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Pressure rises on UK government over rising electricity costs with carbon price floor

05 Aug 2011 17:23:08 | edem

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The Confederation of British Industry (CBI), a business lobby, has joined the chorus of calls for the government to exempt heavy industry from the carbon price floor or risk carbon leakage.

The UK government is coming under mounting pressure to alleviate energy-intensive users from the carbon price floor. The CBI's call for some form of rebate was the second made this week.

The carbon price floor is an incentive to electricity generators to build low-carbon generation plants, and is due to be introduced from April 2013.

In a report released Friday, the CBI said that historic wholesale prices have been more expensive in the UK than many of its European counterparts.

With the UK forging ahead alone with its carbon price floor, electricity prices will become too burdensome for big manufacturers to bear, the lobby group claimed.

"The government must ensure its autumn energy strategy looks at ways of exempting companies most at risk from the carbon price floor," said Katja Hall, chief policy director of the CBI.

Compensation call

Manufacturers' association EEF also called this week for compensation for the pass-through costs of the carbon price floor (see EDEM 2 August 2011). Pass-through costs are when generators price the cost of carbon into their electricity prices.

A UK department of energy and climate change spokesman would only say: "We will take steps to reduce the impact of government policy on the cost of electricity for these businesses."

The UK government is due to introduce a package to alleviate industry in autumn, but a spokesman for the department could not give a more specific date because other government departments are involved.

Wholesale prices

The UK typically holds a premium to France and Germany in €/MWh, according to ICIS Heren's historical data. However, despite German and French Day-ahead Baseload levels for working days outstripping the UK earlier this year, the spread has started to widen over the summer months, especially with France (see graph). The UK's premium to France's equivalent Day-ahead Baseload contract was pegged at €17.72/MWh at the close of Thursday's session.

The CBI's report stated that the UK faces higher costs than most of its European neighbours. It also questioned figures from EU statistical office Eurostat that show the UK has lower wholesale prices.

The CBI said it is unclear if subsidies and exemptions are included in those figures. It wants the government to get more accurate figures for the cost of government policies on industry and its potential to cause carbon risk.

Other recommendations include giving industrial efficiency programmes support from the Green Investment Bank. FOR

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