Energy and Utilities

The Energy Transition | Extension of Energy Intensive Industries Compensation

Published on 9th May 2022

This week we look at the government's plan to extend the Energy Intensive Industries Compensation Scheme, Innovatium's launch of an industry-first liquid air energy storage project, Ofgem's decision to reduce connection charges, and more.

Energy Intensive Industries Compensation Scheme extended to 2025

The Department for Business, Energy & Industrial Strategy (BEIS) has announced plans to extend the Energy Intensive Industries (EII) Compensation Scheme for a further three years until 2025. Additionally, the budget will be more than doubled and the scheme will be expanded to provide support to electric vehicle battery manufacturers. This forms part of BEIS' response to the EII consultation issued on 14 June 2021.

The aim of the EII Compensation Scheme is to prevent the offshoring of emissions to other countries with lower carbon costs than the UK. This is achieved by providing relief to businesses with high energy usage, including steel and paper manufacturers, for the indirect costs of the UK Emissions Trading Scheme (ETS) and the Carbon Price Support mechanism in their electricity bills. These indirect costs arise due to the obligation on electricity generators to buy emission allowances under the UK ETS and pay tax on the carbon content of fossil fuels used to generate electricity. Electricity generators pass on any increases in their costs to the wholesale electricity market resulting in higher retail electricity prices for energy intensive industries. 

BEIS recognises that UK industrial electricity prices are higher than those of other countries and hopes that by extending the scheme, the UK will remain an attractive investment destination for energy intensive industries and that greater electrification to help cut emissions will be encouraged. BEIS has also committed to considering further measures to support energy intensive industries, including increasing the Renewable Obligation exemption to 100%.

Industry Minister, Lee Rowley, said: "We want to keep the UK at the forefront of manufacturing, helping our energy intensive industries remain competitive and sustainable for the long term, and continuing to power our economy with thousands of jobs across the country. We are not only extending our support through the compensation scheme, by offering a greater level of compensation to eligible firms, we are delivering more relief from electricity costs for these industries."

Innovatium's liquid air energy storage project goes live

Innovatium, a Scottish low-carbon technology company, has implemented its liquid air energy storage (LAES) energy efficiency technology demonstrator at Aggregate Industries' Cauldron Cement Works in Staffordshire, UK. This is an industry-first, with the installation in Staffordshire being the first fully operational deployment of its kind in a live customer environment.

The demonstrator uses PRISMA (Peak Reduction by Integrated Storage and Management of Air) technology to store energy in liquid form and provide compressed air. This allows inefficient, partially loaded variable-demand compressors to be switched off, improving system efficiency by up to 25%. The system utilises a latent energy cold storage tank fitted with a phase change material to store thermal energy and works in conjunction with Aggregate Industries' existing compressed air network. PRISMA technology is seen as a potentially significant player in the decarbonisation of intensive energy companies across a wide range of different sectors. Innovatium has confirmed that data produced by the project will be published this summer.

PRSIMA technology, which has been developed alongside Birmingham University, benefitted from funding from the Energy Efficiency Accelerator programme run by BEIS and managed by the Carbon Trust. In addition to the support from BEIS, Innovatium has raised a further £900,000 of investment funding which will support the continued development of PRISMA technology.

Aggregate Industries has stated that: "We believe PRISMA can play a major role in addressing the ‘energy trilemma’ of managing energy efficiency, energy cost and energy security, and we're confident that its installation at Cauldon will further prove its decarbonisation credentials - a big step towards full commercialisation of the technology."

Ofgem opts to reduce distribution network connection charges

Ofgem has published its final decision on the Access and Forward-Looking Charges Significant Review  in which it has opted to reduce the connection charges for distribution network customers. The changes will come into effect in April 2023 for the beginning of the RIIO ED2 price controls.

Currently, customers connecting to distribution networks must pay for any new asset required to extend the network to them and must contribute to the cost of reinforcement of existing shared assets up to one voltage level above their point of connection. Under the Distribution Use of System (DUoS) charges, the wider customer base pays for any reinforcement from two voltage levels above the point of connecting. This means that the cost of reinforcement is spit between connecting customers and the wider customer base.

However, Ofgem has noted the following issues with the current connection charging arrangements:

  • Inconsistent price signals due to only specific customers' connections triggering reinforcement. This incentivises prospective customers to 'free-ride' by delaying their connection request until after reinforcement has been triggered by another customer.
  • Distribution network operators (DNOs) are encouraged to take an incremental and reactive approach to reinforcement as opposed to investing in anticipation of wider network needs.
  • The current price signal may be too strong for some customers which creates a barrier to investment.
  • Boundary distortion between transmission and distribution impacts competition between generators connecting to different networks.

As part of Ofgem's changes, demand customers will not be required to contribute towards reinforcement of the wider network and instead, will only pay for extension assets. Although generation customers will still face an obligation to contribute towards network reinforcement, this will be limited to the voltage level at which they connect. To mitigate reduction of price signals about the cost of connecting at certain locations, Ofgem will maintain the current high-cost cap (HCC) which is set at £200/kW. A similar cap will be introduced for demand customers which will be set at £1,720/kVA. The HCC is the threshold above which connecting customers are required to pay for reinforcement costs in full which limits the cost burden of an individual connection.

Ofgem hopes that these changes will prompt DNOs to make strategic investments and reinforce their networks ahead of customer need, as well as encourage uptake of low-carbon technologies.

Connected Kerb launches new on-street electric vehicle charger

Connected Kerb, a UK-based provider of electric vehicle (EV) charging infrastructure, has launched a new chargepoint targeted at those without access to driveways or off-street charging. Named the "Chameleon", the chargepoint is made in the UK, predominantly from recycled materials, and stands at just one meter tall. This makes it accessible for wheelchair uses and means that it does not require planning permission.

Other features include dual charger access, meaning that multiple users can charge their vehicles at the same time. The system also supports 5G and various internet of things (IoT) sensors which will provide data such as air quality, temperature, traffic and parking bay occupancy to consumers to improve user experience for EV drivers. Connected Kerb aims to install 190,000 public on-street chargepoints by 2030 and has already agreed a number of rollouts with authorities across the UK.

Connected Kerb has described the Chameleon as "one of the lowest impact and smallest dual charger solutions for public on-street charging in the market."

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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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