Commission backs UK industry groups on energy

The Confederation of Paper Industries (CPI) and the Chemical Industries Association (CIA) have both welcomed the preliminary findings of the European Commission’s Energy Sector Inquiry into the EU energy market.

The enquiry concluded that European energy markets are malfunctioning because the concentrated structure of the wholesale markets is helping operators to raise prices. Other issues identified by the EC, include barriers to new suppliers entering the market, absence of significant cross-border competition and limited transparency of information.

These findings confirm the claims that the UK paper industry, along with other intensive energy using sectors, have been making for the past 18 months, according to David Gillett, CPI’s head of environment.

“In November, in less than 3 weeks, the wholesale price of gas on the spot market rose from 35p/therm to 150p/therm, before dropping back to 75p/therm in mid-December.

“Apart from a few days in mid-November, wholesale gas prices in Europe were 40% lower. Despite this, gas was not flowing into the UK as it would if the market was working correctly,” noted Noon.

The price surge has pushed CPI members companies into the riskier spot market as prices for fixed price contracts are at even higher levels, said a CPI statement. Energy suppliers, it added, are now predicting rises of 90% in long-term gas supply deals.

The paper industry group is now calling for swift action at EU level to address the identified failings and a UK government strategy to prevent similar pricing patterns developing next winter.

For the chemicals sector, the CIA noted that UK energy prices have been “wholly uncompetitive” with those available to Continental competitors. This, it said, was down to “the interaction of the UK's liberalised market in gas with the largely unliberalised Continental markets.”

According to the CIA, the preliminary report highlights issues of supplier dominance through vertical integration and control of distribution infrastructure and limited volume of trading at wholesale level.

“The main issue this winter has been the operation of the interconnector. Prices were driven up, and despite generally modest demand stayed high for the next three months, said Stephen Elliott, acting director general of the CIA.

“We ask Ofgem to continue their work with the Commission to establish effective competition in Europe with all possible urgency,” concluded Elliot.