From: Mark Mitchell, chairman, Cornwall Group
The energy relief scheme comes to an end in only three months. Will rising energy prices and potentially falling sales price create the perfect storm in glass and IGU supply in 2023?
The Energy Bill Relief Scheme came into effect in October 2022 and will run until 31st March 2023. Government has effectively subsidised business by discounting wholesale gas prices, holding them at a baseline lower than they would have been otherwise been.
For electricity this has been £211 per megawatt hour (MWh) or 21.1p per kilowatt hour (KWH); and £75 per MWH or 7.5p per KWH for gas.
Without it, electricity prices for business would have exceeded £600 per MWh or 60p per KWh and gas, £180 per MWh or 18p per KWh.
It’s been a lifeline for high energy businesses including tougheners, IGU manufacturers and glass processors. So, what happens when the Energy Bill Relief Scheme comes to an end in March?
The answer is we don’t know. It is however safe to assume that wholesale energy prices are expected to remain high, so if there is no additional government intervention, energy prices are going to go up, and significantly.That is going to be a very steep increase that not every business is going to be able to afford. With our own glass merchanting business, in addition to its three IGU manufacturing and toughening facilities – four of them high voltage – the challenges now faced by the Cornwall Group highlight the scale of the task ahead for many within the glass industry.
Before the energy crisis Cornwall Group companies were paying on average 16p per KWh. Prior to the Energy Bill Relief Scheme coming into place, that has now gone up to over 50p per KWh. That’s a 212% increase.
We saw our Group monthly energy bills go from £50,000 to approaching £250,000. They’re now back down to around £125,000 month but where they go after March is anyone’s guess.
I know that there are some of our competitors, prior to the Energy Bill Relief Scheme, are paying more, around 70 to 80p per KWh. Others are still benefitting from deals that they agreed pre-energy crisis but which will come to an end very shortly.
We’ve been through a renegotiation and have medium term agreements in place, so while we pay more, we have more visibility on our future costs.
But what this situation creates is a very uneven playing field.
This creates a potentially explosive situation. An emerging softening of market conditions means there is more glass available, and in order to maintain volume and market share, some companies are discounting.
At a time when energy prices are very likely to go up for most companies, for me it makes no commercial sense to be lowering your prices.
Even if you are benefitting from a lower rate for energy right now, you won’t be in the future. If you’re lowering your prices while paying a higher rate now, it makes even less sense.
Companies need to make a sustainable profit to have strong balance sheets in order to invest for the future and to have the financial strength to see tough times through.
This means there are likely to be casualties in glass supply in the year ahead, particularly single process tougheners who are feeling the impact of energy prices most acutely, with little room for manoeuvre.
Cornwall Group which includes Mackenzie Glass, Cornwall Glass Manufacturing and Cornwall Glass and Glazing, is by contrast investing for the future, committing to a £2.5m spend in the year ahead within its existing businesses.
In addition to the investment in the businesses already within the Group, we have a number of acquisition interests but I suspect that there will be more that come through in the year ahead, most regrettably as distress sales.
We’re in a position to do that because while we will also be competitive, we have to be sustainable. Lowering prices at a time when energy prices have gone up beyond recognition and are likely to go up still further, doesn’t make sense.