UK Govt Looks to Shield Companies From Energy Market Reform Costs

Britain is considering plans to protect energy-intensive industry from higher power costs as a result of planned electricity market reforms, a move which could lead to higher costs for households, documents published on Thursday showed.

The documents come just two days after opposition leader Ed Miliband reiterated a pledge to force power companies to freeze prices for 20 months if his Labour party wins a general election due in May next year.

In a consultation, Britain's Department of Energy and Climate Change (DECC) on Thursday proposed offering high energy-using sectors such as steel, cement and paper exemptions of between 50 and 100 percent of any energy price rises resulting from the government's electricity market reforms.

But offering businesses cheaper power means that households, and firms not included in the exemption, would be left to pick up the tab, an impact assessment report published alongside the consultation document showed.

"Funding the exemption has an offsetting, negative impact on non-exempt sectors and consumers through higher electricity prices," said the report by Vivid Economics, funded by DECC and the Department for Business, Innovation & Skills.

Britain is overhauling its electricity market to help deliver low-carbon energy and reliable electricity supplies, as ageing nuclear and coal plants go offline over the next decade.

To encourage investment in low-carbon generation, the government is offering "contracts-for-difference" (CfD) whereby qualifying projects are guaranteed a minimum price for their electricity.

The measure is expected to contribute to higher electricity prices in Britain, but the government has said the rise will be less steep than it would have been if no action is taken.

The impact assessment said it could be beneficial to insulate the most exposed sectors from higher energy bills to ensure they are not at a competitive disadvantage to international rivals, which could pose a threat to jobs.

"The costs to the economy will be negligible and the benefits from preserving competitiveness could be significant," the report said.

Britain already has schemes to compensate certain energy-intensive industries for higher energy costs resulting from its domestic carbon tax and the European Emission Trading scheme, which have benefited the likes of Tata Steel and Celsa Steel.

Documents for the consultation, which will close on Nov. 5, can be found at https://www.gov.uk/government/consultations/emr-changes-to-the-cfd-supplier-obligation

(By Susanna Twidale, Editing by David Holmes)