An industry leader has warned the Government that factories across the country could stop production due to rising energy costs.
Andrew Large, director-general at the Confederation of Paper Industries, attended a meeting with the Business Secretary and other representatives of energy intensive industries to discuss the wholesale gas crisis.
Speaking to the BBC Radio 4’s PM programme afterwards, Mr Large claimed it was “very clear” across all of the sectors that there are “serious” risks factories could stop all activities as a result of the gas prices being too high.
He said: “When we talked with the Secretary of State this afternoon, it was very, very clear across all of the sectors that there are serious risks of effectively factory stoppages as a result of the costs of gas being too high to bear, and in those circumstances, there will be a gradual knock on effect through supply chains, right the way across manufacturing, consumer retail and other products. And so the risks are very, very real.”
When asked what this would mean for the paper industry, Mr Large said it would be incredibly damaging for profitability.
He said: “So, our paper mill will be wanting to operate 24/7, 365 days a year, with the exception of planned stoppages for maintenance and so on. So the financial sustainability of that paper mill is dependent upon being able to maximise its uptime.
“Every minute that the machinery isn’t working, every minute that paper isn’t being produced is a damage to the profitability of the sector and a damage to the future investment potential and opportunities going forward.”
The director-general at the Confederation of Paper Industries welcomed the meeting, though, arguing it was a “positive, first step” to look at the solutions they had proposed and that Kwasi Kwarteng “clearly furthers our desire to avoid any potential supply chain disruption”.
The Energy Intensive Users Group (EIUG) echoed Mr Large’s comments, saying in a statement it had welcomed the opportunity to meet the Business Secretary and is pleased he wants to find practical solutions to the challenges members face going into this winter.
EIUG chair Dr Richard Leese said: “Our message to the Secretary of State was for prompt and preventative measures to help avoid recent production curtailments in the fertiliser and steel sectors being replicated in other areas this winter.
“EIUG will work with Government to avoid threats both to the production of essential domestic and industrial products, as well an enormous range of supply chains critical to our economy and levelling up the country.”
The EIUG’s membership comprises trade associations and customer groups representing industrial sectors with the heaviest energy consumption in the UK.
These are UK Steel, the Chemical Industries Association, the Confederation of Paper Industries, the Mineral Products Association, the British Glass Manufacturers Federation, the British Ceramic Confederation, BOC, Air Products and the Major Energy Users Council.
In a statement, the Department for Business, Energy and Industrial Strategy said about the meeting: “Mr Kwarteng began the call by saying he wanted to hear directly from industry leaders about the impact high global prices were having on their businesses and wider supply chains.
“The Business Secretary stressed that the Government remained confident in the security of gas supply this winter. He also highlighted the £2 billion package of support that has been made available to industry since 2013 to help reduce electricity costs.
“The Business Secretary noted he was determined to secure a competitive future for our energy-intensive industries and promised to continue to work closely with companies over the coming days to further understand and help mitigate the impacts of any cost increases faced by businesses.”
The meeting comes as analysts have predicted Britons could see their energy bills rise by 30% next year.
Research agency Cornwall Insight has claimed further volatile gas prices and the potential collapse of even more suppliers could push the energy price cap to around £1,660 in summer.
The forecast is approximately 30% higher than the record £1,277 price cap set for winter 2021-22, which commenced at the start of October.
Craig Lowrey, senior consultant at the firm, said: “With wholesale gas and electricity prices continuing to reach new records, successive supplier exits during September 2021 and a new level for the default tariff cap (£1,277 for a typical dual fuel direct debit customer) for Winter 2021-22, the GB energy market remains on edge for fresh volatility and further consolidation.”
Energy regulator Ofgem reviews the price cap once every six months, and changes it based on the cost that suppliers have to pay for their energy, cost of policies and operating costs, among other things.
Ofgem chief executive Jonathan Brearley told BBC Radio 4’s Today programme: “We can’t predict everything, and the wholesale market, as we’ve seen, has gone up and down extremely quickly so we can’t predict fully what that will be.
“But, looking at the costs that are in the system, we are expecting a significant rise in April.”
Mr Kwarteng said consumers will be better insulated from erratic gas prices as wind and solar power start providing more energy to the UK’s households.
He insisted that by decarbonising the UK’s power supply, the Government would ensure that households are less vulnerable to swings in fossil fuel markets.
He told a conference organised by trade body Energy UK: “The UK so far, as many of you know, has made great progress in diversifying our energy mix. But we are still very dependent, perhaps too dependent, on fossil fuels and their volatile prices.”