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30 November 2012 | Anna Reynolds
The UK government has promised to protect some energy-intensive industries (EIIs) from the additional costs that will arise from new long-term electricity contracts.
In the announcement of the Energy Bill yesterday, the government introduced contracts for difference (CfD). These will offer generators long-term deals with a guaranteed return on their investment, paid for by levies on electricity bills, similar to feed-in-tariffs. The government will set a ‘strike price’ for each type of generation. If the market price of electricity drops below the strike price set by government, those investing in renewable energy will get compensated; but if it goes above the strike price, generators pay back the difference to the consumer.
The government has agreed to exempt some EIIs from the additional taxes that will arise from the new contracts. However, energy buyers are sceptical.
Martin Rawlings, director at Blizzard Utilities told SM: “I think it’s great the industry is going to have a coherent energy policy but there could be hidden traps. Buyers are going to see an increase in bills and it could be considerable, particularly for industry and commercial users. I don’t see how major users are going to benefit. Suppliers aren’t going to pay, the cost will be passed on to the customer.”
The government said that over the next 10 years, £110 billion of investment is needed to revamp the electricity market and generate enough capacity.
Gary Worby, managing director of EnergyQuote JHA welcomed the reform but said: “Until there is clarity on the proposed strike price for the CfD across the range of technologies, there will remain uncertainty in the investor community.”
Energy and Climate Change secretary Edward Davey said: “This is an economic opportunity – there for the taking. It will stimulate supply chains and support jobs in every part of the country, capitalising on our engineering prowess and our natural resources, cementing the UK’s place at the forefront of clean energy development.”