Energy crisis causes more businesses to make the switch to renewables

The ener­gy cri­sis squeez­ing busi­ness and con­sumer finances today is not with­out prece­dent. As Rus­sia con­tin­ues to use its gas sup­plies as a weapon in its war with Ukraine and, in turn, the West, com­men­ta­tors have com­pared today’s sit­u­a­tion with the ener­gy cri­sis of the 1970s. 

Back then, a polit­i­cal con­flict delib­er­ate­ly dis­rupt­ed sup­ply chains and caused surg­ing ener­gy prices. The reces­sion that stemmed from this dis­rup­tion dif­fered from its pre­de­ces­sors by simul­ta­ne­ous­ly caus­ing high infla­tion and high unem­ploy­ment – a phe­nom­e­non known as stagfla­tion. 

The Bank of Eng­land has made it clear it will do every­thing it can to stop infla­tion and stagfla­tion from tak­ing hold in the UK econ­o­my. But unfor­tu­nate­ly for busi­ness­es, the solu­tions to stem­ming the rise of infla­tion threat­en to tip the UK into a reces­sion. 

After the biggest inter­est rate rise in 27 years, the Bank of Eng­land warned last month that the UK will fall into a reces­sion lat­er this year. This down­turn is fore­cast to last until the end of 2023, with eco­nom­ic growth expect­ed to grind to a halt next year. 

Increasing business interest in renewables 

But if there is a sil­ver lin­ing to the cur­rent ener­gy cri­sis, it’s the increas­ing demand from busi­ness­es for clean and renew­able ener­gy sup­plies. 

The com­bi­na­tion of high costs asso­ci­at­ed with non-renew­ables and long­stand­ing con­cerns about the envi­ron­men­tal impact of fos­sil fuels has reframed renew­ables as a more eco­nom­i­cal and reli­able source of ener­gy than dirt­i­er alter­na­tives. The first half of 2022 saw a record invest­ment glob­al­ly in renew­able ener­gy, which reached $226bn (£191bn). Solar and wind were the most pop­u­lar choic­es, accord­ing to BloombergNEF.

Christophe Williams is the co-founder and CEO of Naked Ener­gy. He does not believe the ener­gy cri­sis will be an imme­di­ate cat­a­lyst for wide­spread renew­able adop­tion, point­ing to our recent his­to­ry with fos­sil fuels as proof that our ener­gy habits are hard to shake. 

“Covid showed us that after lock­down and when economies want­ed to reboot, the first thing they did was burn fos­sil fuels. It’s low risk. Investors love it because it’s a very steady return. It’s a safe invest­ment.”

The value of onsite green energy 

Williams notes that the ongo­ing ener­gy cri­sis cre­ates an oppor­tu­ni­ty for com­pa­nies to pro­tect them­selves from future price shocks. He says firms that switch long-term to clean ener­gy now will be bet­ter placed to weath­er future eco­nom­ic uncer­tain­ty and primed for the next big ener­gy chal­lenge fac­ing busi­ness­es: net zero. 

One option that some busi­ness­es are pur­su­ing is gen­er­at­ing their own green ener­gy onsite. Research by NatWest Group found that 7% of SMEs have already start­ed to invest in onsite green ener­gy gen­er­a­tion, with most of this invest­ment going to bat­tery stor­age and installing solar pan­els. This fig­ure is pre­dict­ed to dou­ble next year, mean­ing that by 2023 around one in six SMEs (17%) will gen­er­ate and store their own green ener­gy onsite. 

The push toward onsite green ener­gy gen­er­a­tion from SMEs is time­ly, giv­en the dis­rup­tion in the ener­gy mar­ket. British Gas is report­ed­ly plan­ning to stop sell­ing ener­gy to its biggest busi­ness cus­tomers, while in March Scot­tish­Pow­er announced plans to stop sup­ply­ing its British indus­tri­al and com­mer­cial cus­tomers. 

Williams says the deci­sions tak­en by British Gas and Scot­tish­Pow­er are typ­i­cal of an ener­gy mar­ket that lacks both “inde­pen­dence” and “for­ward think­ing”. 

He says: “Busi­ness­es need to become more ener­gy inde­pen­dent. Gain­ing this inde­pen­dence is a great way to keep ener­gy costs low. Mak­ing your build­ing more ener­gy-effi­cient is the first step, so insu­late it and get your onsite renew­ables to cov­er your heat and pow­er needs. Ener­gy effi­cien­cy is incred­i­bly effec­tive at bring­ing down demand because the cheap­est ener­gy you’ll ever use is the ener­gy you don’t use.” 

Nigel Pock­ling­ton, CEO at Good Ener­gy, agrees with this view, adding that despite the require­ment for a sig­nif­i­cant ini­tial out­lay, switch­ing to onsite green ener­gy gen­er­a­tion is a win-win for busi­ness­es by reduc­ing ener­gy costs and sig­nalling a com­mit­ment to the cli­mate to cus­tomers. 

“Busi­ness­es were already shift­ing towards renew­ables because that’s increas­ing­ly what their cus­tomers expect. The UK mar­ket is such that the cost ben­e­fits of renew­ables are dif­fi­cult for busi­ness­es to access unless they invest in gen­er­at­ing their own clean pow­er, because ener­gy prices con­tin­ue to be set by gas. But what is pos­i­tive is that this has not dimin­ished inter­est from busi­ness­es in switch­ing to renew­ables.”

The cost of switching to renewables 

But for many busi­ness­es, find­ing the invest­ment to make onsite green ener­gy gen­er­a­tion viable is not pos­si­ble in the cur­rent eco­nom­ic cli­mate. 

The cost-of-liv­ing cri­sis and the drop in house­hold dis­pos­able income are impact­ing busi­ness­es at a time when they are also grap­pling with sup­ply chain issues and high infla­tion. Cor­po­rate insol­ven­cies in Eng­land and Wales rose by more than 80% in Q2 com­pared to a year ear­li­er, while the num­ber of firms opt­ing for liq­ui­da­tion hit the high­est lev­el for at least six decades.

High ener­gy costs appear to be dri­ving this trend, with 77% of busi­ness lead­ers say­ing ener­gy prices are the biggest chal­lenge fac­ing their com­pa­ny, accord­ing to research by Npow­er Busi­ness Solu­tions. 

“There is right­ly a nation­al con­ver­sa­tion hap­pen­ing about the eco­nom­ic and well­be­ing hard­ship on peo­ple right now, with less about the pres­sure on busi­ness­es,” says Pock­ling­ton.

“There will be more insol­ven­cy, uncer­tain­ty and increased prices across the econ­o­my unless there is sig­nif­i­cant gov­ern­ment inter­ven­tion to tack­le ris­ing ener­gy costs for both peo­ple and busi­ness­es.”

Government supporting the transition to renewables 

The government’s role in alle­vi­at­ing the ener­gy cri­sis and incen­tivis­ing wide­spread renew­able adop­tion among busi­ness­es has been under the spot­light again after the pass­ing of the Infla­tion Reduc­tion Bill in August. The long-await­ed leg­is­la­tion is a sig­nif­i­cant vic­to­ry for the renew­ables sec­tor, with $369bn going toward encour­ag­ing the pro­duc­tion of renew­able elec­tric­i­ty plants.

Williams believes action on a sim­i­lar scale is need­ed in the UK to ensure that the busi­ness­es that have switched to renew­ables dur­ing the ener­gy cri­sis do not return to fos­sil fuels once the prices have nor­malised. “It’s frus­trat­ing when you con­sid­er that rough­ly $11m per minute is going toward sub­si­dis­ing fos­sil fuels. The switch to renew­able green ener­gy won’t hap­pen quick­ly enough unless busi­ness­es realise the cost of fos­sil fuels unsub­sidised and we divert the mon­ey used to sub­sidise fos­sil fuels to cre­ate clean­er grids, clean­er infra­struc­ture and facil­i­tate the ener­gy tran­si­tion.”

But accord­ing to Rhi­an­na Wilsh­er, direc­tor and clean ener­gy lawyer at Freeths, the UK government’s focus on tack­ling the cost-of-liv­ing cri­sis for con­sumers may lim­it the sup­port offered to busi­ness­es. “The pinch that the gov­ern­ment finds itself in is that intro­duc­ing finan­cial incen­tives or tax cuts to sup­port devel­op­ment or roll­out of renew­able tech­nolo­gies has pre­vi­ous­ly been fund­ed by an increase in green levies on con­sumers’ ener­gy bills. 

“The need to reduce ener­gy bills to ease the cost of liv­ing is seen by many as a pri­or­i­ty over the impo­si­tion of green levies and is cur­rent­ly being used as a polit­i­cal foot­ball. This may hold back the government’s invest­ment in renew­ables, over the need to ease the cost of liv­ing.”