London, 12 August 2022 – The Energy Intensive Users Group (EUIG) welcomes the proposal to increase the relief rate from 85% to up to 100% in the schemes to assist certain energy intensive industries (EIIs) with the indirect costs of funding renewable electricity policies, but urges Government to withdraw the schemes’ business-level test as soon as possible.
As the consultation shows, EIIs in the UK face significantly higher electricity prices than electricity prices in and outside Europe, and an increase in the relief rate is a step towards reducing the price differential. The proposal would help to reduce the risk of carbon leakage and the risk of putting certain EIIs at a significant competitive disadvantage with extremely challenging circumstances ahead. However, the schemes’ business-level test can exclude many energy intensive companies in some eligible sectors, particularly in the ceramics sector which most are excluded, thereby risking them being put at a competitive disadvantage and at risk of carbon leakage.
The renewable relief scheme reduces industrial electricity prices by approximately £22/MWh. Implementing 100% relief will reduce the price by approximately £4/MWh in 2022-23. It will reduce the industrial electricity price differential with other countries. However, as Ofgem research[1] indicates, the Government’s proposal only closes part of the gap, highlighting the need for further action to mitigate the risk of carbon leakage and avoid the risk of putting EIIs at a competitive disadvantage internationally.
The schemes include a UK-only business-level test, which leads to intra-sectoral distortions and limits the eligibility of certain energy-intensive companies in eligible sectors, like ceramics. The EIUG, therefore, urges the Government to withdraw this test from the schemes’ eligibility criteria as soon as possible
The EIUG will provide BEIS with information to ensure the schemes are compliant with the statutory framework for the domestic subsidy control regime, the UK–EU Trade and Cooperation Agreement and other international commitments. There is no provision in the TCA that obliges the UK Government to limit the subsidy intensity for these schemes.
[1] Ofgem (2021), Research into GB electricity prices for Energy Intensive Industries