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Cost of living crisis: can businesses save money by switching to renewable sources?

Today’s surging energy prices are contributing to difficult times for many businesses. Here, we explore how the latest government-backed scheme could provide support for renewable investment.

While the rise of the energy price cap in April 2022 (and another due in October) applies only to households, the predicted rise in energy bills of £693 to £1,971 per year sends a signal of how businesses might be affected too. For those on a variable rate contract for gas and/or electricity and in energy-intensive industries such as manufacturing, these costs may be considerable.

Excluding the effects of the Climate Change Levy, which applies to energy-intensive businesses, energy prices for small/medium-sized businesses have grown by 25.3% in a year (Q4 2020 to Q4 2021), according to the March 2022 Quarterly Energy Prices report by the Department for Business, Energy & Industrial Strategy.

According to research in June 2022 by Npower, energy costs are the number one concern among UK businesses, eclipsing worries about the post-pandemic economic recovery. Some 80% of companies surveyed reported that energy is now a “board-level issue”, with nine out of 10 reporting they expect their energy costs to increase further over the next 12 months, according to a report in June 2022 by BusinessGreen.

Can businesses invest in renewable sources of energy, and save money?

In the past, government-backed schemes such as the Renewable Heat Incentive (RHI) and the feed-in tariff (FIT) supported businesses to invest in technologies that are more sustainable. For example, a business that installed solar panels on spare land or roof space may save money by not paying a supplier, and even generate income if there is a surplus by selling it back to the grid via the FIT.

But with the closure of RHI and FIT to new entrants in recent years, the government launched an alternative on 1 January 2020. The Smart Export Guarantee (SEG) requires electricity suppliers to pay small-scale generators for low-carbon electricity, which they export back to the National Grid subject to criteria.

Who does the SEG apply to?

Any business using one of the following technologies may be a SEG Generator:

  • Solar photovoltaic (solar PV)
  • Wind
  • Micro combined heat and power (micro-CHP)
  • Hydro
  • Anaerobic digestion (AD)

These installations must be located in Great Britain, and not exceed a capacity of 5 megawatt (MW) (or 50 kilowatt (kW) for micro-CHP).

Seek the best tariff for your business

Businesses with renewable capacity already benefiting from the SEG should continue to shop around to see which tariff is best for their individual circumstances.

This is because power companies (known as SEG Licensees) determine the price they will pay SEG Generators for energy, the contract length and other terms. There can be big differences between the highest and lowest SEG rates.

If you’re considering installing renewable generation, now is the time to explore your options: research the criteria, rules and tariff rates, and build an investment case for it. Take into account the cost of installing the system and maintenance fees to calculate how long it will take your renewable system to pay for itself.

Where to find out more

Monitor the government’s advice on the SEG to stay up to date.

Visit the Carbon Trust for news and insight on how UK businesses can reach net zero.

Support for rising costs

To help you mitigate the rising costs of living and trading, we’ve created a hub of resources. We’ll keep updating it as new developments arise and solutions become available.

This material is published by NatWest Group plc (“NatWest Group”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by NatWest Group and NatWest Group makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the NatWest Group Economics Department, as of this date and are subject to change without notice.

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