Energy price rises have been a key topic of discussion in the UK since the Ofgem price gap first started to rise in 2022, highlighting how rising energy costs are impacting various sectors.
While prices dropped towards the end of last year, and many energy firms bought back fixed rate tariffs at more competitive rates, the price cap rose again in January 2025.
The energy crisis has significantly impacted the construction industry, driving concerns due to the sector’s considerable energy consumption and the sharp rise in energy prices.
These regular price rises for energy, which have seen costs double or more for many homeowners and business leaders, are having an effect on almost every part of the corporate landscape.
For the construction industry, this is particularly true, especially since the market has high energy needs. The huge spike in energy prices has led to many changes that we’re likely to see in 2025, as we outline in this article.
Introduction to Energy Costs
The construction industry is grappling with significant challenges due to rising energy costs, which have surged by over 500% in recent years, according to Ofgem. These escalating energy costs are a major concern for construction companies, as they constitute a substantial portion of overall construction costs. The impact of rising energy costs is being felt across the construction sector, with construction firms struggling to manage their energy expenditure effectively.
In response to these challenges, renewable energy sources, such as solar panels and wind power, are becoming increasingly important for construction companies looking to reduce their energy costs. The UK government has introduced initiatives to support the construction industry in this endeavor, including the Energy Bill Discount Scheme. This scheme aims to alleviate some of the financial burdens associated with energy consumption, helping construction firms to navigate the current market’s volatile prices and ensure long-term success.
Increased Demand For Renewable Energy Sources
As homeowners and commercial building managers seek new ways to power their properties, it’s likely that we’ll see a rise in demand for renewable energy sources and technologies, such as solar panels. Also, as the UK government has scrapped VAT on Tesla Powerwall battery storage from the 1st of February, suppliers like AR Power predict there will be an increase in demand for these tools. As such, these features may become more likely in new build homes and will be a top choice for homeowners looking to renovate their properties going forward. The construction industry is also exploring more affordable and sustainable energy sources to mitigate rising energy costs.
Additionally, nuclear power, transitioning off marginal pricing and onto Contracts for Difference, can provide stable and potentially lower electricity prices, benefiting consumers relying on renewable and nuclear energy sources.
Energy Costs Put Pressure On Project Budgets
As well as affecting buyer behaviour, rising energy prices and cost increases will continue to put a strain on project budgets over the coming months. Surging electricity prices are impacting the day-to-day operations of construction projects. Powering vital construction equipment and job site trailers, as well as charging batteries for cordless tools, will become more expensive as the cost of energy increases. This may cause project budgets to become stretched and might result in delays in completion.
Rising energy costs can lead to extended project timelines, as construction firms may need to pause or slow operations to reassess expenditures.
Additionally, managing energy bills effectively is crucial for businesses to avoid financial strain and ensure smooth project execution.
Construction Industry Challenges
The construction industry is facing a multitude of challenges, with rising energy costs, material costs, and labor costs all contributing to increased construction costs. Construction companies are finding it increasingly difficult to maintain their profit margins as these costs continue to rise. The situation is further exacerbated by supply chain disruptions, which are causing delays and increasing project costs.
To mitigate the impact of these rising costs, the industry is in dire need of government support and intervention. Construction companies are also exploring ways to reduce their energy consumption and reliance on fossil fuels. This includes the adoption of renewable energy sources and energy-efficient technologies, which can help to lower energy costs and improve sustainability. However, the path forward is fraught with challenges, and construction firms must navigate these complexities to remain competitive in the current market.
Transportation Costs Will Lead To Amended Material Use
As well as direct power prices, higher costs for fuel and raw materials like steel, concrete, and lumber are driving up overall construction costs for building materials. This is making some projects less financially viable or forcing developers and contractors to find cost savings in other areas. This might include sourcing from local companies or finding cheaper alternatives to heavier or more expensive materials to cut costs. While this may save costs in the short term, it could lower the quality of some projects and cause longer-term issues.
Rising energy prices also impact the production and affordability of essential materials like cement and steel, further contributing to the financial challenges facing construction companies.
Decarbonisation and Sustainability
The construction industry is under increasing pressure to decarbonize and reduce its carbon footprint, with the UK government setting ambitious targets for net-zero emissions by 2050. In response, construction companies are adopting sustainable practices and technologies to reduce their energy consumption and emissions. This includes the use of modular construction, smart building technologies, and renewable energy sources such as solar and wind power.
Additionally, the industry is exploring new materials and technologies, such as green concrete and energy-efficient glazing, to further reduce its environmental impact. Decarbonisation and sustainability are critical for the long-term success of the construction industry. Companies that fail to adapt to these changes may struggle to remain competitive as the market increasingly prioritizes sustainability and energy efficiency.
Ongoing Market Uncertainty
Almost every market has seen significant uncertainty due to economic constraints caused by rising energy prices, and construction is no different. Fluctuations in energy markets can significantly impact construction costs, making it essential for firms to incorporate specific clauses into their contracts to adjust project costs accordingly. It’s likely that in 2024, there will be even more uncertainty as construction companies seek to weather the storm and achieve building targets while also ensuring profitability for long-term success. Price volatility poses additional challenges for construction firms, as they must navigate the unpredictable changes in energy prices influenced by global events and supply-demand dynamics. While industry insiders predict a recovery for the construction market in 2024, the lack of clarity on energy costs and the rising price of powering sites could hamper projects, particularly at the start of the year.
It’s only the beginning of the year, so there’s still plenty of time for things to change. However, these are our predictions for how the regularly increasing energy prices will affect the construction market in 2024. In the near future, small-scale construction companies and subcontractors may face immediate challenges due to rising energy costs, potentially impacting contract margins and industry innovation.
Conclusion and Recommendations
The construction industry is facing significant challenges due to rising energy costs, and it is imperative that companies take proactive measures to reduce their energy consumption and reliance on fossil fuels. Adopting sustainable practices and technologies, such as renewable energy sources and energy-efficient technologies, is essential to mitigate the impact of rising energy costs and reduce the industry’s carbon footprint.
Government support and intervention are crucial for the long-term success of the construction industry. Construction companies must work closely with policymakers to ensure that their needs are met and that they can continue to operate profitably. Additionally, companies must prioritize budget responsibility and cost management to maintain their profit margins in the face of rising energy costs.
By working together, the construction industry and government can build a more sustainable and resilient future. This collaboration will help to achieve lower energy costs, a reduced carbon footprint, and a more stable and prosperous construction sector.
