UK steelmakers face jump in energy costs

The way in which governments choose to price carbon is a sensitive issue. A global price would ensure that there is no damage to the competitiveness of any aprticular region. However, this can only happen through an international climate change treaty. In the mean time differing carbon pricing regimes will lead to differing costs. The UK’s decision to set a minimum price for carbon credits is likely to lead to higher costs for UK steelmakers relative to their European counterparts. Some of this extra cost is likely to be compensated.

SBB 3 August UK wholesale gas prices which influence power prices have risen strongly in recent months and, to a lesser extent, electricity costs also, Jeremy Nicholson, director of the Energy Intensive Users Group tells Steel Business Briefing. This is especially visible for those currently renewing annual contracts. “Although the wholesale gas price is quite competitive compared to continental Europe, it is at a premium to the US, which has a current oversupply,” he adds.

He continues: “From 2013, the carbon floor price will be introduced by the UK government in order to increase competition for renewable; anyone taking out two-year contracts now will see these increases priced in”. Compared to a year ago power costs have increased by 10-20%, depending on when deals were made, he adds.

He continues: “The current trading price of carbon is around €13-14/tonne of CO2 emitted; the carbon floor price will be around £16/t and in addition to raising the costs for coal/gas power generators and therefore steelmakers, this will not be able to be passed on as it is a UK-only tax, leaving a discrepancy with European counterparts, such as Germany which has an exemption”.

Previous government estimates say carbon factors have already added some 20% to costs compared to year ago. However a new analysis says these could reach 31-51% by 2020, which per year is a more optimistic estimate, Nicholson says. He adds, however, that this analysis could be an underestimate.

The current wholesale electricity price for industrial users is just over £50/MWh, with delivery and supply added it is around £70-75/MWh.


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