CIA welcomes EU Commission’s energy sector inquiry

The Chemical Industries Association (CIA) welcomes today’s preliminary findings of the EU Commission’s energy sector inquiry. The CIA represents one of the most energy intensive sectors in the UK. This is a most vital issue for our members.

This winter has seen UK prices for both gas and electricity reach unprecedented levels as markets worried over possible gas shortages. Prices have been wholly uncompetitive with those available to Continental competitors. Despite UK prices up to double those on the Continent, import capacity has been far from fully used. It is generally agreed that the interaction of the UK’s liberalised market in gas with the largely unliberalised Continental markets is the reason for the shortfall. Chemical sites have reported suspensions and reductions in production as well as transfers of production to sites outside the UK. Members have reported negative impacts on future investment decisions. Global companies are unwilling to invest in UK sites while energy reliability and price problems remain unresolved.

We therefore welcome the Commission’s recognition of key failings in the operation of Continental markets, Their preliminary report highlights issues of supplier dominance through vertical integration and control of distribution infrastructure, limited volume of trading at wholesale level, with consequent lack of liquidity in markets, and lack of transparency in price formation.

Stephen Elliott, CIA’s acting Director General, comments: “We ask Ofgem to continue their work with the Commission to establish effective competition in Europe with all possible urgency”.

“The main issue this winter has been the operation of the interconnector,” he adds. “Low flow rates during November, with rapid draw down from storage to fill the gap, set market sentiment for the whole winter. Prices were driven up, and despite generally modest demand stayed high for the next three months. Forward prices for the next three winters also remain wholly uncompetitive.”