The proposed British Industry Competitiveness Scheme offers only limited relief from the United Kingdom’s high industrial electricity prices, risks shifting additional costs onto manufacturers outside the scheme, and requires deeper reform if the country is to secure competitive power prices and unlock long‑term industrial investment.
The CIA welcomes the Government’s recognition that the UK’s industrial electricity prices are too high and we support its efforts to reduce the impact of high prices on investment and growth. The British Industry Competitiveness (BIC) Scheme – as proposed – will have a positive impact on eligible businesses, whose bills will be reduced. However, it is not clear how the scheme will be paid for, nor whether the cost will be redistributed to businesses that do not qualify. If the cost is redistributed, then the scheme will have a negative impact on manufacturers that pick up the additional cost.
For those businesses that are eligible, the scheme benefit is modest when compared with industrial electricity prices elsewhere, and with electricity price support being made available elsewhere (e.g. in Belgium, France and across the EU). The scheme does not go far enough to make the UK a globally competitive manufacturing location, nor does it go far enough to incentivise the electrification of heat demand. Moreover, the scheme cannot come soon enough for many of our member companies that are struggling to maintain UK operations.
Further action is required to reduce industrial electricity prices, including removing the policy cost from the electricity bill entirely, removing the Climate Change Levy, abolishing the Carbon Price Support, and expanding the scope and relief available from the Energy Intensive Industries (EII) compensation scheme to match recent action by the European Commission (or removing UK ETS cost from electricity bill entirely).
Non-domestic flexibility is another area where businesses could reduce electricity cost and support the electricity system as a whole, with the right policy changes. Large industrial consumers, whose output critically depends on electricity, require a clear and simple policy regime if they are to make the capital investments and operational arrangements to deploy demand flexibility. In the absence of certainty or a true commercial signal, such as an option fee, they are unlikely to participate in demand side response.
We want to continue to work with Government, across departments, to bring down the cost of electricity more systemically. Without the removal of significant cost from the electricity bill, there is a greater need for additional support from HMT (both opex and capex) to maintain manufacturing in the UK. There is also a clear need for a less punitive approach to energy use from the Department of Energy Security and Net Zero (DESNZ), until the time at which clean energy is available to UK industry at a competitive price. The data on reduced production in our sector is stark; Assessment of free allocation since the UK ETS started in 2021 points to a 61% decline in UK chemical sector activity levels up to 2026. This activity has been replaced by production overseas as the £4.5trn global market for chemicals continues to grow.
Making it count
Within the consultation on scheme eligibility and approach, the Government makes several proposals which would undermine the effectiveness of the scheme’s stated aim: to reduce electricity costs for the Industrial Strategy’s eight growth sectors and their underlying foundation industries.
1. Pro-rating support to eligible products: Pro-rating the benefit so that it only covers specific products within a manufacturing site will be problematic where sites produce multiple products, some of which are eligible and some of which are not. These sites will make investment decisions based on their entire product portfolio and may not be able to maintain UK operations where support is limited to a portion of their production.
2. Conditionality: Introducing requirements for sites to invest in energy efficiency to receive the benefit introduces new administrative burden and overlaps with other schemes that target energy efficiency (e.g. ESOS, CCAs, UK ETS). This scheme should focus on the specific intention of the policy which is to improve the competitiveness of British industry.
3. Cost controls: Implementing ongoing cost controls, including potential year-on-year adjustments to the level of exemption available to eligible businesses, would reduce the certainty businesses have about their electricity costs, undermining the policy intent and discouraging investment.
Defining ‘chemicals’
In Annex A of their consultation, the Government outlines those sectors that might benefit from the BIC scheme and the CIA welcome the inclusion of the entire chemical sector, by Standard Industrial Classification (SIC). Yet, the chemicals industry has strong connections to related industrial processes, like the extraction of salt and refining.
Salt (sodium chloride) is a key building block in the chemical industry, essential for making plastics, explosives, pharmaceuticals, food, and the chlorine used to purify our water. Whilst refining operations can produce chemical products alongside fuels, that are used in pharmaceuticals, medical equipment, personal hygiene and cosmetics, paint, car parts, clothing and textiles, and tyres.
As the Government recognises the importance of the chemical industry to the manufacturing supply chain, we would urge it to include these critical chemicals-related processes within the scope of the BIC scheme.
Impact on electrification
There are four considerations that will determine how well the scheme supports the electrification of heat demand:
1. Sector-level test: The chemical sector’s main use of energy is for heat. At the moment that heat is sourced from burning natural gas - the most economic option. If the BIC scheme’s sector-level electricity-intensity test only considers the current electricity-intensity of production, it will exclude those sectors that could electrify their heat demand with BIC scheme support. Discretion must be used when applying the sector-level test so that other important factors are considered, namely i) is the sector at risk of carbon leakage and, ii) is it of strategic industrial importance?
2. Business-level test: If the business-level electricity-intensity test only considers the current electricity-intensity of production, it will exclude those sites with the potential to electrify their heat demand. A business must be guaranteed that it will receive BIC scheme relief from the point at which it is able to electrify its heat, to ensure the business case for electrification stacks up.
3. Targeted electricity discount: Currently there is a Hydrogen Production Business Model which supports sites looking to fuel-switch to hydrogen, by making the cost of hydrogen equivalent to the cost of natural gas. This hydrogen may be produced using electricity, with a loss in energy through the hydrogen production process. It would be cheaper and more energy efficient if a targeted electrification business model were created, to offer a competitive electricity price to those who electrify their heat demand, something supported by the Climate Change Committee.
4. CAPEX vs OPEX: As well as action to reduce the operational cost of using electricity for heat, further action is required with regards to capital support for industrial decarbonisation investment. With the abolishment of the Industrial Energy Transformation Scheme the UK lacks competitive public support for industrial investment in net zero technology. The EU by comparison has the €40bn Innovation Fund to help its businesses invest in clean energy and industry.
What next?
The CIA welcomes the Government’s recognition that the UK’s industrial electricity prices are too high and we support its efforts to reduce the impact of high prices on investment and growth. Even so, the impact of the proposed BIC Scheme is modest when compared with industrial electricity prices elsewhere, and with industrial price support schemes elsewhere. It does not go far enough to make the UK a globally competitive manufacturing location, nor does it incentivise the electrification of heat demand.
Further action is required to reduce industrial electricity prices and we urge the Government to work across departments, to bring down the cost of electricity more systemically. Industrial growth and resilience requires access to competitively-priced electricity which, for the time being, will require a less punitive approach to energy use from DESNZ, and greater support from HM Treasury for investment in UK manufacturing. In the long-run, the Government must ensure that its Clean Power Mission delivers access to clean electricity at a price that spurs the widescale electrification of industrial heat, alongside new investment and growth.
