UK industrial plan green levy cuts raise questions for CfD funding

The UK government has unveiled its long-awaited industrial strategy, but the focus on cutting electricity bills for the most intensive business consumers has created some uncertainty about how funding it might impact a Contracts for Difference scheme which supports renewables like offshore wind.

Under the strategy, a new “industrial competitiveness scheme” will provide relief for thousands of energy intensive businesses and extend existing reductions in network charges.

In its statement, the UK government said the new schemes will be funded by slashing green levy components on electricity bills – some of which are used to fund CfDs - as well as reforms to an emissions trading scheme. It said it would cut bills for thousands of high energy consumers by up to a quarter.

Details of exactly what will change are only expected to emerge after a consultation process, with implementation of the price cutting part of the plan set for 2027.

Businesses covered by the scheme will be exempt from paying levies such as the Renewables Obligation, Feed-in Tariffs and the Capacity Market in what the government described as an effort to level the playing field and make them more internationally competitive.

The government stated that the cost-cutting measures will be funded through reforms to the energy system, including additional funds made available by recent linkage of the UK and EU carbon markets.

The industrial strategy includes clean power as one of eight sectors that form the focus of its new policies.

An additional £1.2bn ($1.6bn) per year is promised to help provide skills for a list of sectors that will also include advanced manufacturing and defence.

The government is also expected to bundle together a raft of existing tax break schemes to create new “industrial strategy zones” located in industrial heartland regions.

The plans included a doubling of investment in clean energy industries by 2035, citing total funding for the Great British Energy supply chain fund now standing at £1bn.

The industrial strategy will also launch a new Connections Accelerator Service to facilitate access to the grid for industrial users.

New powers in the Planning and Infrastructure Bill, currently before parliament, could also allow the government to reserve grid capacity for strategically important projects, cutting their waiting times.

Presenting its rationale for the scheme, the government stated that British manufacturers “currently pay some of the highest electricity prices in the developed world while businesses looking to expand or modernise have faced delays when it comes to connecting to the grid”.

“As part of our modern industrial strategy we’re unlocking the potential of British industry by slashing industrial electricity prices in key sectors,” commented Energy Secretary Ed Miliband.

"For too long high electricity costs have held back British businesses, as a result of our reliance on gas sold on volatile international markets.

"We’re also doubling down on our clean power strengths with increased investment in growth industries from offshore wind to nuclear. This will deliver on our clean power mission and plan for change to bring down bills for households and businesses."

Business association RenewableUK gave the plan its backing to the plan, even though there was little sign of additional funding for the sector in today's announcement.

“Today’s industrial strategy identifies clean energy as one of the sectors with the highest growth opportunity, and we are going to see tens of billions of pounds of new investment in wind energy, grid and hydrogen in the coming years," said deputy CEO Jane Cooper said.

"Government needs to ensure they deliver on the critical aspects of this industrial strategy. Most notably for renewables, that means ensuring the next two Contracts for Difference allocation rounds are as successful as possible, clearing large volumes of projects in a stable market framework to reduce costs. This is essential if we want to attract investment in the UK’s supply chain, skills and capabilities.”