, win? It is too early to tell and certainly not to the manufacturing business owner trying to meet payroll costs in the face of a dramatic increase in general overheads, however the signs are that embarking on the net zero journey could result in significant savings. The real question will be how people fund the change, and what pressure that is going to put on short to medium term cashflow, some may be able to weather the storm whilst others will need to clutch onto government schemes and initiatives where possible.
Increasing production overnight when energy is cheaper is not an option because the savings would be offset by higher staff wages, he said. Instead, he has passed on higher costs to customers, which include the NHS and private health providers, and is now reviewing prices every six months rather than every year. “It’s coming to a point where you can’t really absorb huge increases on costs such as utilities,” Sheridan, 41, said.