Struggling factories prepare for hibernation
Surging wholesale electricity prices are causing some businesses to shut down production, reports Gareth Corfield
Sub-zero temperatures are pushing Britain’s already struggling industrial sector to the brink, heralding a winter of shutdowns that could do lasting damage.
Wholesale electricity prices soared on Sunday as the first snowfall of winter prompted a scramble to secure power supplies. While households are protected by the price cap, industry must pay the higher prices if they are to secure the power needed to run their businesses.
Gareth Stace, director of industry association UK Steel, said very high wholesale electricity prices yesterday caused all his members to shut down some production until rates settled again. “We’re just priced out of the market,” he said.
“There would be no point in the energy companies telling our members to turn off, because they know that they will. You just couldn’t keep going, you just lose money for every ton of steel you make with [energy] prices at these levels.”
Even if wholesale prices return to levels that make sense for steel producers, more shutdowns across factories are likely in the coming months. Low temperatures have driven up nationwide energy demands at a time when a lack of wind means there is less renewable power being generated. That has prompted prices to soar, leaving factories facing higher costs.
Makeuk, the manufacturers union, downgraded its outlook for the sector yesterday, predicting a steep recession partly driven by energy costs.
The first signs of how difficult winter could prove came yesterday when National Grid ESO, which operates Britain’s electricity grid, put two coal-fired power stations on notice to supply power. The emergency measure was not needed in the event but highlighted the tightness in the market.
The backdrop is a gas supply crisis linked to Russia’s invasion of Ukraine that has left all of Europe facing an uncertain winter. Gas is crucial both for electricity generation and many heavy industrial processes.
Wholesale energy markets work through a complex auction system between energy producers, suppliers and industrial users.
In simple terms, heavy industries bid for electricity and suppliers – electrical generators – then meet those demands.
Prices across the electricity network spiked on Sunday to about £2,600 per megawatt-hour, according to energy consultancy LCP Delta, compared with around £375 per MWH in mid-october.
When prices spike, some factories may decide power is simply too expensive to make production worthwhile, triggering a self-imposed shutdown, explains Arjan Geveke, director of the Energy Intensive Users Group. Members of EIUG include industrial chemical producers, wholesale glassware and ceramics makers, and metal producers. In a worst case scenario, some
‘If they’re not on that priority list, the biggest consumers go first. It’s the quickest way of reducing an imbalance’
manufacturers could find themselves involuntarily shut out of gas and electricity supplies.
A priority list exists for industry that National Grid consults if, in a last resort, heavy energy users of either gas or electricity have to be shut out to preserve power supplies to places such as hospitals.
“If they’re not on that priority list, the biggest consumers go first,” Gareth Evans, chairman of gas supply association ICOSS and an energy consultant with Waters Wye Associates, says. “Because it’s the quickest and easiest way of reducing the imbalance between supply and demand as fast as possible.”
Geveke says: “What gas-intensive industries have been doing is applying to get up a so-called priority list where they will not be interrupted in case there is a gas emergency.”
When demand for electricity outstrips supply, the grid’s core frequency drops from its 50Hz level. Big frequency drops trigger automatic disconnections that have impacts on industry and consumers alike – impacts that all involved in electricity supply and demand are keen to avoid.
The chaos that can be caused by a sudden blackout was illustrated after a lightning strike on an electricity pylon north of London in summer 2019. The strike threw two major power stations off the grid as the million-volt surge caused automatic safety equipment to disconnect affected lines.
That loss of generating capacity caused a drop in grid frequency to 48.8Hz, triggering yet more automatic equipment that left a million people without power – and also caused the cancellation of 370 trains on the London-brighton Thameslink railway line. The business priority list ensures gas and electricity supplies are maintained to industries where a loss of gas would threaten human safety or do costly damage to equipment, the National Grid says.
Blast furnaces fall into this category: allowing a blast furnace to completely cool down by shutting off the gas supply can result in a weeks-long shutdown if liquid metal is allowed to solidify in the giant crucibles.
Away from the furnaces, water companies are big electrical consumers thanks to the network of pumps they operate to keep fresh water entering our homes – and sewage on its way out.
Some in the industry whisper that a relatively warm autumn helped Britain get its act together just in time. Reforms signed off in October by Jacob Reesmogg, the then business secretary, have helped build an electricity market that can keep Britain away from blackouts, say industry sources. The Business Department did not respond to requests for comment.
However, even in the best case scenario, factory shutdowns will play a part. To help incentivise voluntary cuts to electricity use, National Grid has stood up a scheme to pay heavy power users to turn off at times of peak demand to help balance the network. A number of companies have signed up to help maximise their income at a time when shutdowns seem inevitable.
Stace recalls being in the control room of a UK Steel member company last year and watching the duty shift shutting down a continuous casting machine.
“I’ve never seen that before, what’s going on?”, Stace asked. The foreman told him: “It’s because there’s a price spike at five o’clock. It’s half past four now so we’re stopping. And at half past seven we’ll come back on.”
Scenes like this are certain to play out again this winter. Their impact on the economy, and the future of Britain’s industrial sector, will depend on just how cold winter gets and how resilient the power network proves.