UK firms face energy bill shock

The UK now imports much of its gas via Europe

British companies face another sharp increase in their energy bills as the contract renewal season approaches.

About 65% of industrial energy contracts are due for renewal by 1 October, and energy brokers are warning that price increases of 40% are likely.

Supply problems sent wholesale gas prices soaring last winter, adding about £3bn to corporate energy bills.

Forward gas prices for this winter have risen sharply - pointing to a strong risk of gas shortages in coming months.

Shop around

"The gas supply was tight last winter," said Jeremy Nicholson, director of the Energy Intensive Users Group.

"But forward prices for the last quarter of 2006 and first quarter of 2007 are higher than last year - indicating that there is a risk that supplies could be just as tight as last year."

Energy brokers are warning all industrial users to shop around if they want to avoid a punishing hike in their energy bill.

"Companies that spend a lot of money on energy will always be clued up, but others that have not had it on their radar could be in for a nasty surprise," said Mark Todd, a director at broker Energyhelpline.com.

Customers who just accept their supplier's first renewal rate could face a price increase of 40%, he warned - but advised that they could reduce it to just 10% if they got the best available rate.

This could save several thousand pounds for a typical business user, for example a restaurant.

The UK is not alone in experiencing gas supply problems, but the problem has been exacerbated by the fact that it has been slow in building necessary infrastructure to smooth its shift from being a net exporter to an importer of gas.

New pipelines

As a result, the UK has gone from having the most competitive wholesale gas price in Europe three years ago to having the most expensive in the world.

But gas prices could start receding next year as a number of big gas infrastructure projects come on stream.

The interconnector pipe used to import gas via Belgium is being upgraded and a new pipe is being built to the Netherlands.

A new interconnector is also being built linking the UK with the huge Ormen Lange gas field in the North Sea near Norway. This pipeline could eventually supply up to 20% of UK gas demands.

"By next year the signs are that we will be over the worst in terms of prices," said Mr Nicholson.

"There are reasonable grounds to expect that prices will be on a downward trend in 2007."