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Steel, ceramics and chemicals factories could be forced to temporarily close within weeks due to rocketing electricity and gas prices, the government will be warned today.
Industry leaders in these energy intensive sectors will meet the business secretary Kwasi Kwarteng on Friday afternoon. They plan to lay out the severe impact energy prices for electricity and natural gas have had on their operations, the Independent understands.
The group of energy intensive industry bodies are set to lay out how even the largest companies with strong balance sheets are facing punitive costs to hedge their energy prices in the months ahead. It is no longer a matter of a handful of a few vulnerable businesses, two industry insiders told the Independent, many large firms are also under huge pressure in the face of sharp price hikes.
The impact of sustained high energy costs is so severe several companies are weighing temporarily closing operations in the weeks and months ahead. Electricity hedging costs for early next year are five times the average seen last year in some cases.
Meanwhile, with a major interconnector with France still out of action, many industry groups believe there is an elevated risk of a sharp spike in next-day electricity costs. Even companies which buy contracts to guard against energy hikes well head of time cannot avoid next-day prices entirely. This practice known as ‘hedging’ also cannot guard against a long-term hike in energy costs.
Amid higher costs for raw materials, labour shortages in key logistics industries and elevated shipping charges many UK manufacturers are facing an “all round crunch”, according to one leader who is set to attend the meeting on Friday.
In the immediate aftermath of the energy price spike triggered by the fire in September which hit the interconnector, prices hit record highs and some factories closed temproraily rather than pay the exorbitant cost. The energy link is not expected to be fully operational until March next year, according to the National Grid’s winter outlook for electricity, adding to the risk of blackouts.
Mr Kwarteng, who is due speak with business leaders over video call this afternoon, is not expected to offer a quick solution to the problem, according to industry sources. A government source close to the talks said that the business department has been “monitoring the impact of higher energy prices on companies on a daily basis” and was keen to “gather more intelligence” from business groups today.
They added that the government had already taken a range of steps to try and mitigate the impact of higher prices on manufacturing and other sectors. This has included cutting the fees for gas transmission for companies.
However, energy intensive industries will try and make the case for the UK to create similar levels of support seen in other EU countries such as Italy and France, which they argue are more generous.
The Portuguese government has slashed network charges for companies, in Italy, renewable levies on energy bills have been cut and France has taken the relatively drastic step of offering a guaranteed price for wholesale energy for industry.
Gareth Stace of UK Steel told BBC Radio 4s World at One: “The prime minister this week is calling for a high wage economy. The steel sector already does exactly that – we pay our workers 45 per cent higher wages in regions where steel is, they’re highly skilled as well.
“If you’re paying as much for gas and electricity as we are as a steel sector, then these unprecedented price rises are hurting us now today.
“If the prime minister and government does nothing to help us, they could start to strangle steel production here in the UK and rather than working towards a high wage economy, we’ll actually be walking blindly towards a low wage economy.”
Mr Stace said: “At the moment, there’s an energy crisis. If government does nothing, tomorrow there’ll be a steel crisis
“In terms of what impact that could have on jobs, that wouldn’t be good not only for the steel sector and for those regions where there is steel but for the UK economy as a whole.”
In the immediate aftermath of the energy price spike triggered by the fire in September which hit the interconnector, prices hit record highs and some factories closed temporarily rather than pay the exorbitant cost. The energy link is not expected to be fully operational until March next year, according to the National Grid’s winter outlook for electricity, adding to the risk of blackouts.
However, any closures are extremely expensive for some industries, and can do damage to equipment and production processes that cost tens of millions of pounds. The cost of recovery may be too great for some.
Mr Kwarteng, who is due speak with business leaders over video call this afternoon, is not expected to offer a quick solution to the problem, according to industry sources.
A government source close to the talks said that the business department has been “monitoring the impact of higher energy prices on companies on a daily basis” and was keen to “gather more intelligence” from business groups today.
They added that the government had already taken a range of steps to try and mitigate the impact of higher prices on manufacturing and other sectors. This has included cutting the fees for gas transmission for companies.
However, energy intensive industries will try and make the case for the UK to create similar levels of support seen in other EU countries such as Italy and France, which they argue are more generous.
The Portuguese government has slashed network charges for companies, in Italy, renewable levies on energy bills have been cut and France has taken the relatively drastic step of offering a guaranteed price for wholesale energy for industry.
Mr Stace said Mr Kwarteng needs to “take immediate action ahead of the Spending Review to address the price disparity between the UK steel sector and the steel sector in Germany”.
He added: “We pay something like 50 to 80 per cent more for our electricity than our direct competitors in Germany.
“There are a number of ways that the government could today, this week, change that and put us on that level playing field with Germany.
“We’ve set those out in detail, we’ve given them the solutions to address carbon prices, renewables, capacity charges, network charges. They could do that now, and also do what other countries in Europe are doing – like Italy and Portugal – where those governments have already committed billions of euros to address the wholesale price increases.”
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