Manufacturers seek security as Government launches consultation on energy cost relief

Manufacturers have warned that permanent exemption from energy policy costs is the 'only long-term solution' that can secure the future of energy intensive sectors such as the steel industry, after the Government opened a consultation which could save these industries £390m a year.

With the UK’s steel industry still hanging in the balance after Tata Steel decided to put its Port Talbot business up for sale, the Department for Business, Innovation & Skills (BIS) has launched a consultation on the introduction of an exemption policy for energy intensive industries (EII) from renewable electricity costs that occur under the Renewables Obligation and Feed-in Tariffs.

With EII’s currently paying around £390m each year through these costs, the exemption, which would launch in 2017, will aim to provide greater certainty for the sectors in an effort to drive investment.

After meeting with steel industry workers in Port Talbot, Business Secretary Sajid Javid said: “Help with energy costs has been one of the steel industry’s key asks and, having extended last year the compensation we are paying out, I want to see progress on exempting them altogether.

“While we can’t control the global price of steel, we are doing everything we can to help our steel industry, not just on energy costs but also securing flexibility on EU emissions rules and on tariffs.”

The Government has stated that it would pay compensation to EIIs prior to the exemption taking effect. Since 2013, BIS has paid £160m – including £60m to the steel industry – to cover energy costs.

Permanent policy

With EIIs employing around 600,000 people and contributing £52bn to the UK economy, EEF the Manufacturers’ Organisation has warned that a ‘permanent exemption’ from these policies is the only way to future-proof EIIs and the UK economy as a whole.

“Providing energy intensive industry with an exemption from the costs of renewables is hugely welcome and will help ease the pressure on these vital sectors,” EEF’s chief executive Terry Scuoler said.

“A system of permanent exemption from energy policy costs is the only long term solution that can provide these sectors with that crucial sense of certainty that is so important for future investment decisions. This is something the current system of compensation payments will struggle to do to the same degree.”

The views of EEF have been echoed by more than 100 manufacturers who believe that the upcoming changes to energy legislation will have a positive impact on EIIs. A survey conducted by npower Business Solutions revealed that more than half of the 200 companies surveyed could see the benefits that the new legislation would introduce.

But with 74% of respondents unaware of the consultation into energy costs exemptions, the Government will need to do more to raise awareness of the changes, with npower calling for a round table event to be introduced.

“A majority of retailers and manufacturers we spoke to were not aware of the upcoming consultation,” head of npower Business Solutions, David Reed said. “That’s why we’re working with the Government to host a round table event, to explain these upcoming changes to businesses and discuss the proposed benefits.

“In addition, much of the detail is still to be confirmed and so we hope that the policy will be executed in a proportionate way, with the Government being mindful of the potential distributive impact. We would encourage all businesses to take part in the consultation and to make sure they receive all the support that they are eligible for.”

Flawed floors

Another Government policy that has received criticism for its adverse effects on EIIs is the carbon price floor. Currently £16 more expensive per tonne than the rest of Europe, many manufacturers are calling for the floor to be abolished, with some suggesting it is clouding judgement over a potential Brexit.

With Germany handing out 40 times the amount of energy subsidies to EIIs since 2013, EEF feels that the carbon price floor was the one major omission from the recent Budget announcements.

Speaking exclusively with edie, EEFs head of climate, energy and environment policy Claire Jakobsson said that removing the carbon price floor was the only way for the Government to install a ‘level playing field’ for EIIs.

Matt Mace

Action inspires action. Stay ahead of the curve with sustainability and energy newsletters from edie