DECC reveals potential cost of energy policy

Government confirms promise to help energy intensive industries as figures reveal that energy and climate change policy could increase energy bills by at least 3%.

Released on Friday, the provisional estimate’s from DECC show that energy bills for high-energy consuming industries such as manufacturing, cement and steel making, could be 3%–16% more expensive this year, due to policies such as the Renewables Obligation and the carbon floor price.

While the figures are lower than those published last year, mainly because of the proposals in the electricity market reform (EMR) White Paper and the decision to fund policies such as the renewable heat initiative through general taxation, there are still clear indications of increased energy bills into the future.

According to DECC, if fossil fuel prices remain at current levels policies to increase energy efficiency and decarbonise electricity could lower gas bills by 3%, however, electricity bills will potentially increase by as much as 22% by 2020.

However, the energy department argues that in reality fossil fuel price volatility will remain a more significant driver of energy price changes than policy decisions. It also claims that the EMR will lower bills. ”With EMR policies, retail electricity prices and bills…are estimated to be 2% lower in 2020 and 8% lower in 2030” compared to bills without EMR policies,” says DECC.

Manufacturing body, the EEF said the new assessment was a marked improvement on previous efforts by DECC, but warned that more work needed to be done.

“In particular, there needs to be genuine comparisons of what energy intensive manufacturers in the UK and abroad pay for electricity,” argues Steve Radley, director of policy at EEF.

“Industry will also want to look in greater detail at some of the assumptions on which the more debatable conclusions are reached.”

Rhian Kelly, the CBI’s director of business environment, agrees: “This impact assessment is an important first step in providing greater clarity about the potential impact of climate change and energy policies, but it doesn’t go far enough.

“What is needed is a full international comparison of energy prices to ensure that UK companies are not at a disadvantage compared with other countries. To provide an accurate picture, this assessment must take into account different subsidies and support available elsewhere.”

Alongside the financial estimates of the potential costs of energy policy, DECC reiterated the government’s Budget promise that is working to develop a set of policy measures to ensure energy-intensive industries were not left at a competitive disadvantage.

In June, at the CBI’s energy conference, energy minister Charles Hendry said it would be “madness” to end up in a situation where large firms moved overseas to remain competitive.

“We would then lose jobs, and carbon emissions would still be emitted in other parts of the world,” he said. “We are determined to address the threat of carbon leakage and make sure these businesses have a long term viable future in this country.”