UK industry will suffer painfully high energy costs next year, fuelled by soaring wholesale costs.
Based on current forecasts, clean energy specialist Squeaky has calculated that UK industry could be hit with £49.2bn bill for wholesale gas and electricity costs combined in 2023.
Overall, this is a 260 per cent increase from the industry’s energy bill in 2021, which climbed to £13.7bn, and a huge hike on Squeaky’s forecasts of a £20bn-plus bill this year.
The term ‘industry’ encapsulates large swathes of the economy, including iron and steel, non-ferrous metals, mineral products, chemicals, mechanical engineering, electrical engineering, vehicles, food and beverages, textiles, paper printing and construction.
The data reflects the forward curve for power prices for the rest of 2022.
Squeaky compared prices from earlier this month with figures from two years ago, prior to the crisis.
In early August, electricity prices were trading at £333 MWh, which is 851 per cent higher than the cost of electricity in 2020.
The energy specialist has calculated the price of electricity could be as high as £422 MWh in 2023.
Meanwhile, the gas price was trading at 490 pence per therm, which is 1777 per cent higher than the cost of gas in 2020.
Chris Bowden, founder and chief executive of Squeaky, told City A.M.: “Since it began, the energy crisis has been a ticking time bomb for businesses. Most of the UK’s biggest firms are now exposed to eye-watering energy prices and it is no exaggeration to say the survival of some firms will be under threat this winter.”
Forecasts have sharply risen over the past three months, amid intense geopolitical volatility, which has raised the prospect of supply shortages and caused wholesale costs to spike.
|Cost of electricity/gas||2019||2020||2021||2022||2023 (prediction)|
|Electricity Price (£MWh) (10/08/22)||£43.00||£35.00||£118.00||£333.00||£422.00|
|Gas Price (Pence per Therm)|
This includes Russian disruption to gas flows into Europe, nuclear outages, the heatwave and subsequent droughts across the continent.
For context, Squeaky noted that on 23 May the forecast for October was less than £150 MWh, and has since risen to £350.
Bowden explained: “In short, businesses are gambling on the cost of their electricity if they have not locked in their energy prices. Baseload prices for contracts starting now are 10 times higher than they were three years ago. Industry is facing the same cost increases as domestic is, but they will face the increase later on. In the last three months the situation for businesses has gotten much worse.”
The energy expert urged businesses to mitigate risk by protecting themselves against price volatility, such as through long-term power purchase deals.
He also noted energy from renewables was trading at increasingly low prices compared to fossil fuels.
Squeaky’s findings were based on data from the Digest of United Kingdom Energy Statistics, which it used to calculate the impact of the rise in wholesale energy costs on UK industry.