High energy costs hurting competitiveness say UK pharma and chem firms

21-Nov-2013 - Last updated on 21-Nov-2013 at 14:58 GMT

High energy costs hurting competitivness

The high cost of energy in the UK is having a negative impact on drug and chemical firms' ability to compete according to manufacturers quizzed by the Chemical Industries Association (CIA).

The UK association – which represents both pharmaceutical firms like GSK and Novartis and suppliers such as BASF and Dow – asked members to assess external factors affecting the industry with half of all respondents deeming that energy cost has a “very negative” or “somewhat negative” impact.

CIA spokesman Alan Eastwood told in-Pharmatechnologist.com that: “The wholesale price of electricity in the UK is much higher than in most other EU countries, with Italy being the main exception"

He added that: “In the forward market for 2014 UK power is currently £53/MWh; France and Belgium are around €43/MWh, Germany €38, Netherlands €48 and Nordic €37/MWh. US is significantly cheaper too."

CIA chief executive Steve Elliot shared a similar view, warning that: “Without urgent [Government] action on energy costs - where UK businesses face a huge price differential opposite their US competitors – and the European regulatory framework - still far too restrictive in terms of investment, jobs and growth - I fear the general optimistic outlook of our members will fade.”

The findings of the CIA survey fit with the conclusions of a European Commission report which stated that: “Power prices in the UK were significantly higher than in most other West European markets; in Q2 2013, the average UK premium to France reached 19 €/MWh.”

The Commission said prices in the UK are higher because the country generates a lower proportion of its energy from renewable sources, which is interesting given current concerns in Germany that changes to energy pricing rules may negatively impact manufacturers’ ability to compete.

The UK Department of Energy and Climate Change (DECC) did not respond to a request for comment.

R&D spending

Despite the energy concerns the CIA survey respondents were generally positive about their prospects in 2014 with nearly 90% predicting that sales will increase or at least remain at current levels over the next 12 months.

This fits with the respondents’ ranking of available workforce skills as one of the external factors - alongside with the UK infrastructure and support services and taxation - having a positive impact on UK manufacturers’ ability to compete.

Other positives to emerge from the survey was the finding that 75% of respondents expect to maintain or expand the current workforce, 95% will increase or hold R&D investment and 80% expect Cap Ex spending to increase.

Eastwood told us that, while the reasons for higher R&D and CapEx spending vary for each company, “we do believe the Patent Box is a help – certainly GSK confirmed investment on that basis” adding that other initiatives like AstraZeneca’s £100m investment in Zoladex production capacity are further evidence of the positive trend.