NEWS UPDATE BUSINESS ENERGY FORECAST


Business energy bills forecast to stay 70% above pre-crisis rates


Whole life cycle analysis highlights carbon footprint of heat pumps


A new report by Gemserv and Minviro is highlighting importance of maximising the sustainability of heat pumps throughout their entire lifecycle. As the installation of heat pumps accelerates across the UK, with nearly 5,000 units being added monthly, the study raises questions about the environmental impact of these low-carbon heating systems beyond their operational phase. Heat pumps are increasingly


recognised as a more environmentally friendly alternative to traditional gas boilers, which can produce 55% more emissions during use compared to a 10kW heat pump. However, the new white paper suggests that the production process of heat pumps is a significant contributor to their overall carbon footprint. Currently, the manufacturing of a 10kW heat pump generates approximately 640kg of CO2 equivalent in embodied carbon emissions, primarily due to the materials used, such as steel and refrigerants. The report emphasises


that focusing on sustainable manufacturing practices could reduce these emissions by nearly half. For example, utilising sustainably sourced steel powered by renewable energy could cut carbon emissions by up to 70%, while employing recycled materials for insulation could reduce emissions by 50%. The findings also highlight the


need for a rigorous framework to address the environmental impacts of production processes, ensuring that the shift to low-carbon heating solutions does not merely transfer emissions from one source to another. This holistic approach is essential for maintaining the strong sustainability credentials of heat pumps and aligning with upcoming regulations like the Ecodesign for Sustainable Products Regulation.


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Cornwall Insight’s latest Business Energy Cost Forecast reveals a significant increase in energy expenses for small businesses, such as pubs, restaurants and retailers. According to the forecast, these businesses are now paying over £5,000 more annually for energy compared to pre-energy crisis levels. As contracts renew in the April 2025 – March 2026 period, bills are expected to rise further, with average electricity costs projected to reach £13,264 –70% higher than in 2020-21.


The report emphasises that, despite


some stabilisation in energy prices in recent years, costs remain substantially elevated compared to the £7,000 to £8,000 range typical before 2021. This trend is anticipated to continue into 2025 and likely beyond. While wholesale energy prices have


decreased since their peak during the 2022-23 crisis – when annual electricity bills for small businesses could exceed £20,000 – the market has not fully recovered from the lingering effects of


the crisis and the geopolitical tensions stemming from the Russia war. This, coupled with a slight rise in standing charges, is expected to push energy costs up a small amount compared to 2024-25. Unlike residential consumers, businesses do not benefit from a price cap that protects them from surging energy bills, leaving them vulnerable to market fluctuations. Business groups have voiced


concern over the lack of government support for rising energy costs, arguing that the issues facing businesses have not received the same level of attention as household expenses. They stress that small businesses play a crucial role in the economy and deserve adequate support in managing energy costs. Dr Craig Lowrey, principal consultant at Cornwall Insight, comments: “While prices may have settled from their peak crisis levels, they are far from being sustainable for the numerous smaller businesses already struggling in this economic climate. “The only way we are going to deliver


lower energy bills is to deal with the problem at the source – the energy generation. This requires a strong governmental focus on boosting domestic production and reducing our exposure to international disruptions. While this solution is neither quick nor easy, it is essential for achieving long- term stability in energy costs.”


Fuel poverty group calls for a fabric-first approach


Over 13% of households (3.17 million) remain in fuel poverty in England according to the Committee on Fuel Poverty’s 2024 Annual Report: ‘Can Fuel Poverty be Ended?’. The study concludes that current policies have failed to reduce the number of fuel poor households, which have stalled in their decline over the last five years. “When the government introduced a fuel poverty strategy in 2001, and set a goal to eliminate fuel poverty within 15 years (2016), did they ever anticipate that this challenge would be unfulfilled well into the third decade of this new century?” asks Committee Chair, Rt Hon Caroline Flint.


The Committee emphasises


that “effectively targeted energy efficiency programmes are central to reducing fuel poverty” and notes with alarm that there has been a shift away from a ‘fabric first’ approach to improving household energy efficiency. This mirrors the criticism levelled recently at


energy civil servants by many housing professionals. The reversal of official prioritisation


for building improvements like insulation and glazing since 2022 has “proved less effective at making homes substantially warmer” says the Committee, which argues that policy should revert to “completing these programmes for all fuel poor and vulnerable households, before resources are directed at the incorporation of low-carbon heating systems into those properties’’. While maintaining that fuel poverty


can still be beaten, the Committee notes that “for too many low-income


households, the unaffordability of bills, especially in the coldest months, is all too real”. It states that “the increase in the amount added to the standing charge element of energy bills, a flat-rate charge incurred by even households with the lowest usage, is regressive in nature.” Based on current energy prices, targeted support to the fuel poor will remain important, and necessary for the foreseeable future. Nor can fuel poverty be separated


from the experience of many households who are struggling to afford their bills or are at risk of getting into energy debt. The report urges a review of the Low Income Low Energy Efficiency metric, the current complex metric used to measure fuel poverty in England. According to a separate study published in the Lancet, people in Europe remain eight times more likely to die during cold weather than during hot spells. In 2023 recorded deaths were 363, 809 from cold, as opposed to just 43,729 from heat.


EIBI | SEPTEMBER 2024


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