Business Review reveals energy crunch may fuel problems for businesses

Over the last five years fuel costs have soared by over 83%.  The PwC Business Review, which is supported by the University of Strathclyde’s Fraser of Allander Institute, warns that if this trend continues, many firms could be facing crippling energy bills by 2010 unless they adopt a long term energy strategy. It is currently estimated that the increase in gas and electricity costs by 2010 could reach as much as 60% - resulting in an additional cost to UK businesses in excess of £13.9bn.

Paul Brewer, partner, PricewaterhouseCoopers LLP in Scotland, commented:

“UK businesses have not only been caught in the grip of the toughest global financial crisis of the last 70 years, but they have also had to adjust to a succession of major increases in oil, gas and electricity prices – a powerful pincer effect that is now a tough reality for many as they struggle to manage their finances.

“Regardless of whether the country can shrug off the effects of the turmoil in credit markets and carve out a sustained recovery over the next three years, one thing is clear – despite the recent lowering of oil prices, higher energy costs are expected to remain a significant feature of the new economic landscape.  It is not just an environmental issue anymore – it is a financial one, and one that may be key to survival.”

The energy crunch

While the energy debate has not gripped the country’s attention recently in the same way as the current financial market storms, the fluctuations in oil prices and some knee-jerk reactions in the market should have reflected the key role energy has to play in shaping the economic landscape.

PwC believes it is crucial that businesses don’t just batten down the hatches with short term measures until the end of 2009 in the hope that this financial maelstrom passes over. While there is a clear need to review cost structures, funding arrangements, competitive positioning and marketing strategy, improving energy efficiency and reducing consumption will have a positive, long-term impact to the bottom line, helping to protect and even improve margins and unlock competitive advantage.

Paul Brewer, partner, PricewaterhouseCoopers LLP in Scotland, continued:

“At a time when most businesses and organisations are facing extremely challenging financial pressures and market conditions, another realisation is hitting – that they will be left footing the bill for spiralling energy costs unless they can find a way to reduce them or pass them on. The fact is that even the simplest of measures can help reduce increases in operating costs and protect or even improve margins.  In this case, the adage that ‘every little helps’ is certainly true.” 

It is clear that inaction could prove more costly than action and the Business Review outlines how some businesses are currently responding to this energy challenge.

A silver lining?

Paul Brewer, partner, PricewaterhouseCoopers LLP in Scotland, concluded:

“If there is a silver lining to the current global energy situation, it is that it could do more for the sustainability agenda than much of the last few years of lobbying has achieved. As UK industry adjusts to higher prices for energy, transport and travel, the incentive for businesses to reduce energy consumption and make efficiency gains will increase substantially.”

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Email: Lynn Hunter
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