News / UK logistics welcomes 'short reprieve' in government plan to cap energy costs

© Convisum Dreamstime.com.

The UK logistics sector has welcomed the “short reprieve” through the government’s plan to cap business energy costs.

But business remains concerned over long-term plans, and European industry is more concerned about supply than cost.

Businesses across Europe have come under immense pressure since Russia’s invasion of Ukraine saw energy prices spiral upwards, with the threat of costs wiping out profits.

Running from October to next March, the UK’s Energy Bill Relief Scheme will set business gas prices at £75 ($85) per MWh (against wholesale costs of £180) and electricity prices at £211 per MWh (wholesale costs for this period expected to top £600).

Under the plan, the government will pay energy suppliers the difference as part of substantive £100bn package Ms Truss announced upon taking office.

In Europe, efforts to tackle surging energy costs had been largely left to EU member states, but with costs in August setting new records, the idea of an EU-wide cap has gained traction.

Belgium, Greece, Italy, Poland and Sweden have been the loudest voices urging a cap, but have come up against an intransigent Germany, the bloc’s largest economy, that believes it would force producers to sell elsewhere.

However, the UK’s new prime minister, Liz Truss, said: “I understand the huge pressure businesses are facing with energy bills, which is why we are taking immediate action to support them over the winter. This [move] will protect jobs and livelihoods.

“At the same time, we are boosting Britain’s homegrown energy supply, so we fix the root cause of the issues we are facing and ensure greater energy security for us all.”

She provided no details on any action by government to achieve this and businesses are concerned about what will happen after March.

Announced by cabinet minister Jacob Rees-Mogg, the plan includes a review in three months to identify the “most vulnerable non-domestic customers” and how the government will continue assisting them with energy costs after the scheme.

Mike Elton, director at retail logistics and supply chain firm FarEye, said: “Today’s announcement is a stay of execution for businesses. It will enable many that are struggling to keep the lights on and shelves stocked just past Christmas. However, what is unclear is the detail of what happens after. Who will qualify as a vulnerable business?”

UK Major Ports Group CEO Tim Morris told The Loadstar the implicit message was that further measures would be targeted. He said the approach was likely linked to the reality that the more “energy-intensive” sectors, such as steel, chemicals and industrial gasses, would be pushing for continuing support, but government focus had to be supply chain impacts and “cliff edge” situations.

“Ports – the gateways for 95% of UK trade – have seen energy price rises of around 350% already,” added Mr Morris.

“Today’s announcement is welcome. However, further cost increases are to come as energy price fixes expire and are replaced. It is really important cost mitigation measures are considered beyond the announced six-month period.”

“This is particularly important given the increasing electrification of ports as a key part of their journey to net-zero emissions. We will engage government to make the case for ports.”

Also citing the costs of migration to a zero-emission economy, Logistics UK’s director of policy, Kate Jennings, welcomed the announcement, telling The Loadstar that alongside the cost of decarbonising, operators were facing further price hikes.

She and her team were “keen” to work with government on addressing the increasing cost of operating beyond the six-month window, she said.

Nicolette van der Jagt, director general of Clecat, told The Loadstar that in Europe, the primary focus remained on the cost implications of energy price hikes for the public, and that business concerns were less about cost and more about ensuring supply.

“The questions businesses in Europe are asking are ‘will there be sufficient supply this winter?’ and ‘do we need contingency measures in place?’,” she said. “Of course the increase in price is painful, but what businesses are really focused on is in ensuring that they will be able to continue to operate over the coming months.”