Consumers’ worries over the jump in electricity prices tend to hog the headlines, but the trend is of equal concern to big business.
“The cement industry is very energy intensive,” said David Holden of Birmingham-based Castle Cement, which is one of the largest consumers of electricity in the UK.
“Electricity is our single biggest variable cost and we’re extremely sensitive to it. It is now at an all-time high, with prices up 50 per cent on where they were last year. Cement is an internationally traded product, so you can’t go out and pass on all those price increases to the customer.”
Mr Holden complains that for large energy consumers, the market is hampered by a lack of competition among the suppliers and generators of electricity.
“When we go out to tender, we’re lucky if we can get three or four responses, and we are in the top 20 consumers in the UK. There are not many companies that size.
“Electricity is not like oil with thousands of people trading it worldwide. You’ve got a relatively large number of [electricity] consumers in the UK with a relatively small number of players who can influence it to their own benefit. It is sort of incestuous. If you’re a low-cost producer like British Energy, you’re laughing all the way to the bank.”
Castle recently changed its supply from British Energy to Total because British Energy was not providing sufficiently attractive forward prices.
Castle has now bought electricity futures for as far ahead as 2011, but is still at the mercy of the spot price for energy if it needs to supplement its electricity consumption for short-term production increases.
“Any time we ask for a price [for electricity], the supplier just quotes a price off a trading screen. That price depends on market sentiment, which does not relate to the costs of the generators.
“Our cement price to customers is based on the cost of production and a small margin. Why can’t electricity be traded in a similar fashion?”
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