Fueling Resilience: Protecting €4.5M in Margin Against a 6x Energy Price Shock

Our client, a European bakery operating sites across the UK, Germany and Belgium, found itself in genuine distress when energy costs surged six-fold in a short period. Three sites moved into negative operating profit almost overnight, and management had to take emergency measures to protect operational viability to keep servicing its long-term contracts.

The root of the exposure was structural rather than temporary. The bakeries had historically relied on a single source of fuel — piped natural gas — to run their ovens, washers, and driers. When gas prices spiked, there was no alternative fuel pathway to fall back on, and no way to soften the impact on the cost base.

"We had ten-year contracts with no scope to raise prices — and a single fuel source that had just become six times more expensive."

The exposure was compounded by the commercial structure underneath it. The operator held price-locked, ten-year contracts with major customers — agreements that left no scope to pass through the higher energy costs, and whose failure to deliver could trigger law suits. The business needed a way to keep its ovens running and its contracts honored while absorbing the cost shock that threatened the sites' long-term viability.

We worked with the client to design and deliver a complete fuel-switching programme — from selecting the right alternate energy source through to commissioning the engineering systems that would let the bakeries run on it.

Select an alternate energy source

LPG and LNG were identified as the alternate fuels best able to meet the sites' supply requirements and the calorific value needed to run ovens, washers, and driers at full performance.

Design the engineering solution

An energy-source-switching engineering design was developed to allow the new fuel to be consumed directly by the bakeries' existing systems, avoiding the cost and disruption of replacing core production equipment.

Secure regulatory and building permits

Local permits were secured across sites within a short timeframe — a critical path item given the different regulatory regimes and the urgency of the underlying cost exposure.

Secure futures energy contracts and implement the solution

Five-year options contracts were put in place for the alternate energy source, including last-mile delivery, while the engineering systems — tanks, piping, switching valves, and meters — were built and integrated directly into the existing bakery production lines.

With the energy-supplementing solution implemented at the first site, the operator now has a tested template for resilience that protects margin, contracts, and reputation alike.

• Energy-supplementing solution implemented at one site, delivering margin protection of €4.5M annually in the event of future price and/or supply volatility.
• Contract protection translated directly into improved reliability: the operator continued supplying customers when competitors could not, lifting its supplier score in customers' eyes.
• Resilience in practice: the sites now hold a macro-hedged option on energy, combining the physical fuel-switching system with futures contracts that cap downside exposure.
• Profit protection: the minimum margins needed to keep the business viable are now protected even through future price shocks.