The government is reviewing whether to offer energy subsidies to energy intensive industries © Dmytro Smolyenko/ Ukrinform/Future Publishing via Getty Images
The government is reviewing whether to offer energy subsidies to energy intensive industries © Dmytro Smolyenko/ Ukrinform/Future Publishing via Getty Images

Why the UK must follow the French in subsidising energy costs

12 August 2022

The UK government's latest announcement of financial support for businesses struggling with soaring energy costs does not go far enough and more direct intervention in the market is required.

The Department for Business, Energy and Industrial Strategy (BEIS) has said it will consult on raising exemptions for certain environmental and policy costs from 85% to 100% for energy-intensive industries including steel, paper, glass, ceramics, and cement.

But Eddie Proffitt, technical director at the Major Energy Users Council, told Supply Management: “The problem is far broader than just the intensive industries. They already receive a considerable amount of relief.

“Most of our members don't receive any relief whatsoever off the government. They get no support at all. And we believe that it's too narrow to just talk about intensive industries.”

He said he doesn’t oppose these industries getting support, “but the government ought to be looking broader than that, and the whole of industry and commerce receiving relief”.

He further said the UK government should be reviewing the energy markets similarly to the French government, which has limited energy bill hikes to 4% this year to protect households from the price rises. This resulted in EDF, the French majority state-owned energy giant, taking an €8.4bn (£7bn) financial hit.

“In effect the French government is subsidising electricity at the moment and the same could apply in this country,” said Proffitt.

Businesses face soaring energy costs after successive years of rising costs caused by Brexit and Covid-19 and there have been calls for an industrial energy price cap and a rethinking of the wholesale energy market.

Four in 10 hospitality firms have said they are considering closing in the next 12 months due to high energy costs.

The UK currently has higher industrial electricity prices than countries in Europe, which the government conceded could hamper investment, competition and “commercial viability”.

The British Ceramic Confederation (BCC) told SM that while the announcement would help the steel industry, it “sadly does nothing for the vast majority of UK ceramics manufacturers,” and warned a lack of action risks UK manufacturing being offshored. 

The BCC said this was a “missed opportunity” to help British energy-intensive businesses.

Rob Flello, chief executive at the BCC, told SM: “We continue to seek ways of working alongside government to identify how our world-class UK ceramics manufacturing industry can be supported in the most challenging times and in the face of often state-subsidised overseas competition.” 

Dave Dalton, CEO of British Glass, told SM he was “concerned” about energy affordability and security of supply for gas and electricity this winter. 

He said glass furnaces cannot operate without gas and production can stop “within hours” of being disconnected from gas supplies.

Without action before this winter, when the pressure on industry will be felt most, he said the UK will “sleepwalk into a worse crisis than we experienced last year”.

Dalton said: “Government needs to be proactive and put in place several measures, including ensuring all large glass manufacturers are protected from gas disconnection, publishing delayed consultations and the winter outlook so industry can mitigate the risk posed to them, and abolish the carbon price support charge now it has achieved its objective.”

The proposals could provide support for up to 300 businesses, BEIS said. 

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.”

Gareth Stace, director general of UK Steel, said the consultation marked “a significant step forward” in delivering competitive electricity prices for the UK steel sector and the measure “should provide some much-needed relief in the face of extremely challenging circumstances”. 

However, Eddie Proffitt, technical director at the Major Energy Users Council, told Supply Management: “The problem is far broader than just the intensive industries. They already receive a considerable amount of relief.”
“Most of our members don't receive any relief whatsoever off the government. They get no support at all. And we believe that it's too narrow to just talk about intensive industries.”
He said he doesn’t oppose those industries get support, “but the government ought to be looking broader than that, and the whole of industry and commerce receiving relief.”
He further said the UK government should be reviewing the energy markets similarly to the French government, which limited energy bill hikes to 4% this year to protect households from the price rises. This resulted in EDF, the state energy giant, to take an €8.4bn (£7bn) financial hit.
“In effect, the French government is subsidising electricity at the moment, and the same could apply in this country.”

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