We asked the 3,500 business leaders who responded to our latest Grant Thornton International Business Report (IBR) a new question in Q4-2013: Do you expect rising energy costs to constrain the growth of business over the next 12 months? More than a third of businesses said yes, making it the second largest concern businesses have for 2014 behind only economic uncertainty. You can view the full results here but I wanted to explain in more detail what I think this means for the cleantech sector.
In the long-term, renewables have the potential to flatten energy costs for both businesses and consumers. However, in the short-term, renewable energy tends to be expensive and requires government subsidies to make it investible. For example, the UK Government has offered a price of £155 ($250) per megawatt hour for offshore wind energy; around three times the current wholesale price of electricity.
Energy costs are rising significantly for households and businesses, driving demands for lower prices. However, this urgency discourages governments from taking the long-term approach needed to support a transition to greener energy sources. In Europe, the EU has proposed a 40% emissions reduction by 2030, including a 27% renewables target. However, it's unclear how these will be allocated nationally, giving less willing countries room for flexibility. Additionally, the EU's 25% energy efficiency target is non-binding, making it easier to generate energy than to reduce consumption, which seems counter-intuitive.
Energy costs vary globally. In Japan, after Fukushima, 80% of businesses are concerned about rising energy costs, while in the U.S., only 14% worry, thanks to the shale revolution. In Germany (36%), businesses are more concerned than in the UK (22%), where new nuclear plants like Hinkley Point are being commissioned. In the Nordics, only 4% of businesses in Norway, with abundant oil and hydro, are worried, while 12% of businesses in Finland, which relies on nuclear, hydro, and biomass, share the concern.
So what’s the answer? Firstly, use less energy. Post-Fukushima, Japan’s government introduced stringent energy conservation measures, including a 15% reduction in energy usage for buildings of a certain size and 30% for large corporates.
The results were impressive and show how relatively simple measures can help reduce energy consumption and therefore lighten the associated cost burden. Slashing funding for renewable energy is a short-term, populist measure which will mean higher costs for businesses and consumers in the long-term. But governments will help the case for renewables by also getting serious about energy efficiency, alongside, of course, a balanced low carbon energy mix, which gets a whole lot harder without nuclear.
Nathan Goode is global leader for energy & cleantech at Grant Thornton.