Go for lengthy contracts, buyers told

2 October 2002
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03 October 2002 | Robin Parker

Electricity buyers are being urged to lock suppliers into long- term contracts before the British Energy crisis forces prices to rise.

British Energy, which supplies about a fifth of the UK's power, announced last month that it needs to cut costs by £280 million a year to stay solvent.

It blamed falling wholesale electricity prices, which have dropped by 4.3 per cent among large users over the past year, according to data from analysts John Hall Associates.

The government extended a temporary lifeline to the troubled nuclear generator last week with the renewal of an emergency loan now worth £650 million for a further two months.

Ian Dobson, chair of CIPS's energy committee, said tender prices have risen by 2-3 per cent in the past month. He said purchasing professionals should fix electricity contracts for the next 12-24 months.

"The future uncertainty over British Energy is driving the market upwards," he said.

"Even though in theory there is enough energy capacity in the marketplace if they disappear, those dictating prices will see an opportunity to raise them."

Dobson also urged buyers to confront suppliers that include renewables obligations levies, designed to increase the use of renewable energy, of about 0.9p/kilowatt in contracts.

He said the tax is supposed to be paid by suppliers but is often passed on to unwitting buyers.

SMoct2002

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