Draft Electricity Supplier Obligations (Excluded Electricity) (Amendment) Regulations 2023
(Limited Text - Ministerial Extracts only)
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The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Amanda Solloway)
I beg to move,
That the Committee has considered the draft Electricity Supplier Obligations (Excluded Electricity) (Amendment) Regulations 2023.
This statutory instrument amends the Electricity Supplier Obligations (Amendment and Excluded Electricity) Regulations 2015. The existing legislation supports the competitiveness of energy-intensive industries by providing for a scheme exempting eligible businesses from a proportion of the costs of funding renewable electricity. These are costs associated with funding the renewables obligation, contracts for difference and the small-scale feed-in tariff schemes. The costs associated with those schemes are passed on by electricity suppliers through their electricity bills, and they have a particularly high impact on foundation industries such as steel, paper, chemicals and cement, which are critical to many infrastructure projects and provide well paid, highly skilled jobs across the United Kingdom. As foundation industries, these businesses are critical in the development of new projects, including offshore wind, and therefore play an important role in the transition to net zero.
The exemption also provides relief for new and emerging industries such as battery manufacturers, which are critical to electric vehicles, and manufacturers of semiconductors, which are critical to the UK high-tech economy. They provide not only direct jobs but indirect jobs in the aerospace and automotive sectors. They employ people from Cornwall to Kent and from Grangemouth to South Wales.
The original legislation was put in place in 2017, and since then over 320 businesses have benefited from the exemption. Under the regulations, businesses that applied in 2017 will need to be reassessed this year using the last three years of data. For many businesses that will include 2020 and 2021. This statutory instrument allows businesses to exclude data from that period where it does not reflect the normal course of business. Some businesses had to reduce production or lost profitability during the covid pandemic. The flexibility in this instrument will enable them to continue to benefit from the exemption. It also allows companies applying for an exemption to apply for relief with one quarter’s worth, rather than two quarters’ worth, of data. That will encourage new businesses and start-ups to apply for relief.
The sectors eligible for the existing exemption scheme employ around 400,000 workers and account for over a quarter of total UK exports. Many are located in areas of economic disadvantage and provide good, high-paid jobs. In the UK, our electricity prices for medium and large industrial users were the highest in western Europe in 2018. Clearly, electricity costs have a significant impact on the competitiveness of such enterprises. The industries affected operate in international markets, so higher electricity costs place them at a competitive disadvantage, which results in the risk of “carbon leakage”, whereby companies choose to move their production to countries with less ambitious climate policies.
Existing legislation covering energy-intensive industries allows eligible businesses to receive an indirect exemption of up to 85% of the costs of funding renewable electricity schemes. Where an eligible business applies successfully for the exemption, its electricity supplier receives a reduction in the costs, which in practice it passes on to the eligible business. That approach mitigates the cost of the renewable electricity scheme, supports industrial competitiveness and provides certainty for businesses. The costs of the exemption are distributed to all other electricity users. The regulations amend legislation to improve access to the exemption for new companies. They also allow companies to exclude two years of data from their application, which accounts for the impact of the covid-19 pandemic.
In conclusion, the regulations will improve the operation of the scheme and support the competitiveness of energy-intensive manufacturing industries in the United Kingdom, and I commend them to the Committee.
Amanda Solloway
I thank the hon. Member, as ever, for his valuable and well thought out contribution.
The exemption provides relief for key foundation industries, including companies operating in the steel, paper, chemicals, cement, and glass sectors. The scheme also supports emerging sectors, such as battery manufacturers and companies making semiconductors. The companies that the scheme supports are located across the country and provide high-paid, good-quality jobs, both directly and in the supply chain.
The hon. Member asked about communication. Communication is key in all that we do, and we will endeavour to ensure that we keep on communicating all we are doing to support the industry. The regulations are necessary to improve the operation of the scheme. They will make it easier for start-ups and businesses to apply. They will also allow businesses to account for the impact of covid-19 when applying for relief. We will update and publish our guidance on gov.uk in April 2023 to ensure that business is aware of the relief, and we will proactively engage with stakeholders to ensure that they are aware of the changes. All 320 companies have received a discount, and we know that other companies have already applied. The list of eligible sectors is based on the most electricity and trade-intensive businesses. We continue to engage with industry and other stakeholders to ensure that support is targeted at those sectors most exposed to high electricity costs.
The hon. Member asked about the 100% exemption. On 23 February 2023, the Government announced their intention to move to 100% as part of the British industry supercharger. The delivery mechanisms and timelines for the implementation of the supercharger will be consulted on this spring.
Dr Whitehead
What the Minister says appears to be a reannouncement of what was announced in August and not proceeded with. Is the Minister now saying that the 100% discount is being proceeded with, and will be in place, say, this spring or later on? When does she think that might happen?
Amanda Solloway
To reiterate, the Government announced their intention to move 100% as part of the British industry supercharger on 23 February 2023.
Amanda Solloway
Following a consultation in spring 2023, we will come forward with our proposals on the recently announced British industry supercharger, which aims to roll out further support to important manufacturing businesses by exempting firms from certain costs arising from renewable energy obligations, as well as GB capacity market costs, while exploring reductions for network charges, which are the costs industrial users pay for their supply of electricity.
Andrew Western (Stretford and Urmston) (Lab)
Given the intention to look at the list of industries, will the Minister commit to reviewing the inclusion of the mining of hard coal? My hon. Friend the Member for Southampton, Test, suggested that it may be wise to do so.
Amanda Solloway
The list of eligible sectors is determined by their electricity and trade intensity. I commend the regulations to the Committee.
Resolved,
That the Committee has considered the draft Electricity Supplier Obligations (Excluded Electricity) (Amendment) Regulations 2023.