81% of UK businesses expect to raise prices in the next two years in response to high energy costs - PwC research

• A quarter of UK organisations consider Government energy support ‘essential for survival’ 

• High energy costs leave over 70% of companies expecting to be less competitive over the next two years 

• The top two barriers to mitigating high energy costs are a lack of solutions with immediate impact and environmental considerations limiting options (both cited by 63%) 

• UK organisations urged to take long-term transformational control or risk continued strain on performance and economic growth

Volatile energy costs look set to challenge the competitiveness of UK businesses and add upward pressure to forecasted falls in inflation, as 81% plan to increase the price of their products and services at least moderately over the next two years, in response to high energy costs and with government energy support set to end. 

This is according to a new survey of 750 UK organisations, conducted by PwC in November and December 2023. Respondent organisations form a mix of both private and public sector, operating across various industries.

Economic impacts pose challenges to future growth

Over the last two years, 77% of businesses said high energy costs had driven up the price of their products and services, at least moderately. Over a quarter of all companies cited energy costs negatively impacting profits and margins over the last two years.

High energy costs also negatively impacted companies’ ability to compete both domestically (64% affected) and internationally (65% affected).  

Looking to the next two years, 81% of respondents agreed that energy costs would drive up the price of products and services further, either significantly or moderately. 72% expect high energy prices to negatively impact profits and 71% expect high energy prices to reduce their ability to compete in international markets.

To what extent have high energy costs had the following impacts on your business in the last two years?/ To what extent do you expect high energy costs to have the following impacts on your business in the next two years?

Source: PwC Energy Survey, Private sector respondents answering 'significantly' or 'moderately'. (Total sample - 550).

Overall, energy costs had increased by 11% or more for a third of organisations over the past two years. All respondents said they had received at least one form of government energy support in the same time period, which had been classed as ‘essential to survival’ by a quarter of respondents. 

Lack of immediate returns deter long-term transformation

Respondents were divided on their energy strategy objectives. Reducing energy consumption (27%), reducing carbon emissions (26%) and reducing energy costs (26%) all held similar priority as a main energy strategy objective. Popular cost mitigation efforts by respondents included reviewing energy procurement strategies (37% fully adopted, 37% in progress),  improving energy efficiency (31% fully adopted, 44% in progress) and adopting corporate power purchase agreements (34% fully adopted, 35% in progress).

Which of the following have been your greatest barriers to mitigating the impact of high energy costs on your business? Rank 1/2/3/4/5 (% rank in top five)

Source: PwC Energy Survey, Base: All respondents (750).

Over half of respondents said they had experienced at least moderate success of minimising energy costs (19% significantly, 48% moderate). 

Despite respondents citing their successes, there were several barriers to taking action on costs highlighted by the research. A lack of solutions with immediate impact was selected by 63% of businesses as the joint-top barrier to mitigating high energy costs, alongside environmental commitments limiting options.  This was followed by high capital costs of solutions and being locked into long-term energy contracts (both 61%) and a lack of visibility into the energy consumption of operations (59%). 

A lack of understanding of energy at board level was a barrier to mitigating costs, said 43% of respondents, with 45% citing the same lack of understanding across their entire organisation. Additionally, over half (52%) cited a lack of visibility into overall energy spend as a factor in not being able to mitigate costs further. 

Costs and carbon

So far, few organisations have taken action to collectively reduce energy costs and carbon emissions, with many seeing the two as seemingly competing objectives. Nearly two thirds of respondents ranked ‘environmental commitments’ among their top five barriers to mitigating energy costs. Additionally, over a third (37%) said high energy costs had delayed their progress on decarbonisation, with only 3% saying they had accelerated progress. 

Energy security (61%) and regulation (58%) ranked as the main drivers of decarbonisation efforts, with the latter becoming the most important for businesses thinking in two years’ time (60%).

Vicky Parker, Sector Leader for Power and Utilities at PwC UK, said:

“Achieving predictable and controlled energy costs while eliminating carbon emissions is a multi-year transformation, and will require long-term vision and leadership. But until more UK organisations think this way, they will continue to suffer the effects of volatile prices, and remain at the mercy of the geopolitical forces that have rocked energy markets for the past two years – and undoubtedly will again in future. The extent to which organisations can manage their operations to try to control volatile energy costs and carbon depends on their organisational sophistication, the availability of financing and their expected returns on investment. 

“Government support has provided a helpful and much needed short-term buffer, but has allowed transformational thinking to become less of a priority for businesses. Despite over half of respondents saying the support has been either very important or essential for survival over the last two years, funding of this kind could impede wider economic growth - whilst in operation - and cannot be a permanent coping solution for volatile energy costs. 

“It’s encouraging to see organisations are taking up efficiency measures, reviewing procurement and seeking to mitigate costs, but the momentum, at least so far, is unlikely to provide sufficient long-term resilience against price volatility. Looking ahead, ensuring the UK's energy platform is not only low-carbon and sustainable but also secure and affordable requires new approaches and a commitment to long-term transformation. Recalibrating how energy is used, in order to ensure a competitive and resilient economy, as well as stable and affordable public services, is a crucial step in the nation's energy transition. 

“UK organisations need to adopt a pathway that is right for them, noting that it will likely evolve as technology advances and markets change. But the prize is significant: greater competitiveness, greater resilience and greater control, all in a global economy where energy efficiency and carbon emissions become ever more important as an axis of competition.”