Energy-intensive industry bills could get £100m cut through CfD

Over £100m could be cut from the bills of energy-intensive industries as a result of their exemption from most of the costs of the Contracts for Difference scheme.

Ministers expect the measure to benefit more than 130 companies in sectors such as steel, chemical, glass and cement. However, the costs will still be recovered through a levy on bills meaning the burden will be shifted to households and other businesses.

The new legislation being introduced by the government will enable eligible companies to avoid paying up to 85 per cent of the indirect costs of the CfD scheme.

The Department for Business, Energy and Industrial Strategy (BEIS) expects the energy bill for a typical firm to fall by £200,000 in 2016/17 as a result of the measure.

To be eligible for the exemption, companies must operate in one of a number of sectors deemed to be energy intensive and show that their electricity costs amount to 20 per cent or more of their gross value added.

The mechanism was introduced as a replacement for the outgoing renewables obligation and ensures that low-carbon generators receive a guaranteed price for the power they produce by providing top-up payments over the wholesale price. The scheme began operating in 2014 and the first payment to a generator was made last year. It is funded through a levy on customers’ bills.

In a response to a consultation on the proposed measure, the government said it is concerned that the added costs will put a major burden on energy intensive industries in the UK thereby “placing them at a competitive disadvantage with their international competitors and increasing the risk that companies may choose to move their production abroad”.

“These industries are worth £52bn to the UK economy, support 600,000 jobs and produce essential products that people use every day,” said energy minister Jesse Norman. “That is why we have taken this action to support them.

“Although energy costs on average account for three per cent of UK business expenditure, there are 15 sectors where this reaches ten per cent.”

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