Chris Norbury: shift UK business energy policy costs

E.On UK's chief executive, Chris Norbury, has urged the Government to ease the burden of energy policy costs on business electricity bills1. He argues that this move would help "concerned" UK firms invest in low-carbon technology and accelerate the transition to renewables. E.ON's research indicates that many businesses are keen to invest in green solutions but are deterred by current expenses.

Understanding UK business energy policy

The UK's energy policy framework aims to balance critical objectives, but its current structure places a significant burden on businesses. Understanding this landscape is crucial for firms looking to manage energy costs and contribute to a sustainable future.

The current landscape of energy policy

The UK's energy policy is a dynamic system, shaped by national and international commitments. It includes regulations, incentives, and market mechanisms designed to transform the energy sector. For businesses, this means navigating requirements and costs that directly influence operational expenditure and strategic planning. The overarching goal is to ensure a reliable, affordable, and sustainable energy supply.

Key objectives: net zero, security, and affordability

At the core of UK energy policy are three interconnected objectives: achieving net zero emissions, enhancing energy security, and maintaining affordability. The legally binding net zero target drives investment in renewable energy and decarbonisation technologies. Energy security focuses on diversifying supply and reducing reliance on volatile international markets. Affordability, however, remains a constant challenge, particularly for businesses grappling with rising operational costs. These objectives often create tension, with policies designed to meet one goal sometimes impacting another, such as the cost implications of supporting renewable generation.

How policy impacts business operations and costs

Energy policy directly influences business operations through various charges embedded in electricity bills. These charges, often less transparent than the wholesale cost of energy, contribute significantly to the overall expense. For businesses, especially those with high energy consumption, these policy costs can represent a substantial and unpredictable portion of their overheads, affecting competitiveness and profitability. The structure of these costs can also deter investment in energy efficiency and low-carbon technologies, as the perceived financial benefits are eroded by the additional policy burden.

The burden of policy costs on business bills

Many UK businesses are keen to invest in low-carbon technology but are deterred by the associated expenses, a sentiment echoed by E.ON's research. A key part of this expense comes from specific policy costs embedded within their electricity bills.

Deconstructing business electricity bills: where policy costs lie

Business electricity bills are not simply a reflection of the wholesale cost of energy. They comprise several components, including wholesale energy costs, network charges for transmission and distribution, supplier operating costs, and various government-mandated policy costs. These policy costs are typically levied per unit of electricity consumed, meaning that the more electricity a business uses, the higher its contribution to these charges. This structure can disproportionately affect energy-intensive industries.

Specific policy costs: renewable obligation and Feed-in Tariffs

Two of the most significant policy costs currently levied on business electricity bills are the Renewable Obligation (RO) and Feed-in Tariffs (FiT). Both mechanisms were introduced to incentivise the generation of renewable electricity:

• RO: This scheme places a legal obligation on electricity suppliers to source a specified proportion of their electricity from accredited renewable sources. Suppliers meet this obligation by presenting RO Certificates (ROCs) or paying a buy-out price. The costs incurred by suppliers are then passed on to consumers, including businesses, through their electricity bills.
• Feed-in Tariffs (FiT): The FiT scheme supported small-scale renewable and low-carbon electricity generation. While closed to new applications, existing installations continue to receive payments, which are funded through a levy on all licensed electricity suppliers. Again, these costs are ultimately borne by electricity consumers.

The impact on low-carbon technology investment and decarbonisation

The presence of these policy costs on electricity bills creates a disincentive for businesses to invest in low-carbon technologies. While firms may recognise the long-term benefits of decarbonisation, the immediate financial burden of high electricity bills, inflated by policy costs, makes it harder to justify upfront capital expenditure on new, greener equipment or energy efficiency upgrades. This paradox means that policies designed to promote renewables can, in their current form, inadvertently stifle broader business investment in the very transition they aim to support.

E.ON's call for policy reform

Leading energy firms are increasingly advocating for changes to the current policy framework to better support businesses in their decarbonisation efforts.

Chris Norbury's statement: alleviating the burden on UK firms

Chris Norbury, E.On UK's chief executive, has been a vocal proponent of reform, highlighting the concerns of UK firms regarding rising energy costs and the impact of policy charges. He noted that business customers "are concerned about rising energy costs, some of the rising commodity costs and therefore don’t want to see an impact from higher policy costs". Norbury's call to action underscores the need to alleviate this burden to foster a more supportive environment for businesses.

The proposal: shifting costs to general taxation or an energy transition fund

E.ON proposes a fundamental shift: moving policy costs, such as the RO and Feed-in Tariffs, from electricity bills into general taxation or a dedicated energy transition fund. This approach would decouple the funding of renewable support mechanisms from direct electricity consumption, spreading the cost more broadly across the tax base.

Potential benefits: sparking investment and accelerating the renewable transition

The potential benefits of such a shift are significant. By removing policy costs from electricity bills, businesses would see a direct reduction in their operational expenses, making investments in low-carbon technology more financially attractive. This could "spark further investment from businesses and help support the transition to renewables," according to Norbury. A dedicated energy transition fund could also provide a more stable and predictable funding mechanism for green initiatives, encouraging long-term planning and innovation within the business sector.

Unlocking investment in clean energy technology

The UK has ambitious decarbonisation targets, and businesses are critical to achieving them. Removing financial barriers is key to unlocking their potential.

The £2 billion saving potential for UK manufacturers

E.ON's research suggests a compelling economic incentive for change: UK manufacturers could save more than £2 billion by 2035 by switching away from gas and scaling up clean energy technology. This substantial saving highlights the economic upside of decarbonisation, provided the right policy environment is in place to facilitate the transition. Such savings would not only benefit individual businesses but also enhance the competitiveness of the UK manufacturing sector as a whole.

Overcoming deterrents to green energy investment

Currently, the high upfront costs and the ongoing burden of policy charges act as significant deterrents to green energy investment for many businesses. Shifting these costs would address a major financial hurdle, making it easier for firms to justify the capital expenditure required for new low-carbon technologies, such as heat pumps, solar panels, or advanced energy management systems. This would enable businesses to move beyond mere compliance and actively pursue sustainable practices that also deliver economic returns.

Corporate energy strategy for a sustainable future

In a reformed policy landscape, businesses could develop more proactive and ambitious corporate energy strategies. With reduced policy costs on their bills, firms could allocate more resources towards energy efficiency measures, on-site renewable generation, and the adoption of clean technologies. This would not only lower their carbon footprint but also provide greater energy independence and resilience against future commodity price volatility. A clear path to affordable clean energy would empower businesses to integrate sustainability into their core operations, driving innovation and long-term growth.

Navigating the policy landscape and preparing for change

While policy reform is debated, businesses must continue to navigate the current energy landscape and prepare for future changes. Proactive engagement and strategic planning are essential.

Interpreting energy market reform and government policy

The UK energy market is constantly evolving, with ongoing reforms and new government policies. Businesses need to stay informed about these developments, understanding how regulatory changes, such as those overseen by Ofgem, could impact their energy costs and operational strategies. Interpreting these changes effectively allows firms to anticipate future trends and adapt their energy procurement and consumption patterns accordingly. The goal is to move from a reactive stance to a proactive one, identifying opportunities within the shifting policy environment.

Strategic energy management and efficiency measures

Even within the current framework, businesses can implement strategic energy management and efficiency measures to mitigate costs. This includes conducting energy audits, investing in more efficient equipment, optimising operational processes, and exploring demand-side response programmes. These actions not only reduce energy consumption but also demonstrate a commitment to sustainability, which can enhance brand reputation and attract environmentally conscious customers.

Future outlook for UK business energy policy

The debate around UK business energy policy, particularly the allocation of policy costs, reflects a broader challenge in the energy transition. Fuse believes that the current policy framework, which burdens businesses with policy costs, represents a 'scarcity mindset'. Fuse challenges this, advocating for systemic change to unlock abundant, cheaper energy. Fuse's vision of 'power to play with' aligns with the goal of removing financial barriers to low-carbon investment, enabling businesses to thrive with abundant, clean energy. While Fuse Energy currently supplies residential energy only, it is actively working towards rebuilding the energy system from scratch to optimise costs and deliver clean energy for all users. Businesses interested in future commercial energy offerings can join a waitlist for updates. The trajectory points towards a system that better supports business decarbonisation, making it imperative for firms to monitor developments and position themselves for a future where clean energy is both abundant and affordable.

References

1. Evening Standard. Government should ease energy policy costs for ‘concerned’ businesses, says E.ON