Iggesund Paperboard in Workington will be hit hardest by Ofgem’s proposals – but it isn’t the only Cumbrian business likely to be affected.
The energy regulator’s Targeted Charging Review threatens to increase costs for businesses that have invested in Combined Heat and Power (CHP) plants to generate their own electricity.
Ofgem argues that sites having CHP should pay more towards the costs of the electricity transmission and distribution networks.
We don’t yet know the precise details but, in Iggesund Paperboard’s case, the financial impact is likely to be between £1.2m and £2.9m a year.
Swedish-owned Iggesund invested more than £100m in a CHP plant at Workington, which opened in 2013.
What Ofgem is suggesting is that businesses that have invested heavily in CHP plants should be penalised for doing so.
It supplies all the site’s electricity from sustainable biomass and exports surplus power to the National Grid.
Rob Johnston, Chief Executive of Cumbria Chamber of Commerce, said: “This is one of the most ill-thought-out proposals we’ve ever come across.
“It is deeply unfair because, by virtue of having CHP, they barely use electricity from the National Grid. Their connections to the network are needed only for export and for importing electricity in emergencies.
“They are being asked to pay for something they don’t use.
“The proposal is also unjust because it is retrospective. I doubt very much that Iggesund would have invested £100m in a CHP plant if they had known this was going to happen.
“It undermines the case for investment in CHP – in the green energy that the Government wants more of – and it threatens jobs.
“Then there is the potential impact on businesses such as Stobart Group, which supplies biomass fuel to CHP plant operators. Their business model will be affected if plants close.
“We will be writing to Ofgem, asking them to rethink this.”
It is likely that PX Group, which operates the Fellside CHP plant at Sellafield, will be hit by extra charges too.
So will James Cropper, at Burneside near Kendal, which has a CHP plant and has written to Westmorland and Lonsdale MP Tim Farron to raise concerns about Ofgem’s proposals, which are due to be implemented by 2020-21.
Rob added: “Once the principle is established, where will it end? Will farmers with a wind turbine be asked to pay more, or a business that has put solar panels on its roof?
“This sets a dangerous precedent.
“It will without doubt deter further investment in CHP and that will add to demand on the electricity network at a time when capacity is reducing.
“It is yet another added cost for businesses on top of so many others – rising business rates, increases in the National Minimum Wage and increases in the minimum pension auto-enrolment contributions, to name three.”
The Chamber is asking Ofgem for clarification on how the Targeted Charging Review will affect other businesses that generate their own electricity.
It undermines the case for investment in CHP – in the green energy that the Government wants more of – and it threatens jobs.
To help frame our arguments to Ofgem, we want to hear from other Cumbrian businesses that might be affected. If that’s you, drop a line to the Chamber’s Business Engagement Manager, Julian Whittle.
Meanwhile, the Confederation of Paper Mills has written to Ofgem on behalf of members such as Iggesund and James Cropper.
Its Director General, Andrew Large, says: “It seems perverse that the allocation of a residual charge for use of the transmission network could mean that CHP is not built or not replaced – thus leading to a greater requirement to reinforce the same transmission network at consequent increased cost.
“The solution seems to be to recognise the role that industrial CHP has in reducing the required capacity of the transmission network by not imposing these residual charges on such sites.”