£500m strike price deal for UK Energy plant

AMERICAN industrial gases giant Air Products is set to go-ahead with plans for a new £300m power station after winning a £500m contract to supply electricity to the Government.

Earlier this year Air Products started work on its first 50MW advanced gasification plant in Billingham.
Its plans for the second plant, on land adjacent to the first one, are currently being considered by Stockton Borough Council and if approved Air Products will press ahead with construction after winning the Government contract.

In an unusual move, the Government announced it had agreed to a power purchase agreement with Air Products to buy 37MW of electricity from the plant, at a cost of around £25m a year, for 20 years.

Air Products will receive a Government subsidy of around £70 per MW/h in addition to the price agreed between the two parties for electricity. The current wholesale price of electricity is around £50 per MW/h.
The deal highlights the Government’s desire to support renewable energy projects.

The Minister for the Cabinet Office Francis Maude said: “This is the beginning of a pioneering approach to how government uses its collective buying power and long term demand to buy energy.

“Not only have we secured £84m of savings for taxpayers by signing a new, low cost energy deal with Air Products, but we’re also helping the UK compete in the global race by investing in growth and creating hundreds of new jobs through the construction of a new energy from waste plant.

“Our aspiration is to develop world-leading, exportable technology, and the new state-of-the-art site in Teesside will help the UK become a centre of renewable technology. This is about changing the way we work to not only get the best out of our suppliers, but the best out of the UK.”

Lisa Jordan, Air Products’ business manager for Bio-Energy Europe, said: “We are delighted that the Cabinet Office has agreed to purchase the power which we expect to produce at a new Tees Valley Renewable Energy facility, subject to planning and approval later this year.

“By buying the electricity we produce, the Cabinet Office will help Air Products divert up to 350,000 tonnes of non-recyclable waste from landfill every year, which we will turn into reliable, controllable, renewable energy.”

The two plants are costing Air Products around £600m and will be the largest of their kind in the world. Between them they have the potential to recycle the rubbish from more than one million households.

The waste is heated in a process called advanced gasification producing a syngas, which is composed mainly of hydrogen, and is used to power a turbine and generate electricity.

When the two plants are up and running they will employ around 100 people, with over 700 people involved in construction of each.

ENDS

New UK carbon tax - not green and threatens jobs

A MULTI-MILLION pound sweetener to soften the blow of new measures to cut carbon dioxide emissions will do nothing to alleviate concerns of further carbon leakage, say leading industry figures.

The Carbon Floor Price (CFP), which came into effect last week, will net the UK Government over £4 billion in tax revenues over the next few years.

Its introduction was announced in the Budget of 2011 and contributed to closure the Lynemouth aluminium smelter with the loss of 600 jobs.  Alcan said the CFP levy would wipe out the Northumberland plant’s annual £40m profit.

In an effort to guard against further cases of carbon leakage the Government last month set up a £250m compensation fund to support energy-intensive businesses, but this hardly bears comparison to the £7bn the German Government is offering business to compensate for its renewable energy surcharges.

Members of the London-based Energy Intensive Users Group (EIUG) are businesses where energy can account for up to 70% of production costs, such as those in the steel, paper, cement, lime, aluminium and chemical industries. 

Director Jeremy Nicholson said: “The compensation measures are a step in the right direction but they have not leveled the playing field.”

The CFP will see larger carbon emitters charged £16 for every tonne of carbon dioxide they emit, rising to £30 per tonne by 2020, and £70 per tonne in 2030.

The European carbon price is currently languishing well below £3 per tonne, compared to a £30 high in 2008, meaning UK businesses have to pay over £13 more to emit carbon than EU competitors.

Andrew Hebden, assistant director of CBI North East, said it welcomes the measures to support energy-intensive industries, adding:  “This is all the more important to counter the increasing difference in carbon price between the UK and the EU.” 

Fertliser manufacturer Growhow, which employs 200 people in Billingham, is a member of the EIUG.

Deborah Pritchard-Jones, public affairs director at Growhow, said:  “The compensation package as it currently stands will only last until 2015 and we're not sure what the level of support there will be after that.

“The Carbon Floor Price will impact on our business, the compensation is short term and consequently we have no certainty on the future costs. Long term investment decisions require certainty.” 

The Government estimates the CFP will cost energy-intensive business £130,000 a year in 2013, rising to £1.1m in 2020. But for some larger North East businesses this could be much more.

At the time of the CFP announcement in 2011 Tata Steel on Teesside and a further 20 of Teesside’s chemical and process companies expressed concerns, saying the cost implications could deter long term investment and cost jobs.

A spokesman for Sahaviriya Steel Industries, who have since bought the Teesside plant, said: “At this stage we are not certain of how the compensation scheme will work, but further increases in input prices are detrimental, and create uncertainty over potential future investment.”

Nicholson says the CFP and further measures in the Energy Bill may lead to doubling of energy costs over the next decade.

Michael Dent a director at South Shields–based energy experts Utilitywise highlights how this UK-specific tax will harm indigenous businesses.

“It’s generally accepted that there is a real need to increase the cost of carbon throughout Europe but to maintain a level-playing field for UK industry, policy should be set at a European level.” 

As things stand UK business is at a long-term disadvantage to European competitors, and the continent is at a disadvantage to the US, where shale gas has halved energy costs.

Corin Taylor, senior economic adviser to the Institute of Directors, recently spoke to members of Teesside’s process industry at a shale gas event organised by Teesside University Business School.

He highlighted how the CFP does nothing to reduce carbon emissions and added: “With US energy costs falling the UK and Europe are not looking as attractive and there is a real risk the trickle of businesses leaving the UK could become a flood.”

ENDS