Policy
Briefing
Energy Policy
July 2014
Introduction

Energy costs for mineral products industries must be minimised

MPA members need certainty and reliability in energy supply

Support for critical and vulnerable mineral products industries must be delivered
Key Issue 1: Energy Cost and Taxation
Energy costs for mineral products industries must be minimised

The cost of energy in the UK is expensive compared to the rest of the world and more
expensive than near neighbours e.g. France as acknowledged in the 2014 Budget
statement.

Electricity costs are becoming an increasing proportion of overall energy costs.

The cost of electricity is set to increase further. ICF International conducted a study*
on behalf of the Department for Business Innovation and Skills (BIS) that examined the
impact of policies on electricity prices faced by Energy intensive Industries (EIIs) in
different countries. The study found that by 2020 the indicative incremental impact
on electricity price of energy and climate change policies in the UK will be at least
£10/MWh higher than in any other country studied.

The current electrical efficiency policy framework is centred on driving up consumer
cost in an attempt to meet challenging decarbonisation and low carbon targets.
Electrical energy in the UK is more expensive than the rest of Europe and the world
primarily because of relatively high incremental policy costs due to renewable energy
costs* and fuel switching drivers.

The Competition and Markets Authority has concerns that there is insufficient
competition in the energy market. MPA shares these concerns where production and
delivery appears more expensive than other nations and that there are market
transparency issues which appear to inhibit the market’s correct functioning.
* “An international comparison of energy and climate change policies impacting
energy intensive industries in selected countries”, 2012, ICF International for the
Department for Business Innovation and Skills.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/317
68/12-527-international-policies-impacting-energy-intensive-industries.pdf

The cost of energy is having a significant impact on all members of MPA including
large energy intensive processes and smaller less intensive processes. Energy accounts
for around 40% of Gross Value Added for energy intensive MPA members. Mineral
product imports by non-GB manufacturers are increasing and energy costs cannot be
passed on to customers without losing further GB market share. For example, imports
of cement by non-GB manufacturers have increased from 3% of GB cement sales in
2001 to 13% in 2012.

Electrical energy is becoming more expensive as Government climate change and
energy policy taxation is levied onto either the fuel or emissions of power generation.
Energy intensive industries such as cement and lime are not provided with sufficient
(if any) relief from these taxes.
Policy
Briefing
Key Issue 2: Security of Supply
MPA members need certainty and reliability in energy supply

The UK relies on a high proportion of energy imports. This makes the UK vulnerable to
increases in price of fossil fuels (and the power generated from the fuels).
Furthermore, energy costs are becoming more volatile and are increasingly susceptible
to geo-political influence and instability. The UK should reduce its reliance on
imported energy sources.

MPA members require secure and reliable energy to enable them to produce materials
that are essential to important supply chains in the UK construction and a wide range
of other industries.
Electricity:

Disruption must be minimised through the support of reliable sources of energy
including new nuclear and combustion with CCS. Reliance upon unreliable renewables
will increase the opportunity for disruption potentially leading to costly delays and
equipment damage.

However, there is a role for a diverse locally sourced energy mix that includes
renewables, particularly if domestic resources can be maximised such as offshore
wind.

In developing the UK’s low carbon energy infrastructure it is also important that the
technologies are designed and manufactured using UK skills and constructed using
locally responsibly sourced materials.

Demand management will provide an increasing role in UK energy balancing. MPA
members can respond to demands at peak times using demand management but this
service requires flexibility which must be rewarded financially.

Industry can assist in decentralising electricity generation for example by using
process waste heat to generate electricity. In many cases the costs outweigh the
benefits and as such Government needs to work with industry to develop targeted
incentive programmes for maximising the use of waste heat that isn’t already utilised
in the process.
Fuel:
Policy
Briefing

The UK relies on imports, particularly for gas and therefore risks arise from not having
a steady, secure supply of energy or insufficient storage.

Domestic/indigenous sources must be maximised including unconventional sources
that could reduce our reliance on imports.

Gaseous fuel supply is exceedingly important, not just for electricity generation, but
also for manufactured product. Some industrial processes e.g. lime manufacture,
require a high purity fuel source e.g. natural gas in order to feed industries such as
iron and steel manufacture, pharmaceuticals, paper, glass and water treatment.

Industry has considerable potential to fuel switch. Switching from fossil fuels to
domestically supplied waste derived fuels can have a multiplicity of benefits. The UK
cement and lime sector is assisting UK energy security of supply by switching from use
of fossil fuels to waste fuels. This has the additional benefit of preventing millions of
tonnes of waste materials from being landfilled.
Key Issue 3: Support Measures
Support for critical and vulnerable mineral products industries must be
maximised

There is a critical imbalance in the UK between incentives available to the power
sector and those available to certain sectors of industry. Investments in the future of
the power sector have been largely de-risked through Government incentives and
support packages, while the costs of these policies are passed on to consumers,
including industry, in power prices.

The consequences of the higher electricity costs in energy intensive cement and lime
manufacture particularly, is that internal investment is adversely impacted, local
competition with other sectors is damaged and businesses that cannot pass on the
costs in products that compete in global/regional markets are vulnerable to
competition from imported material.

Assistive policies, incentives and compensation packages are required for investments
in industry to de-risk and for improvements such as fuel switching and heat recovery
potential to be realised. The UK Government needs to ensure that where
compensation packages are to be made available for industry, issues relating to State
Aid are overcome before these policies are introduced.
Product whole life benefits should be recognised.

In the domestic sector there is considerable opportunity to gain benefit from the use
of thermal mass in buildings. Thermal mass is a term that describes the ability of a
material to store heat. To be useful in the built environment, the material must also
be able to absorb and release heat at a rate roughly in step with a building’s daily
heating and cooling cycle. Concrete and masonry products do this well and, being
dense materials they can also store a lot of heat. Timber absorbs heat too slowly to
offer much effective thermal mass and steel conducts heat too rapidly to be in
synchronisation with a building’s natural heat flows over the day.

The amount of CO2 that can be saved from utilising the thermal mass of a building
depends on the building type and the way in which its thermal mass is used. In the
case of a very heavyweight building, the additional concrete can result in a slightly
higher level of embodied CO2, but the operational savings afforded by the thermal
mass will typically offset this in a matter of months rather than years.

For housing, the situation is slightly different: The embodied CO 2 in a typical masonry
home is about 4% higher than an equivalent timber frame home although when studies
have looked at operational impacts they have found that the passive benefits of
thermal mass during the heating seasons resulted in CO 2 savings that offset the figure
of 4% in around 11 years.

Consequently, interventions in the building sector that promote and utilize the
benefits of thermal mass to manage heat have the potential to provide long lasting
energy efficiency and CO2 reduction opportunities.
For more information please contact:
Dr Richard Leese, Director Energy & Climate Change – MPA Cement