UK industry braces for a bleak winter as soaring energy costs threaten closures

For more than half a century the furnaces at Steve Keeton’s factory in Wigan have been used to melt and draw glass fibre used in wind turbines, electric car parts and construction. Now the prospect of surging power prices and supply disruptions may force it to shut permanently.

The threat of closure at Electric Glass Fibre UK is real despite strong demand for its products. The cost of keeping its furnaces running is set to rise by an unaffordable 300 per cent next April, as a result of soaring energy bills. There is also a risk that power will be rationed this winter if the stand-off with Russia deepens gas supply shortages across Europe.

Disconnection — even for just a few hours — would cause lasting damage and “cost tens of millions of pounds to repair”, said Keeton, managing director at the 57-year-old factory in north-west England which has been owned by Japan’s Nippon Electric Glass since 2016.

“I can’t even believe I’m thinking it,” he added, referring to the possible need to shut down unless the business receives government support or borrows more from banks or its owner.

Businesses across the UK are braced for an unprecedented energy costs hit this winter. Many deals are due to be renegotiated next month, ahead of a crunch point in October when thousands of companies — large and small — have to switch to new contracts.

UK households are protected from sudden swings in the wholesale cost of gas by a price cap — although that is now rising sharply — but there are no such protections for companies.

Businesses tend to lock in for one, two or five-year contracts, many of which come to an end next month. There is no obligation on energy suppliers to offer new contracts, and some businesses are struggling to find replacements. This means they may soon be reliant on short-term deals or the daily spot price, which is already around five times higher than a year ago.

“There’s a huge cost shock coming to business — especially those that are rolling off fixed price contracts,” said Robert Buckley, head of relationship development at Cornwall Insight, an energy consultancy. “It’s frightening.”

Britain has ‘no plan’ for crisis

Industrial and chemical companies are among the heaviest energy users and for many manufacturers — such as glass and ceramics — a continuous supply of gas and electricity is critical.

Soaring energy costs have already forced widespread curtailments at fertiliser plants and the indefinite closure of two smelters in Europe.

Some fear the UK could be hit harder, with its response to the energy crisis stalled by paralysis in decision making until a new prime minister takes power next month.

Nishma Patel, policy director at the Chemicals Industry Association, a trade body, said the EU had released a framework to deal with severe gas shortages over winter that included allowing government intervention for spiralling prices. No such plan exists in the UK.

“In the EU, we’ve started to see their plans on the worst-case scenario. We don’t have that clarity yet,” she said. “The big concern is ‘will we have these things ready by winter?’”

Questions posed directly to energy-intensive businesses by the regulator Ofgem and network providers — including whether they could reduce or even turn off gas with just six hours’ notice — have unnerved manufacturers, which need time to wind down operations safely.

“There’s no compulsion on that right now but it’s concerning,” said Keeton.

Heavy industries have warned the British government they are at risk of permanent closure this winter if sudden emergency measures to curb usage are introduced, and if there is no support when their energy supply contracts are renewed.

Dave Dalton, chair of the Energy-Intensive Users Group, said a “bigger concern, having played this one through on the security of supply over winter, is price”.

Gas prices in Europe jumped as much as 10 per cent to as high as €251 a megawatt hour this week, one of the highest prices on record and 13 times the average of the previous decade.

Britain does not import much gas from Russia directly but competes with other buyers on the international market and may have to rely increasingly on deliveries from mainland Europe — should they have enough to send. That presents difficulties for the UK, which closed its last remaining domestic storage facility at Rough in the North Sea in 2017.

Jobs at risk

Some manufacturers may be able to restrict hours and output to the extent they can absorb the costs. “But that will also affect employment and people will go home and pay their own very high energy bills,” said Buckley.

The worst affected by rising prices are expected to be companies coming off significantly lower two and five-year fixed deals. Some energy suppliers are asking customers to lock in expensive prices on contracts lasting far longer than usual, said Rob Flello, chief executive of the British Ceramics Federation.

Kevin Preston, managing director of Hinton Perry & Davenhill, which owns companies that make 8.3mn roof tiles and 6mn bricks annually, said it faced “a cliff edge scenario” once its energy supply contact was due for renewal.

“The stark reality will be reducing or stopping production completely and laying off skilled colleagues with substantial damage to kilns and plants that operate 24 hours per day, seven days per week,” he said. “With no relief in prices on the horizon and lack of government support we all face a very bleak future.”

Keeton, like many others in the industry, felt his company’s needs had been ignored by Liz Truss and Rishi Sunak in their bids to become the next prime minister of the UK.

“We listen to our PM hopefuls on the news and they are not even talking about business or industry at all. There’s a cost of living crisis for people but we have several thousand jobs relying on our business,” said Keeton.

The UK car industry has also repeatedly raised concerns that higher electricity prices make it harder to convince manufacturers to set up in Britain.

“The cost of energy in the UK is 59 per cent higher than the EU average,” said Mike Hawes, boss of UK auto trade group SMMT. The current situation “exacerbates . . . the UK’s anti competitive position,” he added.

For many companies, the rising cost of gas and electricity is not the only challenge. Across the UK, business is also grappling with a shortage of workers as a result of Brexit, and higher prices for materials as a result of the supply chain disruptions.

“This is significant — it’s not just us,” said Keeton, referring to the glass industry. “There is a risk of closures.”