The Energy Transition | Relief for energy intensive industries and the carbon capture cluster shortlist

Government launches consultation to consider further relief for energy intensive industries

The Department Of Business, Energy and Industrial Strategy (BEIS) has launched a consultation on increasing the level of exemption for certain environmental and policy costs for energy intensive industries from 85% up to 100%. Energy intensive industries that would benefit from this increase include steel, paper, glass, ceramics and cement.

The consultation follows the British Energy Security Strategy (published 7 April 2022), which announced the introduction of a targeted support scheme for energy-intensive industries to protect against rising costs. In the consultation, BEIS shows that these costs are higher for UK firms than for those in Europe. 

Currently, the Energy Intensive Industries Exemption Scheme provides businesses with up to 85% relief from the costs of renewable levies such as Contracts for Difference, the Renewable Obligation and Feed in Tariffs. The government hopes that, by further reducing business costs in key industries, this will help ensure economic growth, prevent firms relocating away from the UK, reduce the risk of carbon leakage and maintain a competitive business environment The government predicts that this proposal could protect around 300 businesses in the UK and support more than 60,000 jobs.

The consultation also proposes to tighten eligibility criteria by amending the Electricity Supplier Obligations (Amendment & Excluded Electricity) Regulations 2015, so that references to "undertakings in difficulty" are replaced with "ailing or insolvent economic actors". The consultation closes on 16 September 2022.

Business Secretary Kwasi Kwarteng said: "British manufacturers are the lifeblood of our economy and central to our plans to overcome this period of economic uncertainty. With global energy prices at record highs, it is essential we explore what more we can do to deliver a competitive future for those strategic industries so we can cut production costs and protect jobs across the UK."

UK projects shortlisted for the next stage of carbon capture, usage and storage clusters process

BEIS has shortlisted 20 projects for the next stage (Phase 2) of the carbon capture, usage and storage (CCUS) cluster process. This forms an important part of the government's plan to transition the UK to net zero. The technology involves the capture of carbon emissions produced by industrial and power generation processes and the subsequent transport and re-use or storage of those emissions.

The prime minister's Ten Point Plan for a Green Industrial Revolution (published in November 2020) set out the government's ambition to deploy CCUS in two industrial clusters by the mid-2020s (Track 1), and four by 2030 (Track 2). The Phase 2 shortlisted projects are located in the North East, Humberside, North West England and North Wales, and will be considered for government funding support to join one of the Track 1 clusters previously selected in November 2021: the HyNet cluster and East Coast cluster. Amongst those shortlisted are power, hydrogen and industrial carbon capture projects. Phase 2 is for carbon capture projects that wish to connect to the transport and storage infrastructure that will be developed through the initial Track 1 clusters.

The clusters will be considered for support under the government's CCUS Programme, which includes the £1 billion CCS Infrastructure Fund or the Net Zero Hydrogen Fund. BEIS states that the shortlist itself does not imply the availability of funding for the projects, but is purely the outcome of the assessment against the eligibility criteria. In addition the government suggests that its commitment to support CCUS could create 50,000 jobs in the UK by 2030, and contribute to the decarbonisation of  the UK power system by 2035.

Ruth Herbert, chief executive of the Carbon Capture and Storage Association, said:  “I am delighted to see the government providing certainty to business today by confirming the Phase 2 shortlist. These world-leading projects can now move forward and prepare for the next stage of the process, which we hope will advance swiftly [..] CCUS is critical in achieving Net Zero and positioning the UK as the world’s first at-scale hydrogen economy.  It will transform our industrial regions – driving jobs and growth through inward investment and export opportunities."

Government consultation to support development of biomass energy with carbon capture 

The government has launched a consultation seeking views on potential business models for bioenergy with carbon capture and storage. In particular, the government is hoping to obtain stakeholders' opinions on how to best enable deployment of this technology at scale, encourage industry development and overcome investment barriers. This follows the recent government announcement of £37 million of new funding to facilitate the growth of domestic renewable energy from biomass.

In the consultation, the government has set out its position which would see a dual Contracts for Difference (CfD) mechanism with two separate strike prices introduced – one for electricity generation and the other for negative emissions. This would involve a new type of carbon CfD (on a £/tCO2 basis) combined with the usual electricity CfD (on a £/MWh basis), which would act as a dual-payment mechanism under one CfD framework. By offering stable revenues for both electricity generation and negative emissions, the government believes this would boost investor confidence. 

The government has also suggested that the carbon CfD could be integrated into carbon markets such as the UK Emissions Trading Scheme. This would fulfil the "polluter pays" principle, with emitters paying the costs of removal, thereby reducing the proportion of support payments and the associated costs to consumers. Alternatively, the government is considering a carbon CfD only or an electricity CfD with a fixed direct negative emissions payment administered for each unit of CO2 captured. 

The consultation closes on 7 October 2022. The government hopes that its proposals will facilitate the realisation of its commitment in the Net Zero Strategy to remove 5 million tonnes of greenhouse gases per year from the atmosphere by 2030. 

WPD announces connectability pledge

Western Power Distribution (WPD) has pledged to approve automatically domestic-customers connection requests to install low-carbon technologies, including electric vehicle (EV) chargers or heat pumps. This pledge is a key component of WPD's Business Plan for the RIIO-ED2 price-control period, in which it set out its commitment to invest £6.7 billion in the network between 2023 and 2028. There are currently 10,759 heat pumps and 58,416 EV chargers connected to WPD's network and the company predicts that it will connect 628,000 heat pumps and 1.5 million electric EV chargers over the five-year RIIO-ED2 price-control period. 

WPD's pledge will be supported by a regulatory change coming into force in April 2023, following Ofgem's review of network access arrangements. Customers will no longer be required to contribute towards the costs of reinforcing the wider network to enable new connections. Instead, this will be paid for by network operators in order to make it quicker and cheaper for customers to connect. Through its pledge, WPD hopes to ensure that no customer is left behind when it comes to the transition needed to reach net zero. WPD is the first electricity distribution network operator to make a connectability pledge.

WPD system development manager, Paul Jewell, said: "By saying ‘yes’ to all domestic sized connections, we remove one consideration from the list for customers. They can choose a car or heating solution without worrying about our network. … The 2050 deadline for reaching net zero is 28 years away. Many of our assets have a 50-year lifespan, so we are already building the network that will be operational when net zero is a reality."