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Energy crisis could force more UK factories to close

By Walé Azeez, CNN Business

British companies that produce steel, paper, glass, cement, ceramics and chemicals say they will be forced to close factories or pass on rising costs to consumers unless the UK government provides relief from soaring energy prices.

The industries, which are major users of natural gas and electricity, are reeling from a meteoric increase in wholesale energy prices that could continue deep into the winter. UK companies are being made less competitive compared to international rivals that have received help from their governments.

It’s not an idle threat. Just three weeks ago, Britain’s food industry was brought to the brink by the closure of factories producing most of the country’s CO2. The reason? Soaring natural gas prices.

“It is expected that the UK will continue to experience high and frequent peaks in electricity prices leading to further production stoppages, damages to plants and long-term injury to the UK steel sector,” said industry group UK Steel.

Industry groups met with UK officials for a second time on Monday after talks on Friday failed to satisfy business leaders. With Prime Minister Boris Johnson on vacation in Spain, some executives are beginning to voice frustration with what they see as government inaction.

Stephen Elliott, chief executive of the Chemical Industry Association, said on Monday that members could begin closing plants in weeks as a result of rising production costs.

“I’m not saying our members are teetering on the brink. But what I am saying, and I said this on Friday to [business secretary] Kwasi Kwarteng, is if I leave this another three weeks, I can’t guarantee that chemical businesses will not be pausing or shutting production temporarily,” he told the BBC.

Kwarteng has submitted in a formal bid for assistance to the UK Treasury, a Department for Business, Energy and Industrial Strategy official told CNN on Monday.

Price trouble

British consumers have some protection from rising prices thanks to a cap set by regulators. Yet businesses remain exposed.

UK wholesale electricity prices surged from £50 per megawatt hour in April to as much as £2,500 per megawatt hour in September, according to UK Steel, which described the increase as “astronomical.” Monthly average wholesale costs in Britain are roughly double those in France and Britain, it added.

UK natural gas prices have increased by roughly 425% so far this year. In early October, they were nearly 740% higher than the same period in 2020, according to data from Independent Commodity Intelligence Services.

Glass producers have to keep their furnaces running continuously due to the high temperatures needed to melt raw materials and they cannot pause the process without significant cost and damage to the furnace, according to Dave Dalton, the CEO of trade association British Glass.

“Some businesses have seen their energy bills spiral four and even up to eight-fold, meaning an extra burden of millions of pounds a month which simply cannot continue,” he said. “These costs will inevitably have to be passed on to customers and consumers at a time when the cost of living is already increasing.”

Dalton said he’s not yet calling for a bailout of the industry. But he said immediate action from government is required “to ensure that this situation does not continue to worsen.” Industry groups are asking the government to help contain their costs and ensure they can continue to access energy.

UK Steel director general Gareth Stace told UK media outlets on Monday that the prime minister needs to “bang ministerial heads together” to cut through government inertia and help manufacturers avoid mass shutdowns this winter.

Rising gas prices could force plants to close for extended periods, which would in turn damage individual firms’ productivity and the UK steel supply, as well as UK jobs, he said on Monday. He added that shutdowns could cause irreversible damage to equipment.

In the ceramics industry, where energy makes up a third of production costs, many companies ordered winter gas supplies in advance — and so do not have to pay higher prices immediately, according to Jon Flitney, energy and innovation manager at the British Ceramic Confederation. But he said that for many, gas could now be up to around 65% of costs.

“We urge the government to take actions to limit the impact of high market prices, whether to help members now or through the rest of winter,” he added.

Vulnerable businesses

Industrial firms that use huge amounts of energy aren’t the only ones at risk. The British Chambers of Commerce asked the government to implement an energy price cap to prevent smaller companies from closing down.

Claire Walker, co-executive director of the British Chambers of Commerce said the cap would protect small and medium-sized businesses “in the same way as households and enable production and the maintenance of normal business activities with confidence.

There was one piece of good news for UK companies on Monday: they will have a reliable source of vital CO2 gas until at least January.

CF Fertilizers, the US firm that the British government agreed to subsidize after it suspended operations in the country, said it would supply CO2 through January after reaching a deal with customers.

The gas is used to stun animals for slaughter, as well as in packaging to extend the shelf life of fresh, chilled and baked goods, and in the production of carbonated drinks. UK supermarkets could face shortages of meat and other fresh food without a reliable supply of the gas.

“CO2 suppliers agreed to pay CF Fertilizers a price for the CO2 it produces that will enable it to continue operating while global gas prices remain high,” according to a UK government statement on Monday.

— Luke McGee contributed reporting.

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