The Business Secretary is ‘actively considering’ emergency aid for steelmakers and other heavy industry users as they grapple with soaring energy bills.
Kwasi Kwarteng is considering proposals to soften the blow of a bill overhaul that threatens to raise network charges for large industrial users by up to 85%.
UK steelmakers will be grappling with additional costs from a new charging scheme that will drastically reduce incentives to use the electricity grid at off-peak times.
Ofgem is moving forward with plans to remove incentives to equalize the charges it levies on industrial and domestic users.
But steelmakers have warned the changes could see network charges rise from £9.50 per MwH to £17.50 per MwH. By contrast, steelmakers in France and Germany face grid charges of just 50p and £1 per MWH respectively.
Frank Aaskov, head of energy policy at industry body UK Steel, said the plans could further hurt the competitiveness of Britain’s steel industry.
He said: “If you have operating expenses and costs, the only way to manage those costs is to have a lower profit or a lower margin on your steel.
“Obviously that means it becomes much more difficult to attract investment from these multinational corporations.”
Steelmakers warned last year that factories could be forced to close due to unmanageable energy costs. A source said the business department was now “actively” considering plans to subsidize network charges for energy users by up to 90%. The cost of the charges would then be shared among the other network users.
The German government currently provides a 90% exemption on all elements of network pricing. A similar measure in Britain would reduce prices for steel producers by £9 per MwH.
A source familiar with the talks said the “message on this is being heard” on costs due to a new push in Whitehall to secure energy supplies for domestic and industrial consumers.
But it is believed that the changes would likely not be implemented until 2024 due to the complexity of such a system.
An industry source has warned that Ofgem’s overhaul of grid charges could undermine the government’s drive for a low-carbon economy and could trigger blackouts if multiple high-energy users start using the power grid during hours. peak.
The source said: ‘These changes will lead to a massive overhaul of the way we charge for electricity. Household enterprises and micro-enterprises will no longer subsidize those who currently benefit from off-peak electricity.
“But if there is suddenly a huge increase in demand at peak times, prices will be higher because the system will have to deal with the stress and buy power quickly at prices it cannot control.
“There is a potential for blackouts for sure. If there is a heavy industry that suddenly wants 10 MW at the same time as others, the system could run out.
Steelmakers have argued that the reduced benefits of operating off-peak hours will have a big impact on operations just as the industry shifts to greater electricity consumption.
Mr Aaskov said: “If you look to the next thirty years, we are getting a clear political signal from Whitehall to stakeholders in the steel industry that they need to decarbonise. The way to do this is to electrify your operations, capture emissions, or switch to hydrogen.
“All of these options require significantly more electricity consumption on site and so for the sector it is a doubling or tripling of consumption. And if electricity prices increase compared to those of the competition, it is extremely difficult to attract investment in the UK, because it is so much more efficient to invest in plants in Germany and France.
Steelmakers have repeatedly warned Ofgem that its pricing review will significantly increase costs for the industry. Electricity is the most important cost for many producers after raw materials.
Trade body UK Steel has warned Ofgem that its overhaul will ‘further worsen the conditions of competition for steelmaking in the UK’ and that its plans are ‘frustrating’ policy efforts to cut costs in the sector. Steel mills and other large electricity consumers currently bear about 7% of network costs. They will pay 11% of the costs under the new plans.
Ofgem first introduced parts of its new pricing regime in April and it will continue with further changes in April 2023. An Ofgem spokesperson said: ‘Our top priority is to protect consumers and we Let’s help create the right infrastructure for net zero to thrive.”
A government spokesman said: “We remain absolutely committed to securing a competitive future for our energy-intensive industries, including the steel sector.”