London, 8 April 2022 – The Energy Intensive Users Group welcomes the ambitions set out in the British Energy Security Strategy. The extension of the EII compensation schemes and the increase to cap the indirect emission cost to 1.5% of a company’s GVA is especially welcome. The strategy sets out the long-term vision, but it remains unclear whether it extends compensation for indirect emission cost in electricity prices to all energy intensive industries at risk of carbon leakage, nor does it close the industrial electricity price gap between Europe and the UK completely.
Though the EIUG welcomes the extension of the EII compensation schemes, its eligibility is unclear as we are still waiting for the Government response to the consultation from July 2021. Since the schemes target the indirect emission cost in industrial electricity prices due to the UK ETS and carbon price support mechanism, they reduce the impact of carbon pricing on electricity prices for a limited number of energy intensive industries (EIIs). However, the schemes do not address the huge underlying increases in energy costs businesses, and in particular EIIs, are facing since the autumn last year.
The Prime Minister has made numerous commitments to deal with the issue of high industrial energy costs and we call on him to translate these commitments into practical action. The increase in the EII compensation schemes and a consideration of other measures to support business, including increasing the exemption from the indirect cost of Renewable Obligation from 85% to 100%, are such actions.
The strategy sets out a long-term vision, but it must be underpinned by measures to reduce industrial energy prices through the 2020s, as EIIs want to invest to decarbonise their manufacturing processes. The EIUG previously called for the strategy to include:
– Removal of the unilateral carbon price support mechanism;
– Reduction in the network charges for EIIs by replicating lower network charge arrangement some other European countries have;
– Modifying the gas emergency measures.
The EIUG also welcomes the commitment to publish the long-awaited Strategy and Policy Statement for Ofgem but is concerned about ‘rebalancing’ the costs placed on energy bills away from electricity and on to gas, as this could merely shift the problem from electro-intensive industries to gas intensive industries. Furthermore, the strategy is heavily focussed on the energy supply side and ignores options on the energy demand side, such as further support for industrial energy efficiency improvements.
The EIUG will continue to work with Government on these proposals to deliver on the PM’s commitments.