High energy costs for manufacturers ‘here to stay’

Publishing its third quarter statistics yesterday (21 October) BDO's Quarterly Manufacturing Energy Tracker showed the price of oil and gas falling while electricity rose. During the third quarter of 2009, oil prices fell by seven per cent in comparison to the previous quarter – from $70 a barrel at the end of June to $65 a barrel at the end of September. Gas prices fell 10 per cent in between quarters two and three, although after a low point in August 2009, the price is on the rise. Electricity prices rose 14 per cent in the same period but are still 50 per cent lower than at this time last year. While the wholesale price of gas and electricity has roughly halved in the past year, the big six energy companies say they cannot reduce the prices they charge consumers, as they bought gas a year ago in the wholesale markets at a much higher price; they also incur costs in meeting environmental targets – which dictate that one third of electricity should come from renewable sources by 2020 – grid connections and the need to finance the government's schemes to insulate homes. BDO said that regulatory and political upheavals were leading to further uncertainties. Alternative energies such as wind were still expensive, while old power stations are due to be decommissioned under environmental legislation, the business advisory firm said. All of this meant significant investment in infrastructure was required and these costs were currently being forwarded on to consumers. There was no doubt, BDO went on, that fluctuating prices would mean extra burdens for the manufacturing sector, as it already struggled to cope with a slow economic recovery. Tom Lawton, head of manufacturing at BDO said: "High energy prices will continue to put pressure on manufacturers' margins for some time to come. This is especially true as we appear to be headed for a scenario where manufacturing is more tightly regulated and environmentally-oriented. "It appears that while we might see some temporary fall-back, higher prices are here to stay. Therefore, it is essential that the manufacturing industry gains a tighter control of energy consumption and expenditure Energy use needs to be higher up on the corporate agenda, with manufacturers taking steps to introduce measures such as making existing plants and facilities more energy efficient and reducing energy costs by improving by initiatives such as the use of recycled waste-heat and high-efficiency motors."