CPI calls for Government action to secure affordable UK gas and electricity supplies

Sectors as diverse as food packaging, toilet tissue and newsprint are facing unprecedentedly high energy prices which are curtailing their ability to manufacture in the UK.

In the coming months, this situation risks generalising across the industry as a whole as energy buyers are forced to renegotiate gas and electricity contracts at current market prices.

The UK energy situation is worse than in both the EU and the rest of the world. As Ofgem and BEIS have reported, the policy costs for the UK market on both network and carbon costs are higher than in Europe. For example, network charges make up 14% of UK bills after rebates while the same charges are under 5% of French and German bills. Moreover, current carbon costs show that UKA futures are trading at €74.5 per tonne, while the equivalent EU contract is trading at €62 per tonne. The lack of liquidity in the UK carbon market is starting to generate unwarranted and uncompetitive upward pressure on prices – and is likely to lead to a further crisis in April next year when the surrender of allowances for 2021 compliance is required.

Commodity prices globally are also significantly cheaper than in the UK – especially in countries such as the US, Canada and China which can and do export paper/board to the UK.

Indeed, the UK is the world’s largest net importer of paper and UK production of 3.63 million tonnes (2020) is wholly insufficient to meet the UK’s consumption of 9.9 million tonnes (2020). This import pressure, coupled with long term supply contracts means that the UK’s Paper-based Industries cannot raise prices in response to cost pressures that are UK specific, without immediately causing a spike in imports through the already widely used supply chain.

Commenting on the current situation, CPI Director General, Andrew Large said:

“The UK is in a worse position than competing nations, due to a combination of both wholesale and policy costs on energy, coupled with the UK’s reliance on gas for electricity generation as well as domestic and industrial heat.”

“The Government therefore cannot simply sit back and let this crisis develop before it. Action must be taken now to secure the affordable supply of UK gas and electricity for the forthcoming winter and beyond. As an emergency measure the Government should provide a support scheme for companies already forced to suspend production due to unsustainable energy costs.”

“The Government must make a clear statement that it will do whatever it takes to maintain affordable gas and electricity supply to both domestic and industrial users.”