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UK Energy Bill includes exemption of energy-intensive industries from renewable switch costs

29 November 2012

UK Energy minister Ed Davey unveiled the government's Energy Bill on November 29, setting out the roadmap for the UK's switch to a low-carbon economy. Mr Davey told MPs: "Britain's energy sector is embarking on a period of exceptional renewal and expansion.” 

UK Energy minister Ed Davey says the government's Energy Bill is a key part of the "biggest transformation of Britain's electricity market since privatisation."
UK Energy minister Ed Davey says the government's Energy Bill is a key part of the "biggest transformation of Britain's electricity market since privatisation."

The scale of the investment required is huge, representing close to half the UK's total infrastructure investment pipeline, he said, and the government's plan formed the "biggest transformation of Britain's electricity market since privatisation."

Key features of the bill are:
*The switch to clean energy will cost £110bn over ten years
*The bill aims to encourage investment in low-carbon power production
*Energy-intensive companies may be exempt from additional charges
*Household energy bills will rise £100 on average by 2020
*The Green levy charged by energy firms will rise from £3bn to £7.6bn
*Financial incentives will be made available to reduce energy consumption

Mr Davey said government policy was "designed specifically to reduce consumer bills", arguing that without a move to renewable energy, costs would be higher because of a reliance on expensive and volatile gas prices.

In a consultation document issued at the same time, the government confirmed that energy-intensive industries would be exempt from additional costs arising from measures to encourage investment in new low-carbon production. Mr Davey said: "Decarbonisation should not mean deindustrialisation".

It seems energy-intensive companies have won the argument on this. Organisations such as the Chemical Industries Association (CIA) had been particularly vociferous about the danger of job losses if their energy costs rose much higher, and Tata Steel recently cited high UK energy costs as one of the reasons it was cutting 900 jobs in the UK.

Steve Elliott, the head of the CIA, said: “We applaud the government’s confirmation that it intends to exempt energy intensive industries from the additional costs of subsidising renewables and nuclear generation.  These costs would otherwise threaten to put us further out of step with countries in which industrial consumers do not face such costs, like the US, or where these costs are already mitigated, like Germany.  It will therefore be important that the UK exempts a sufficiently broad range of energy intensive activities and also looks at the rising costs of existing renewable subsidies.”

He continued: “There should also be a continuing role for gas as part of the generating mix.  In this context the safe exploitation of unconventional gas in the UK offers an opportunity to ensure secure competitive supplies. Gas is also a critical source of energy and raw materials for the chemical sector.  So we look forward to the Chancellor’s announcements in the Autumn Statement and hope this will also include news on re-incentivising our use of energy efficient combined heat and power.

Dr Tim Fox, Head of Energy and Environment at the Institution of Mechanical Engineers said:

“The publication of this new bill is good news for engineers, investors and the general public as it means we are a significant step closer to getting on with the job of building the major infrastructure projects needed to keep our homes warm, the lights on and industry working.

“With a looming energy gap for 2015, creating a stable regulatory framework for the energy sector is absolutely crucial for investor confidence and we look forward to the announcement next year on the details of the incentives, without further delays.

“The fact that energy intensive industries will be exempt from the additional costs to encourage investment in low carbon power is also positive, as it means UK industry won’t be placed at an unfair disadvantage when competing in international markets selling products such as steel.”

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