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UK: Clean Growth Strategy and the Chemicals Sector

  • United Kingdom
  • Industrials - Chemicals


The UK Government and Ofgem have recently announced a range of measures which impact clean energy and energy pricing which will be of interest to the chemicals sector. This is a brief overview of the recent announcements:

Clean Growth Strategy

The 160 page UK Clean Growth Strategy has been released today. It includes around 50 measures, with support for offshore wind power and energy efficiency being at the heart of the Strategy. The Strategy sets out how the whole country can benefit from low carbon economic opportunities through the creation of new technologies and new businesses, and sets out how over £2.5 billion will be invested (and how further investment will be stimulated) to support low carbon innovation from 2015 to 2021, with funding covering low carbon energy, transport, agriculture and waste. To access the UK Clean Growth Strategy click here.

Highlights of the Strategy include:

• Clean, affordable energy – Phasing out unabated coal generation by 2025; and committing up to £500 million for a further Contracts for Difference auction (the third round) for less established technologies (further detailed below) which the Government hopes will result in 10GW of new offshore wind capacity.

• Low carbon transport – Ending the sale of all new conventional petrol and diesel cars and vans by 2040; committing to developing a world-leading electric vehicle charging network; and £1 billion support for ultra-low emission vehicles, including helping consumers with upfront costs and an additional £841 million towards low carbon transport technology and fuels.

• Improving homes – Supporting around £3.6 billion of private investment to upgrade around a million homes through the Energy Company Obligation (ECO); extending support for energy efficiency improvements; and improving energy performance standards especially for those in fuel poverty or privately-rented homes.

• Business and industry efficiency – Supporting measures to help businesses improve their energy efficiency and cut energy use and bills.

• Carbon capture usage and storage (CCUS) – Collaborating with global partners to demonstrate international leadership in CCUS; and investing up to £100 million in CCUS innovation.

• Nuclear – Reaffirming commitment to Hinkley Point C; and progressing discussions with developers to secure a competitive price for other nuclear projects in the pipeline.

• Waste – Working towards the ambition of zero avoidable waste by 2050 by maximising the value extracted from resources and minimising negative environmental and carbon impacts of extraction, use and disposal; and publishing a new Resources and Waste Strategy.

• Funding – Making additional funding available through BEIS Energy Innovation Programme of up to: £10m for innovations that provide low carbon heat in domestic and commercial buildings; £10m for innovations that improve energy efficiency of existing buildings; an additional £14m for the Energy Entrepreneurs Fund; £20m for a Carbon Capture and Utilisation demonstration programme; £20m to demonstrate the viability of switching to low carbon fuels for industry; and £20m to support clean technology early stage funding.

Energy Price Caps

There have been multiple developments recently as the Government moves on its manifesto pledge to cap domestic energy prices.  This has the potential to cause uncertainty for supplier’s non-domestic tariffs.  This is especially important for the chemicals industry given the energy intensive nature of chemical production and related businesses.

• BEIS presented the Draft Domestic Gas and Electricity (Tariff Cap) Bill to Parliament on 12 October, which once passed will require Ofgem to implement a temporary absolute price cap for the more expensive “standard variable tariff (SVT)” to which consumers default if they have not engaged with their supplier to secure better terms. It is anticipated that the caps, which will be in place until at least 2020, will not be implemented for at least a year as the Bill passes through Parliament and into law and Ofgem consults on its proposals (which it may do concurrently with the passage of the Bill). To access the Draft Domestic Gas and Electricity (Tariff Cap) Bill click here. 

• Ofgem has released a consultation on its proposal to extend price protection to 1 million more vulnerable households late this winter (targeted for February 2018), and to at least a further 2 million by next winter, ultimately bringing the number of protected households to 7 million when you include the 4 million homes currently benefiting from the pre-payment meter price caps introduced in April this year. The “safeguard tariff” will be available to those on the Warm Home Discount. The estimated saving is around £120 per year, and will be set at the same level as the pre-payment meter cap. To access the consultation click here.

• Ofgem has also released its decision to allow suppliers to roll customers who are at the end of a fixed term contract onto another contract on similar terms rather than defaulting to the SVT. To access the decision click here.

Contracts For Difference Third Round

BEIS has announced that up to £557 million will be committed to the next Contract for Difference auction for less established technologies (which includes offshore wind, ACT, biomass CHP, geothermal, and tidal and wave). This will be the third auction, and hopes to follow the success of the second auction. The auction is planned for Spring 2019. To access BEIS's announcement click here.

To access our e-briefing on Contract for Difference click here.

Key challenges already voiced are the amount of funding being committed and the lack of detail on delivery. In terms of what needs to be achieved the amounts committed are small. The energy transition sector is one in which the UK has a chance to take a leading role globally but many believe it needs greater Government commitment. We have missed our chances many times in the past in the new energy transition and it will be a shame if we lose grasp of this opportunity which centres around so much including storage, electric vehicles, distributed energy solutions, energy efficiency and how digitalisation and technology can integrate and enhance each component part and the whole. Some are questioning whether the Clean Growth Strategy can be delivered to full effect.