Industry says Chancellor's help for energy intensive firms is not enough

Energy intensive firms respond to Budget plans to compensate them for the costs of Feed in Tariffs and the Renewables Obligation

Dominic Lipinski/PA Wire George Osborne
George Osborne

Energy intensive companies in the North East have criticised the Chancellor for not going far enough in helping it to mitigate the costs of higher energy prices.

In last week’s Budget, George Osborne pledged to help energy intensive industry (EII) by bringing forward a policy to compensate firms.

The £25m scheme, which requires state aid approval from the European Commission, is slated to begin in October having been brought forward from April 2016.

Under the scheme, firms would receive compensation until March 2020, worth an estimated £3bn.

Business Secretary Vince Cable said the Government had listened to the concerns of high energy consuming businesses, such as steel manufacturers, chemicals and plastics firms, and that it was vital these companies remained competitive in the global marketplace.

Peter Byrne/PA Wire Business Secretary Vince Cable
Business Secretary Vince Cable

However, the Community union said the Government had missed its last opportunity to “stand up for steel” and the measures would just be a blip in the balance sheets of UK steel producers struggling to compete with overseas counterparts.

Roy Rickhuss, general secretary of Community, said: “For the past five years, along with major UK steel companies, we have been calling for action. Yet again George Osborne hopes that a line in his Budget will be enough to keep an industry quiet.”

He added: “This is not a party-political issue. We call on whichever Government is elected in May to bring forward the full energy intensive industry compensation package and ensure the UK’s ability to compete abroad and at home with foreign imports.”

Liz Mayes, North East region director at EEF, said: “In committing to bring forward compensation payments to energy intensive industry to cover the costs of the small-scale Feed-in Tariffs he has shown that he understands the urgency of the situation and the competitive pressures many in the sector are facing.

Liz Mayes
Liz Mayes

“The combined costs of renewables support reflected in electricity prices is expected to be in the region of £14/MWh this year, representing upwards of 20% of an industrial user’s electricity bill. Industry elsewhere, such as in Germany and France, are not saddled with these additional costs so it places UK industry at a serious competitive disadvantage.

“It’s therefore disappointing that we only saw partial action taken — no commitment was given with regards to early compensation in relation to the Renewables Obligation and as such industry will still face around 90% of the costs of renewables support for a further year, which is a blow.”

Dr Stan Higgins, the chief executive of process industry cluster NEPIC, said he welcomed the move but said more action was needed.

He said: “Despite the estimated £25m saving for energy intensive industries this measure will generate, it is merely a drop in the ocean and Government needs to go further to bring UK manufacturing in-line with competitor countries.

Stan Higgins of NEPIC
Stan Higgins of NEPIC

“Compensation for the Renewables Obligation has simply not been advanced in the way we all required.”

Paul Duncan, the chairman of County Durham-based steel castings group Bonds, said he was unsure how effective the measure would be.

He said: “As a company we play the market to get the best deal and we have recently fixed our utilities for the next four years — which means we can save around 25%.

“From our view the energy providers are more responsive in the current climate and whereas one year contracts was traditionally the norm, we are increasingly offered three and four year terms.”

CBI director general John Cridland said the scheme was not the “full commitment” that industry needed to see but bringing it forward would at least provide some relief for energy intensive sectors.

The Government said it intends to publish final guidelines on the scheme once it has gained state aid approval, which is expected in summer.

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