Energy generation upheaval could hit UK industry

Posted on 22 Sep 2016 by Jonny Williamson

MPs and industry groups have raised concerns over proposed changes to energy generation rules which could land UK manufacturers with an estimated £170m bill.

Energy regulator Ofgem is consulting with the public on its proposals to remove Embedded Benefits, a move which would hit manufacturers and other energy-intensive businesses which currently generate their own power, but don’t access the national transmission networks.

The consultation is due to close tomorrow (Friday 22 September, 2o16).

Trade body The Renewable Energy Association has warned that manufacturers could lose “millions of pounds a year”, calling the issue as “important as any impact on the generation side to UK plc.”

Smaller power generators reportedly believe the changes are being driven after heavy lobbying by members of the Big Six energy firms – notably ScottishPower and EDF Energy – in order to make their idle, low efficiency power generation assets more competitive.

Labour MP George Howarth said he is “extremely concerned” and has raised the issue with the government.

He stated: “At a time of great uncertainty in the wake of the Brexit vote, the last thing British industry needs is rising energy costs.

“I am also very worried about the impact upon the investment in local generation projects, which are essential as we try and address our future energy needs. There is also concern at the impact on jobs in the industry.

Electricity Pylon Energy Generation Stock Image
Smaller power generators reportedly believe the changes are being driven after heavy lobbying by members of the Big Six energy firms.

“We know the Big Six energy companies have their own agenda, but surely Ofgem needs to be mindful of the whole industry before deciding to go ahead with removing Embedded Benefits as there could be serious consequences on jobs and investment decisions.”

Liberal Democrat MP Greg Mulholland added: “This is very worrying. Any measure that could add costs to hospitals and British industry is of serious concern and I urge Ofgem to hold fire on this issue to look at the wider implications.”

The Association for Decentralised Energy (ADE) expects the proposals to have a number of adverse consequences, including increasing the cost of energy and hitting manufacturing jobs.

The ADE estimated that the changes being considered could increase industrial manufacturers’ costs by more than £170m. Some energy intensive manufacturers could see their energy bill rise by nearly £4m a year, potentially putting their ability to compete and grow at risk.

ADE director, Dr Tim Rotheray commented: “Without a careful, independent review, the current proposals could undermine the UK’s transition to a lower cost and lower carbon network system, as well as costing energy intensive UK manufacturers millions of pounds a year at a time when energy costs are a key concern for their ability to compete in global markets.”

Richard Warren, senior climate and environment adviser, EEF
Richard Warren, senior climate and environment adviser, EEF

Senior energy & environment policy adviser at EEF, Richard Warren said: “Ill-considered reform could seriously undermine the economics of much onsite generation and have unforeseen consequences.

“This is not to suggest that the current system could not benefit from considered reform, but it is vital that it is done as part of a wider review of network charging and is done in full consultation with all interested stakeholders.

“Making these changes through the proposed avenue largely ignores the concerns of industrial users and most distributed generators.”

Ofgem needs to rethink the proposal, according to Clarke Energy, which employs 280 people in Knowsley, Merseyside, and supplies gas engines to many local generation projects.

Group marketing and compliance manager, Alex Marshall said: “Embedded generation is contributing an ever greater role to keeping the lights on in the UK. The uncertainty with respect to this consultation is leading delays in investment decisions for new build power stations.”