More than 80% of companies expect to increase prices of their goods and services over the next two years due to rising energy costs.
A survey conducted by PwC found that volatile energy costs look set to challenge the competitiveness of UK businesses and add upward pressure to forecasted falls in inflation, as 81% plan to increase the price of their products and services at least moderately over the next two years, in response to high energy costs and with government energy support set to end.
Over the last two years, 77% of businesses said high energy costs had driven up the price of their products and services, at least moderately. Over a quarter of all companies cited energy costs negatively impacting profits and margins over the last two years.
High energy costs also negatively impacted companies’ ability to compete both domestically (64% affected) and internationally (65% affected).
Looking to the next two years, 81% of respondents agreed that energy costs would drive up the price of products and services further, either significantly or moderately. 72% expect high energy prices to negatively impact profits and 71% expect high energy prices to reduce their ability to compete in international markets.
Overall, energy costs had increased by 11% or more for a third of organisations over the past two years. All respondents said they had received at least one form of government energy support in the same time period, which had been classed as ‘essential to survival’ by a quarter of respondents.
Respondents were divided on their energy strategy objectives. Reducing energy consumption (27%), reducing carbon emissions (26%) and reducing energy costs (26%) all held similar priority as a main energy strategy objective. Popular cost mitigation efforts by respondents included reviewing energy procurement strategies (37% fully adopted, 37% in progress), improving energy efficiency (31% fully adopted, 44% in progress) and adopting corporate power purchase agreements (34% fully adopted, 35% in progress).
Over half of respondents said they had experienced at least moderate success of minimising energy costs (19% significantly, 48% moderate).
Vicky Parker, Sector Leader for Power and Utilities at PwC UK, said “Achieving predictable and controlled energy costs while eliminating carbon emissions is a multi-year transformation, and will require long-term vision and leadership. But until more UK organisations think this way, they will continue to suffer the effects of volatile prices, and remain at the mercy of the geopolitical forces that have rocked energy markets for the past two years – and undoubtedly will again in future. The extent to which organisations can manage their operations to try to control volatile energy costs and carbon depends on their organisational sophistication, the availability of financing and their expected returns on investment.
“Government support has provided a helpful and much needed short-term buffer, but has allowed transformational thinking to become less of a priority for businesses. Despite over half of respondents saying the support has been either very important or essential for survival over the last two years, funding of this kind could impede wider economic growth – whilst in operation – and cannot be a permanent coping solution for volatile energy costs.
“It’s encouraging to see organisations are taking up efficiency measures, reviewing procurement and seeking to mitigate costs, but the momentum, at least so far, is unlikely to provide sufficient long-term resilience against price volatility. Looking ahead, ensuring the UK’s energy platform is not only low-carbon and sustainable but also secure and affordable requires new approaches and a commitment to long-term transformation. Recalibrating how energy is used, in order to ensure a competitive and resilient economy, as well as stable and affordable public services, is a crucial step in the nation’s energy transition.
“UK organisations need to adopt a pathway that is right for them, noting that it will likely evolve as technology advances and markets change. But the prize is significant, greater competitiveness, greater resilience and greater control, all in a global economy where energy efficiency and carbon emissions become ever more important as an axis of competition.”