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UTILITY WEEK | 17TH - 23RD APRIL 2015 | 17 E L E CT I O N C O U N TD O W N : 2 0 D AY S TO G O SMES HIT HARDEST It's not just large industrials that are feeling the pinch of expensive commercial energy in the UK. In recent months a hubbub has grown around the treatment of small and medium-sized enterprises (SMEs) in the energy market. The Competition and Markets Authority recently raised con- cerns about a lack of transpar- ency in this market and Citizens Advice policy manager Andrew Hallett welcomed its find- ings. "This lack of full-blooded competition is shown up by the margins suppliers enjoy," he wrote in a recent issue of Utility Week. "From SMEs an incred- ible 8.6 per cent, compared with just 3.3 per cent for domestics, according to the CMA. Suppliers who deal with large businesses have an average margin of just 2.1 per cent. Clearly something is not quite right here." Throughout this parliament, politicians across the political divide have praised the contribu- tion of SMEs – "the backbone of the economy" – consensus hav- ing swung away from the asser- tion that big business should be the primary focus for economic recovery. As such, this alleged injustice could provide plenty of ammunition for those arguing that energy companies need to be brought to heel. BUSINESS PAYS A HIGH PRICE FOR UK ENERGY While the main force of the political charm offensive in the run-up to the election is aimed at voters as individuals, let's not forget the interests of commerce and industry. The considerable, and increasing, burden of energy costs matters to their competitiveness – and therefore the wider economy. The vast majority of energy in the UK is consumed not by domestic customers but by businesses. And while energy suppliers, and occasionally politicians, promote the fact that UK consumers enjoy some of the lowest energy prices in Europe, the same cannot be said in the non- domestic sector. The wholesale cost of electricity for businesses in the UK is significantly higher than in many other European coun- tries and this is exacerbated by a raft of environmental targets and the carbon floor price. The Committee on Climate Change has estimated that this combi- nation of cost multipliers adds approximately 26 per to the energy bills of large industrial users in the UK – and it is set to increase. Energy-intensive compa- nies employ around 800,000 people in the UK and contrib- ute £15 billion a year to GDP. Therefore, they are best not left to languish by political leaders throwing out emotive short- term lures for Joe Public. The coalition positioned itself early in this parliament as a government that would champion the interests of busi- ness and industry. Chancellor George Osborne's highly quot- able "march of the makers" Budget speech in 2011 opened the way for a new industrial strategy and a vogue for manufacturing positivity across all the major parties. But despite the rhetoric, the past few years have been punctuated by frequent com- plaints from industry that gov- ernment aspirations for a new industrial revolution in the UK are undermined by its inability to create a level playing field with other global locations – especially Europe – when it comes to energy costs. These complaints are not idle moans. In recent years a small but important collec- tion of large industrial firms has pulled out of the UK, citing insupportable energy and associated costs as their reason. Rio Tinto's withdrawal from Lynemouth is a notable example. It led to the loss of more than 500 jobs and valuable aluminium smelting capability in the UK. The coalition has moved to mitigate the negative message that high commercial energy and stringent environmental costs send to global investors. In this year's Budget, Osborne announced a £250 million compensation package for energy-intensive industries for implementation in 2015/16. The offer was welcomed by indus- try, though some say it does not go far enough and point to far more generous packages in Germany and other European countries. Primarily, however, lobby groups such as the Energy Intensive Users Group (EIUG) are "anxious" that, whatever government takes power after 7 May, there is no back-sliding. Ideally, they would like some groups currently excluded from the exemption package – such as ceramics manufactur- ers – brought into the fold. After putting in a lot of work talking to politicians of a wide variety of political hues, Jer- emy Nicholson, chief executive of EIUG, says he is "confident everyone is familiar with the issues", and he praises the contribution that both the All Party Parliamentary Group for Energy Intensive Industry and the TUC have done to achieve this position. Nicholson is apolitical when asked which party or government combination would present the best pros- pects for EIUG's members, but he does say "our members would be very concerned if a future minority or coalition government was forced into pursuing anti-nuclear or anti- fracking policies, which would damage security of supply and possibly also raise costs to consumers, as advocated by the SNP, Greens and some other smaller parties." by Jane Gray Key points from the Energy Intensive Users Group's election wishlist: 1. Early repeal of the carbon floor price. 2. Commitment to retain and extend the compensation package for energy-intensive industries. 3. Support for cost-effective decarbonisation – including simplification of climate-related legislation and accelerated auctioning to set the strike price of contracts for difference for mature technologies. 4. Support for environmentally responsible development of shale gas and other unconventional resources. 5. Support for investment in industrial energy efficiency and innovation. 6. Retaining a competitive market-based energy policy, free from political interference in the setting of prices. Small business manifesto The Federation of Small Busi- ness says the next government should: 1. Treat the smallest of busi- nesses in a similar way to con- sumers, and afford them similar status in markets such as energy. 2. Boost transparency and competition in regulated sectors. 3. Implement the recommen- dations of the CMA inquiry. 4. Introduce published non-domestic tariffs for energy providers, a code of practice for third party intermediaries, a ban on automatic rollover contracts, and help for small firms with energy-efficiency. Big ideas Small wants In partnership with: