Innovative Energy Consultancy Ltd
Innovative Energy Consultancy Ltd

Industrial strategy aims to cut energy costs

Prime minister Theresa May unveiled the government’s new draft Industrial Strategy on 23 January, confirming that it will seek to improve the competitiveness of UK industry and lower business energy prices.

The green paper sets out 10 strategic pillars that will underpin a new government strategy. One of these pillars is keeping energy costs down for businesses, and ensuring that the economic benefits of the transition to a low-carbon economy are secured. The strategy notes that UK energy policy has, over the last decade, been addressed through the prism of the “trilemma”. This trilemma aims to balance the simultaneous need to find policies that contribute to meeting climate change targets, guarantee security of energy supply and minimise energy costs for consumers.

The strategy states that security of supply is essential. But it argues that the lack of a clear long-term energy strategy over previous decades has seen the closure of significant amounts of power generating capacity without adequate replacement being secured. In recent years, steps have been taken to address this concern: most notably the launch and operation of the capacity market scheme.

Clear progress has also been made on decarbonising the UK economy. The government reaffirmed its commitment to meeting its legally-binding target of an 80% cut in emissions by 2050.
Progress in these two areas means that, in future years, the affordability of energy will be given a higher priority. The strategy recognises that, in particular, electricity prices in the non-domestic sector are high in the UK compared to European competitors. They have also risen further in recent years.

While energy costs on average account for 3% of UK business expenditure, the impact is uneven. There are 15 sectors in the economy – including steel, chemicals, glassmaking and ceramics – where energy costs represent more than 10% of total business expenditure.

As a step towards addressing this, the government will set out in 2017 a long-term road map to minimise business energy costs.

To inform this study, the government will commission a review of the opportunities to reduce the cost of achieving decarbonisation goals in the power and industrial sectors. The review will cover issues such as how best to support greater energy efficiency, and the scope to use existing powers to support further reductions in the cost of offshore wind once current commitments have been delivered. It will also consider how the government can best work with energy regulator Ofgem to ensure markets and networks operate as efficiently as possible in a low-carbon system.
The industrial strategy will further examine how energy costs can be contained or reduced by increasing resource and energy productivity. Increasing the efficiency of material use across the whole supply chain could, it said, result in “huge cost savings”.

The government will therefore work with stakeholders to explore opportunities to reduce raw material demand and waste in energy and resource systems, and promote well-functioning markets for secondary materials. This work will be supported by the government’s 25-year Environment Plan, which will set out a long-term vision for delivering a more resource efficient and resilient economy.

The strategy accepts that there is a clear role for the government in energy policy. However, it says that markets and the private sector are “crucial” in inventing and spreading new techniques for saving energy, new and more efficient means of energy generation and storage, and new ways to finance clean technologies. It is the private sector that will “ultimately be the driving force behind our low-carbon economy”, the document says.

The strategy places much emphasis in the development of new technologies; it includes a commitment to reviewing the case for a new research institution to act as a focal point for work on battery technology, energy storage and grid technology. The review will report early this year.

It said: “Battery technology is of huge importance to a range of new technologies, including the automotive sector, smart energy systems and consumer electronics. Electric vehicles are less polluting and cheaper to run, and have the potential to provide electricity storage and demand flexibility that could provide benefits to consumers and our electricity system.”

Business and energy secretary Greg Clark said: “This is an important step in building a modern, dynamic industrial strategy that will improve living standards and drive economic growth across the whole country.

“A modern British Industrial Strategy must: build on the UK’s strengths and extend excellence into the future; close the gap between the UK’s most productive companies, industries, places and people and the rest; and ensure we are one of the most competitive places in the world to start and grow a business.”

The strategy has been broadly welcomed by business and energy groups as an important starting point for a discussion on competiveness.

Industry trade association Energy UK particularly welcomed the focus of the Industrial Strategy on innovation. Chief executive of Energy UK Lawrence Slade commented: “In a post- Brexit economy the UK has a unique opportunity to become a world leader through innovation as we transition to a smarter lower-carbon economy. We look forward to working in partnership with the government to deliver affordable clean energy to consumers.”

Views on the strategy have been invited by 17 April.

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