Foodservice operators could see the running costs of their kitchens spiral out of control in the coming months due to gas supply problems and the Brexit effect, a leading energy specialist has warned.
Pressure on the energy supply chain looks set to result in a hike in gas and electricity prices this winter, which in turn is poised to hit hospitality businesses in the pocket.
Winter wholesale gas prices have jumped by 7% and power prices by 5.5% following news that the UK’s key gas storage facility could be shut down until spring 2017, which will leave the country extremely tight on gas during the coming peak winter period, according to energy procurement consultancy Inprova Energy.
It says the problem is exacerbated by the Brexit effect. Latest market reports from ICIS show the Brexit result has helped push prices towards nine-month highs due to the collapse in value of the pound, which has boosted demand for British energy from traders dealing in euros. The UK currently imports a large amount of energy from Europe, in order to satisfy the high demand from the UK’s population.
ICIS analysts have warned that because the UK is a net importer of gas and coal, which are traded in dollars, any prolonged post-Brexit sterling devaluation could lead to higher energy prices in the long term.
Michael Dent, managing director of Inprova Energy, said: “Centrica’s Rough storage facility accounts for more than 70% of the UK’s total gas storage capacity and can provide about 10% of winter gas demand. Such a potential capacity crunch is driving winter prices skywards for both gas and power. When you add in the impact of Brexit and its likely repurcussions, the energy market looks very volatile indeed.”
Past research carried out by CESA and The Carbon Trust suggests that around 85% of a catering equipment’s lifetime cost is in energy and depreciation during use, whereas only 15% is from the purchase cost of the equipment. Furthermore, the industry’s kitchen energy bill is now valued at more than £770m a year.
About 40% of the energy used in kitchens is for cooking with refrigeration at 28%, extraction at 17% and dishwashing at 5%.
Dent believes that managers who are due to renew fixed contracts now and in 2017 should conclude negotiations as soon as possible.
“While nothing is ever certain in terms of energy market forecasting, there’s every indication that the market is rising, so risk-averse businesses would be better to settle soon,” he said. “Flexible contracts can provide the best protection against market fluctuations by allowing energy to be contracted in chunks over a period of time, rather than fixing at one point and having to take the price that exists at that moment.”
He added that flexible products could be built around a client’s appetite for risk by capping prices and introducing protective parameters into the purchasing strategy.