Government launches consultation to compensate heavy industry for green energy costs

The proposals for the Electricity Market Reform (EMR) policy aim to compensate UK industries for the cost of Contracts for Difference, the Renewables Obligation and Feed-in Tariffs, which cumulatively could have a negative effect on the competitiveness of certain EIIs in the UK.

Launched by the Department for Business, Innovation and Skills earlier this week, the consultation proposes to exempt the most electricity intensive businesses from a proportion of the costs to create a level playing field and keep EIIs internationally competitive.

The consultation will establish which sectors will be able to claim support worth up to a proposed 85% of the added clean energy costs. This leaves 15% of costs on the EIIs in order to provide an incentive for energy efficiency measures.

While DECC analysis suggests that household electricity bills will be on average 6% (£41) lower per year between 2014-30 under EMR, there are likely to be short-term costs for EIIs.

Keep the lights on

The added cost of the schemes to energy bills could harm the competitiveness of EIIs due to a lack of global agreement on climate change policy, making business cheaper in countries with less strict carbon policies.

In a statement on the consultation, Business Secretary Vince Cable wrote: “In the absence of a global agreement to mitigate climate change, the EU and UK have put in place policies to cut emissions and build new generation capacity that will maintain our energy security. EMR will ensure that for the long term we can keep the lights on, bills down and the air clean by securing unprecedented investment in our energy infrastructure.

“We welcome views from all interested stakeholders on the proposed eligibility criteria so that these schemes target the support where it is needed most, helping to secure and maintain critical industrial investment in the UK.”

The consultation on the exemptions will:

• Target businesses whose competitiveness is at risk from the electricity policy costs 
• Aim to minimise market distortions to the UK economy 
• Avoid ‘perverse’ incentives, such as discouraging the uptake of energy efficiency measures 
• Minimise administrative burdens 
• Minimise the cost to consumers outside the scope of exemption 

Households can expect a £0.70 annual bill increase to cover the cost of the exemptions handed to heavy industry for Contracts for Difference, but the compensation package for Renewables Obligation and Feed-in Tariffs will be paid out of departmental budgets.

REPORT: Consultation of industry on relief from the indirect cost of renewables

Matt Field