Industrial Cooling towers

Manufacturing: Have we got the energy to ‘build back better’?

Johnathan Dudley, Partner, Head of Manufacturing
22/11/2021
Industrial Cooling towers

HM Government statements recently, especially if articulated by politicians, have been peppered with the phrase ‘build back better’. Often pointing to a list of impressive infrastructural projects with government investment backing; HS2, various public transport projects and road improvements, the 2022 Commonwealth Games in Birmingham and perhaps the most ambitious home building programme in a generation. Not to mention continued investment in our NHS.

In a financial environment like the one we find ourselves in at present, spending your way out of the threat of recession is textbook economic policy, first coined by John Maynard Keynes many years ago. However, its predicated on the money being spent staying in the economy and in an environment where inflation can be controlled.

Alarmingly, all of the above plans require raw materials, supply chain robustness and of course power. All of the above also needs power, power to make steel, refine other metals and alloys, to keep machines manufacturing parts and to then move them to where they need to be.

And there lies the problem, as right now we have a number of issues including:

  • Shortage of access to domestically produced electricity
  • Over reliance on foreign supply chains for electricity and gas
  • The ‘green’ agenda

Of course, it’s in all of our interests to protect our planet but some decisions aimed at doing that have not helped either our economy, or the long-term imperative to lower carbon usage.

There is little point in stopping fossil fuel extraction and power production here in the UK, where we can control and offset carbon utilisation responsibly, only to buy fossil based fuels from other countries where there is a less aggressive green agenda. This in turn pushes up prices and makes our newly ‘independent post Brexit nation’, hostage to other nation states with alternative agendas.

Of course another simple economic textbook theory is supply and demand dictating pricing, and that’s definitely at work here. Just a look at the ONS commercial forward contract price data; by August 2021 ‘day ahead’ gas prices had doubled in this calendar year to date at a record pricing level. The closet to which was back in March 2013, when even then it was still 28% cheaper! It has anecdotally worsened since then. Electricity is again not in a good place; in the same period, day ahead prices have literally tripled and lest the reader might consider that this is just a post pandemic adjustment, this statistic broadly holds true for at least the last 10 years.

As the nation transitions away from fossil fuels for transportation and increases electricity consumption to heat and operate machinery too, the demand for clean energy will only tick upwards.

If we want to truly ‘build back better’ we need access to power and materials that aren’t spiralling in price purely as a result of the UK’s inability to source and control our energy sourcing and utilisation. Otherwise, the trickle down effect of Keynesian theory will spring leaks as UK economic investment goes offshore for power production/supply and even raw material production.

This isn’t good for our planet, we will be moving stuff around more and buying fuel from nation states who continue to grow fossil fuel power generation, its potentially disastrous for the UK economy too.

According to the pressure group, ‘Good Energy’, at present, the UK imports almost 60% of fuel for electricity generation from abroad. Of the 40% we produce ourselves, 50% of that comes from renewables.

So, what’s the answer?

Renewable energy plays a part of course, but with more and more wind turbines popping up both on and offshore, the statistics below show that there is still a long way to go to fill the fossil fuel hole. As our fields and shorelines become increasingly peppered with wind turbines and solar farms there surely has to be a saturation point for this technology, as it exists. Its surely not the answer to all of our national requirements in the future.

Looking at the statistics for power generation presents the challenge we face.

Electricity generation

 

For years the concept of nuclear power was frowned upon in the UK with ‘issues’ across the world, fuelling an anti-nuclear movement that caused our nations expertise in this power source to be largely lost. Currently, the only current large power station being constructed at Hinckley Point is using French expertise and controversially, Chinese funding. Other existing large domestic reactors are coming to ‘end of life’ and other planned large nuclear projects have been either slowed down or shelved.

Ironically, nuclear power in the UK has been historically safe, we don’t live on a volcanic island and have plenty of access to the required cooling water sources, we lead the world in effectively dealing with nuclear waste.

Additionally, the requirements of the Cold War determined that we needed to develop small and effective reactors for our submarines, we still lead the world in this technology today. A fact only recently recognised by the recent AUKUS pact signed with Australia and the US.

Is there an answer to hook up a series of small reactors close to major cities? What safety measures will be needed, how can we innovate to meet this need? Nuclear power, reassuringly, requires a level of manufacturing precision that belies even that of aerospace. Our manufacturing excellence and know how is excellently placed to deliver on this. Develop this effectively ourselves and we can sell that to the rest of the world, surely?

Can similar innovation be harnessed to make renewable energy more compact, more efficient and less dependant on the wind blowing at the right speed or the sun shining? Can we develop and roll out hydrogen fuel cells?

Necessity is of course the ‘mother of invention’, we only have to reference the recent world beating vaccine programme to prove this is true.

There are lessons to be learned as drivers for success, the vaccine programme was granted resources and support from government to deliver, and they delivered!

To deliver innovative and sustainable energy sources of the future will need this level of support too. It will require assistance for our industry to survive the existing power pricing crisis and deliver on the major infrastructural projects designed to ‘level up’ and ‘build back better’ our economy.

There are political, economic and green reasons to support UK industry now, by taking steps to control current power pricing. As businesses come to the end of existing power contracts, they simply cannot afford to factor in a tripling of power costs and remain competitive. A foundry cannot just ‘turn the thermostat down a bit’ or ‘put an extra jumper on’ as the media exhort domestic users to do. And though we would always exhort businesses to seek advice on power contracts, subsidies and usage; at this point, they can only marginally reduce the impact of a major problem.

Government need to support its domestic industry now, by supporting energy costs in order to seed the solution the problems of tomorrow and protect our planet. It makes good economic and political sense too.

Insights

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On 1 June, a two month window opens for applications for the suspension of UK customs duty on imported materials.
As the environment becomes greener, customers increasingly want to know the carbon footprint and ethical source of their supply chain.
Johnathan Dudley, Head of Manufacturing looks at the benefits of exporting and why businesses should consider it.
On 1 June, a two month window opens for applications for the suspension of UK customs duty on imported materials.
As the environment becomes greener, customers increasingly want to know the carbon footprint and ethical source of their supply chain.

Contact us

Johnathan Dudley
Johnathan Dudley
Partner, Business Advisory, Head of Manufacturing
Midlands