Should energy-intensive businesses be exempt from renewable energy costs?
A move from Government to exempt Britain's energy-intensive industries from some of the costs associated with renewable energy policies has ignited a debate over whether such a move is necessary for the growth of green business.
The Department for Business, Energy and Industrial Strategy (BEIS) confirmed this week that it will press ahead with plans to make businesses operating in industries such as heavy manufacturing and mining exempt from paying the costs of the Renewables Obligation (RO) scheme, which is designed to support large-scale renewable electricity generation but closed to new generating capacity earlier this year.
Energy-intensive businesses are currently compensated for the cost of the RO scheme for up to 85% of their eligible electricity. But under the new approach, which would enter force in January 2018 subject to Parliamentary approval, those businesses will not have to pay any of the costs of the RO Scheme in respect of up to 85% of their eligible electricity. A similar exemption approach was taken regarding the Contracts for Difference incentivisation scheme in March.
The compensation approach to the RO scheme “may not provide energy-intensive industries with sufficient certainty beyond the parliamentary term, as compensation is contingent upon departmental budgets which can fluctuate,” reads the Government’s impact assessment, whereas an exemption “provides greater certainty compared to compensation over the longer term”. IT estimates that the exemption would save energy-intensive businesses around £196m annually.
However, not all are in favour of the move, particularly due to the fact that it could result in higher bills for non-eligible businesses and households to make up the shortfall – the impact assessment reveals that the exemption could end up costing small business energy users an extra £160 annually; medium-sized businesses an extra £6,700; and large-sized energy users an extra £62,900 under what the Government believes to be the most-likely scenario.
“This is a disappointing decision from a Government that was previously cutting renewables subsidies to save money on household bills,” said WWF’s Gareth Redmond-King. “It's bad for businesses and bad for hardworking families. It will add money to household bills and heap costs onto small businesses. These costs would otherwise have been borne by large businesses, but now will be redistributed to be paid for by those who may already be struggling with high energy costs.
“Whilst energy intensive industries are important to our economy, they also contribute huge amounts of greenhouse gases to UK emissions. It is only right that they pay their fair share to support the building of the cleaner, greener energy infrastructure that we need for our future.”
But Jeremy Nicholson, director of the Energy Intensive Users Group – which represents the UK’s energy-intensive industrial sectors – said claims that the move will push up electricity costs for others are “missing the point”.
Nicholson told edie: “It’s not about a reluctance of energy-intensive industries to pay their share – even when this exemption is in place, energy intensive industries will still be paying higher carbon costs for their power than anywhere else in Europe and will still be paying an element of the renewables costs.
“The exemption would be limited to 85% of a business’s electricity costs, so everyone will still be making a contribution to renewable energy costs, even if they benefit from the exemption.
“In an era of abundant and relatively cheap gas, it’s still a relatively expensive option to deploy large quantities of renewables. The long-term solution to all of this is finding ways of getting the costs of renewables down.”
Andy Cormie, vice-president of industrial and commercial supply at business energy supplier SmartestEnergy, added: "The fact that commodity prices are global means that a mechanism such as this prevents energy intensives relocating to minimise production costs, to economies which are further behind in their decarbonisation.
"We welcome efforts to minimise carbon leakage but accept there is an impact to the wider UK economy. So while this mechanism reduces costs for energy intensives, we believe they should actively participate in the energy system which is a benefit to us all.
"This includes looking at options such as demand response to support the grid they are so reliant on. In fact, many of our industrial and manufacturing customers already recognise this is a key aspect of environmental leadership, that can also lead to competitive advantage."