UK's Cable says industrial sector faces energy cost crisis

Thu Jan 16, 2014 9:53am EST

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By Maytaal Angel and William James

LONDON, Jan 16 (Reuters) - UK business secretary Vince Cable said on Thursday rising energy costs pose a major stumbling block for the competitiveness of British industry, but stopped short of offering new government initiatives to tackle the problem.

Energy prices are high on Britain's political agenda, but most of the focus so far has been on households, even though energy-intensive industries (EIIs) such as steel and chemicals firms pay some of the highest bills in Europe.

"There is a big problem and we recognise that," Cable said at an industry event in London to mark the launch of a report commissioned by Tata Steel Europe on foundation industries' contribution to the UK economy.

"Energy-intensive industry have got special problems arising from British energy costs. The carbon price floor is pricing in a disadvantage to UK producers. We recognise that and I think the core of the industrial strategy for the foundation industries often revolves around that point."

Recent government data shows UK energy-intensive firms pay about 30 percent more for electricity bills than their main EU competitors. British households by contrast pay below the EU average.

In recognition of the problem, the government last year launched a multi-million pound compensation scheme to shield industry from carbon costs embedded in energy bills, and payments under the scheme have already been made.

However, there is no compensation as yet for green levies such as the renewables obligation or the UK-specific carbon price floor.

Cable's pledge of support to industry was dimmed by the fact that he needs to get both Treasury and the Energy and Climate Change Department on board in order to launch new concrete initiatives.

Finance minister George Osborne on Thursday backed Britain's manufacturing industry, saying it must never be neglected. However, at a time when the government is focusing its campaign for re-election on fiscal prudence and spending cuts to restore balance to Britain's finances, cash to offset the green levies is likely to be scarce.

Karl-Ulrich Köhler, CEO of Tata Steel Europe, said that Tata's UK plants face electricity costs up to 50 percent higher than those in France and Germany.

"We think industrial policy needs attention, we can't just look at the sexy sectors. The renewables obligation, for example, is a double digit million pound per annum charge that is increasing the unlevel playing field we have with our peers," Köhler said.

He said he was pleased the government recognised the problem but said there was still work to be done on winning fresh concessions.

In October last year, Tata Steel, Europe's second-largest steel producer, announced plans to cut around 500 jobs in the UK, blaming a prolonged downturn in steel demand post-2008, as well as energy and climate policies.

Terry Scuoler, chief executive of EEF, the manufacturers' organization, said the current projected increases in the carbon price floor were unsustainable for British industry.

"My view is that the carbon price floor will not be scrapped but what we've got to secure (is) at least a flattening of the trajectory. Not to do so would be very damaging for UK industry," he said.

The UK's carbon price is set to rise from 4.94 pounds per tonne in 2013 to 18.08 pounds in 2015, meaning the cost of carbon for British generators could be more than four times higher than their European rivals. [ID: nL5N0HG105]

According to PwC, authors of the report commissioned by Tata, foundation industries like metals, chemicals, glass, cement and wood employ 487,000 people and account for 3 percent of the UK economy as a whole.

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