E.ON, British Energy and BizzEnergy stop applying for contracts

From The Times
October 20, 2008
Robin Pagnamenta

Some of Britain's biggest energy suppliers have stopped bidding for new power contracts to supply industrial customers, amid mounting concerns about huge energy price swings and the risk of customers going bust.

At least one supplier — E.ON — has effectively stopped bidding for new industrial customers altogether. Several others, including British Energy and BizzEnergy, are entertaining contract renewals only from existing clients. The situation has left some of the biggest companies struggling

to renew long-term energy supply contracts, forcing them to pay much higher prices in the spot, or short-term, power markets.

“We have seen a big drop in the number of suppliers willing to bid for new business,” Chris Bowden, chief executive of Utilyx, an energy consultancy, said. Clients of Utilyx include Tesco, Cemex, AllianceBoots, Yorkshire Water and AstraZeneca. “A year ago it was easy for companies to hedge their electricity exposures for three or four years out. Now it is a lot harder. More than 12 months' cover is becoming very difficult and some suppliers won't quote for more than a few months.”

The remaining providers have cut the length of contracts they are willing to offer to industrial clients and tightened conditions to include fatter margins and more rigorous credit checks.

Mr Bowden said that the trend was affecting companies of all sizes. However, the squeeze is acute for those in energy-hungry industries that are seen as being particularly vulnerable to the credit crunch. For example, manufacturers of construction materials may find only one or two energy suppliers that are willing to offer them coverage beyond a few months out.

“Suppliers are saying: ‘We won't deal with you because we are worried you might not be around in a year's time,'” Mr Bowden said.

The long-term power market has become increasingly illiquid in the past three months. Lehman Brothers and Bear Stearns, which were significant players in the British forward power market, are no longer on the scene.