High energy costs and family businesses

Author: Talitha Gibney, Director, Business Advisory and Accounting

The environment surrounding energy costs continues to evolve rapidly in response to global events.

For many UK family owned businesses, the cost of power has shifted from a background overhead to a strategic threat. High and volatile oil and gas prices have flowed directly into electricity costs, leaving manufacturers, agri businesses and rural enterprises facing bills that are materially higher than those paid by overseas competitors. For businesses with export ambitions, this creates a structural disadvantage: products made efficiently in every other respect can still be priced out of international markets simply because UK energy is more expensive.

Unlike large multinationals, family businesses often have limited ability to hedge energy prices, absorb margin shocks or relocate operations. Power costs hit cash flow immediately and planning horizons shorten. The question many owners are now asking is not just how to cut costs this year, but how to regain control over energy pricing for the next decade.

Why it matters for small and family owned businesses

Energy costs affect far more than the profit and loss account. High and unpredictable electricity prices can delay investment decisions, undermine confidence in growth plans and make succession more complex. A business passed from one generation to the next with an embedded cost problem is far less resilient.

There is also a competitiveness angle. UK businesses exporting into Europe, North America or parts of Asia are increasingly aware that energy intensive production carried out in the UK can look expensive relative to peers. For family businesses proud of their UK base and local employment, that is a deeply uncomfortable position. Against that backdrop, energy saving and on site generation are no longer ‘green’ initiatives alone. They are becoming core commercial strategies.

Factories and operational sites: reducing demand and generating supply

For factory based businesses, the first step is often reducing demand by investing in more efficient processes. Investment in more efficient machinery, better insulation, LED lighting and smarter energy management systems can deliver permanent reductions in consumption. While these measures may feel incremental, the cumulative impact over time can be significant, particularly where electricity prices remain high.

The next step is generating power on site. Roof mounted solar panels on factories and warehouses are now common, but many family businesses still underestimate how much of their daytime electricity demand can be met directly from solar. Even partial self generation reduces exposure to grid prices and improves cost certainty.

From a tax perspective, expenditure on solar panels and associated equipment will often qualify for capital allowances, accelerating tax relief compared with standard depreciation. The precise relief depends on the structure of the business and the nature of the asset, but the ability to bring forward tax deductions can materially improve project payback periods.

Rural and agricultural land: from stranded assets to income streams

Many family businesses own agricultural or rural land that is not core to their trading activity. In some cases, parcels of isolated or lower grade land have limited agricultural value but strong potential for renewable energy use.

Where land is genuinely surplus, solar installations can transform a passive asset into a long term income stream. Options range from the business installing and operating the panels itself, to leasing land to an energy provider in return for rental income. For risk averse owners, leasing can be attractive: it provides predictable income without operational responsibility.
Importantly, not all land needs to be ’wasted’ to be useful. Dual use arrangements, where solar panels are installed in a way that allows continued grazing or agricultural use, are increasingly common. This can be particularly appealing for family businesses keen to preserve the character and long term utility of their land.

Tax treatment again matters. Rental income, trading income from power generation and grant receipts can all be taxed differently depending on structure and facts. Grants, in particular, require careful handling: while they can improve project economics, their interaction with capital allowances and taxable income needs to be understood from the outset.

Grants, incentives and regional variations

Government support remains an important part of the energy transition, but it is fragmented and often region specific. Different devolved administrations and local bodies offer varying grants, reliefs and planning regimes. For family businesses with sites in more than one region, this can create complexity but also opportunity.

Grants can reduce upfront capital costs, but they are not ‘free money’. Conditions attached to funding can affect how assets are used, and the tax treatment of grants depends heavily on their terms. In some cases, accepting a grant may restrict the ability to claim full tax relief on the underlying expenditure. The commercial and tax consequences should therefore be assessed together, not in isolation.

Examples are:

Installers can fund installations

Some energy-provider-linked organisations are funding the installation of their solar and storage equipment on business premises, with options to own the equipment or benefit from the energy being generated.

Example: Zestec | Funding, Developing and Managing Renewable Energy

Cheap electricity as a strategic advantage

The ultimate prize is not simply saving energy, but securing cheap and predictable electricity. On site generation allows businesses to lock in a portion of their power costs for decades, insulating them from global energy shocks. Excess electricity can sometimes be sold back to the grid or used to support adjacent activities, such as electric vehicle fleets or energy intensive processes.

For export focused family businesses, this can restore competitiveness. Lower energy input costs support pricing flexibility and margin protection, making UK based production more viable in international markets.

The solution: long term thinking, not short term fixes

For family businesses, energy strategy should be viewed through the same lens as succession and capital investment: long term, values driven and pragmatic. The combination of energy efficiency, on site generation, thoughtful use of land and careful navigation of grants and tax reliefs can turn today’s energy problem into a lasting advantage.

High oil prices and global uncertainty may persist, but family businesses that act now can regain control over one of their most significant costs and in doing so, strengthen the business for the next generation.

Please contact your usual Crowe contact if you would like to discuss how this change may affect you and your business.