26 August 2004
Electricity and gas prices have risen by about 30 per cent for the major October round of contract negotiations and further rises are likely.
Jeremy Nicholson, director of the Energy Intensive Users Group, a trade body, said members reported average prices almost a third higher than in April, during the previous main series of negotiations.
"And in the last April round, we were looking at price rises of 15-20 per cent, sometimes as much as 25 per cent," he said.
"It is not inconceivable that we could see a 40-50 per cent increase in the next April round. This is because there are other annually increasing costs to be passed on to clients such as renewable generation costs for suppliers."
If green energy becomes scarcer, he said, suppliers that miss the government's target of taking 10 per cent of power from renewable sources by 2010 will pay fines and then pass that cost on to clients.
Last week, Eon Energy, one of Britain's largest suppliers of gas and electricity, put its prices up by as much as 40 per cent.
Eon warned that in the coming months many firms would give profit warnings based on energy price pressures, as well as the increasing costs of energy-intensive raw materials such as petroleum products, chemicals and steel.
But Nicholson said that while the 40 per cent figure would appear to be exceptional, it was not unprecedented.
"It's not certain, but some buyers might have had a particularly good deal last year so their rise is from a lower starting point.
"Overall, these prices, if sustained, provide a pretty heavy incentive to locate your manufacturing somewhere else. But this won't happen immediately."