Chris Rason, Managing Director – Aggreko Energy Services, discusses how flexible energy models can help manufacturers circumvent the ongoing energy crisis.
It goes without saying that manufacturing is a cornerstone of the UK economy. Statistics from Make UK indicate that the sector has an annual output of £183 billion, while also supporting over 2.5 million jobs and 64% of all domestic business research and development.
Despite its many strengths, the sector has still been placed at risk by the current energy crisis. As one of the more gas-dependent nations in Europe, the UK manufacturing industry is now under threat from volatile energy prices and increasingly frequent power outages. This has impacted manufacturers’ ability to remain competitive in a market that faces stiff competition from overseas.
A Deep-rooted Challenge
The extent of this issue has been detailed in Aggreko’s recent report The Power Struggle, with 66% of those surveyed stating that rising energy bills had significantly impacted their margin in the past two years. In response to this challenge, the Government has recently issued a relief package to ease pressure on the sector. However, this does not address the longstanding concerns surrounding the security and sustainability of energy procurement, which were highlighted in Aggreko’s 2019 report, Bridging the Energy Gap (BTEG).
As a matter of fact, today’s situation was forecast in early 2021, when the Energy Intensive Users Group (EIUG) warned that the spiralling cost of energy could lead to halts in production. With this in mind, it may be time for UK manufacturers to re-evaluate their approach to power procurement in order to address these challenges at their core and avoid a repeat of this situation.
Distributed Energy Solutions
Aggreko chose to revisit the concerns outlined in BTEG on account of the significant changes in the energy market since 2019. Within The Power Struggle, published in April 2022, Aggreko surveyed 251 manufacturers with 2000+ employees, from Junior Managers to C-suite Executives.
One of the potential solutions outlined in BTEG to ward against an increasingly volatile energy market was Energy as a Service (EaaS), wherein manufacturers are able to access decentralised energy solutions through a subscription model. Crucially, this approach allows operators access to on-site power generation without upfront capital investment, which may have otherwise proved a barrier to entry.
The Power Struggle indicates that over 60% of respondents have considered generating their own electricity using a distributed solution. This marks a significant increase over the 48% observed in BTEG, illustrating the effect that the energy crisis has had on attitudes towards alternative methods of power procurement.
Facilitating Flexibility
Despite growing enthusiasm for this technology, EaaS contracts are not without their limitations. Namely, the majority of manufacturers who currently make use of this model are subject to one- or two-year fixed term energy price agreements with their provider. In such an increasingly volatile energy market, this can leave businesses exposed, given that some EaaS providers issue penalties for customers with excessively high demand.
The solution to this challenge lies in Hired Energy as a Service (HEaaS), which offers all the same benefits as a standard EaaS contract alongside an element of well-needed flexibility. Crucially, HEaaS eliminates the risk of penalties as it does not tie manufacturers into high fixed energy costs. Instead, should demand fluctuate, users can simply add or takeaway output as required.
Such an approach is vital to navigating the evolving challenges of today’s energy market. Moreover, a business’ supplier needs to be just as in tune with the needs of the sector as the company themselves, in order to effectively work co-operatively to tackle these challenges.
Closing Thoughts
It is clear that the ongoing energy crisis is having a profound impact on profitability for the UK manufacturing industry, with both rising energy prices and the knock-on effects of power outages affecting production. While government support may prove a valuable short-term aid, it is important to re-evaluate approaches to power procurement in order to guarantee greater security of supply in future.
Here, manufacturers may find adopting HEaaS contracts, such as those offered by Aggreko, to be of benefit. Such models allow users to decrease reliance on the grid without outlaying capital expenditure, while also ensuring that businesses are not locked into exorbitant fixed pricing systems as observed with standard EaaS contracts. Through this approach, manufacturers can effectively navigate the current crisis and future-approach against this challenge should it arise again.
To download Aggreko’s full report, The Power Struggle, click here.