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Have you considered Climate Change Agreements to mitigate your energy costs?

Manufacturers face significant increases in energy bills in the coming months

The current price hike of gas and electricity is certain to make manufacturing businesses asking themselves how they can manage this challenge after the Covid-19 pandemic.

Already operating in the context of historically high electricity costs, the gas crisis has sent both electricity and gas prices spiralling, with energy costs increasing by between 25% and 90% and even, in some individual cases 300% over the last year.

Will companies be able to manage the challenge and mitigate this? Or will they be short of options and forced to simply weather the storm which will mean using the money earmarked for future-proofing, net zero, growth instead to pay their energy bills?

Whether they have agreed a contract with their supplier – which normally ends in the Spring or the Autumn - or whether they have been operating a hedging policy, manufacturers are set to face yet another sharp increase in their energy bills in the coming months.

And these high energy prices are predicted to last through 2022 and into 2023, with in some cases exorbitant increases of up to 5-fold from today’s prices.

While the immediate response might be to insulate buildings and install better performing heating systems or look to self-generate as much as possible – the big question remains of where the funds will come from to support industry in taking this course of action?

Energy intensive industries (EIIs) are heavily impacted These refer to industrial sectors, usually manufacturing industries, whose energy costs makes up a significant proportion (typically over 20%) of their production costs. The following manufacturing industries are considered to be energy-intensive: food, pulp and paper, basic chemicals, refining, iron and steel, nonferrous metals (primarily aluminium), non-metallic minerals (primarily cement), ceramics and glass.

Electricity generation being also linked with carbon prices, it is creating a toxic combination for EIIs as the carbon price has at times exceeded the trigger for the carbon cost containment mechanism which has yet to be activated. This is in addition to the burden of uncompetitive international carbon prices which are much higher in the UK ETS compared to EU ETS allowances, and the cost of the UK-specific Carbon Price Support paid through the Climate Change Levy (CCL).

Taking advantage of Climate Change Agreements

There exists an option, which the Government has just recently re-opened: Climate Change Agreements (CCA). 

CCAs are voluntary agreements made between UK industry and the Environment Agency to reduce energy use and carbon dioxide (CO2) emissions. In return, operators receive a discount on the Climate Change Levy (CCL) that businesses pay on (domestically produced or imported) electricity and fuel bills.

A wide array of manufacturing sectors already have a Climate Change Agreement (CCA). Members of the industry association can participate by applying to their sector association and paying a fee of ca. £2000 for the association to manage the underlying agreements with each of its participating members.  Individual companies in industries that don’t have a sectorial CCA may negotiate their own bespoke CCA with the Environmental Agency. Some sectors have an automatic exemption such as the Climate Change Levy (CCL) Mineralogical & Metallurgical Exemption (MinMet) for manufacturing businesses in metal and mineral sectors.

Companies of any size are able to participate but eligibility is based on:

a: The type of process, which does not necessarily have to be energy intensive. There is a long list of processes in many sectors, from textiles to food and drink, aerospace, motor, tyres, electronics, metal packaging, supermarkets and farmin ) and

b: The proportion of eligible energy used for the process and directly associated activities (DAAs)– this has to be minimum 70% of ‘used’ energy. There are specific criteria for what ‘used’ energy is: this could be from renewable, waste, and non-renewable sources, oxygen, energy to produce steam, or transport fuel for the DAAs (e.g., forklifts)…  

A CCA will provide very significant discounts on the Climate Change levy of up to 92% on electricity and 86% on gas.

Climate Change Agreements have been under-utilised

CCAs have been around since 2013 but vastly under-utilised to date, particularly by SMEs, who might not have been aware of the option. To recoup the application fee, it is roughly estimated that those who could benefit from a CCA would be mainly medium sized companies with an energy spend hitting £100K/annum, or with an eligible consumption of 1 GWh of electricity or 1 GWh of gas.

The Climate Change Agreement (CCA) scheme is open to new applicants only until the end of March 2022. This comes at the right time, but the window of opportunity is very short, and applications take time. Some businesses may need to supply their submission paperwork to their sector association in advance. This means businesses could have even less time to prepare, with sector organisations requiring new entrant applications earlier, to allow sufficient time to submit.

How can Make UK help?

Make UK has partnered with trusted specialist Inspired Energy who can check your eligibility and whether it is worth your while having a CCA and take care of the application process to alleviate the administrative burden and maximise its chances of success. You can contact Inspired Energy to get their help and guidance here.

For the companies who already have their CCA in place, however, it is worth checking that your organisation is performing in line with your CCA targets and ensuring you’re getting the correct level of discount, so you can rest assured that you’re fully compliant and getting the most value from your CCA.

The CCA scheme is a good medium-term relief although it is due to end in 2025. Make UK are advocating for the extension of the scheme beyond mid-2020s and of the new application window itself until at least the summer to maximise the number of entrants.

We’re pushing the message to Government too

We are also calling on Government to explore how the scope of the could be extended to more (smaller) players as it’s just not EIIs that face troubling times ahead.

After all, every manufacturing facility, whether its size needs electricity or gas for their processes, as well as for space heating.

Watch a short video guide to CCAs from our partners Inspired Energy – click here

Make UK / Net Zero / Blog