22 Sep 2022

West Midlands Industry calls on Government to take action beyond short-term price caps to combat the energy cost crisis for manufacturing businesses

The West Midlands Industrial Taskforce, led by Repowering the Black Country and established by the Mayor, has presented an urgent Five Point Plan to Government aimed at supporting manufacturing business across the West Midlands through the energy cost crisis.  The plan focuses on action the government can take now to prevent the crisis destroying jobs across the region when the six months price cap for businesses expires in April.

The West Midlands is the heart of global UK manufacturing and critical national supply chains spanning food, medical devices, defence, energy, mobility, health and chemicals. 76% of our manufacturers export , accounting for 12% of England’s total exports.

Almost 70% of our manufacturing businesses will face energy cost rises of between 3-400% as pre-crisis energy contracts and the six-month price cap come to an end. These are mid-sized firms who cannot easily access support schemes for the largest UK companies, and for whom most SME and consumer support schemes are ineffective or insignificant. This puts 300,000 jobs directly at risk and impacts at least £22bn of GVA. For some businesses, where energy is already 10% or more of their costs and global competitors benefit from fixed or subsidised energy prices, such rises are potentially fatal.

Competing global economies have put in place significant protections from energy cost rises for their strategic energy-exposed industries. To enable West Midlands firms to continue to compete globally for Britain and support strategic national supply chains, West Midlands industry calls on the new government immediately to adopt the following Five Point plan.

1. Immediately devolve significant funding to the Mayor to implement targeted specialist energy efficiency support programmes for strategic sectors across the region. Existing government funding for industrial energy efficiency is either targeted primarily at larger firms (Industrial Energy Transformation Funds) or bureaucratic and focused more on environmental improvement or innovation than energy costs and economic growth (ERDF and Innovate UK). Regions are best placed to identify both strategic sectors for future economic growth (and also the most vulnerable companies, where energy-cost driven failure will have greatest negative impact on local employments and skills). Regions can design and administer schemes efficiently, reduce the bureaucratic overheads for firms and minimise the costs of ensuring funds reach the right targets. A simple market-based voucher scheme could be implemented immediately in the West Midlands, building on an existing pool of expertise from across the region’s universities and technical consultancies.
   
   
2. Accelerate energy market reform to delink gas and electricity prices permanently, and permanently embed representation of diverse regional industrial and economic interests in market regulation. The electricity price needs to be delinked from the gas price, and this can be done faster in the industrial sector than in consumer markets. Regulatory burdens and unfair levies on industry – particularly mid-sized and smaller firms - also need to be removed.
   
   In the short-term cheaper nuclear and renewables capacity should be reserved specifically for industry, and the government should support the Mayor by providing him with financial backing to enable him to mediate deals with these generators on behalf of the large numbers of mid-sized firms that characterise our economy.
   
   The current market also delivers excessive returns to renewables’ investors and the energy sector under the business models put in place by previous governments. While consumer, environmental and energy sector interests are well-represented in the existing energy market structures, the needs and potential contributions of wider UK industry and economic growth are not, and as a consequence too often industry are expected to pick up the bills, not only for consumer and environmental support, but also for investment returns in the energy sector.
   
   Fundamental market reform should give regional industrial bodies permanent roles in regulatory processes and institutions, the design of business models and the setting of levies.
   
   
3. Provide immediate meaningful incentives for accelerated investment in onsite generation by industrial firms across the West Midlands. The future economic resilience and competitiveness of the West Midlands and UK depends on insulating industrial energy costs as far as possible from global politics. This is achieved most simply and with greatest benefit to UK economic growth by maximising sensible onsite investments in local energy generation by industry.
   
   West Midlands industry should be able to access the same kind of guaranteed returns on private investment in on-site generation (such as solar, bioenergy, waste-to-energy and hydrogen) that are available to large scale energy investments offshore. The Mayor and local authorities should also be able to accelerate planning and mandate rapid grid access for strategic firms investing in local generation.
   
   
4. Immediately extend exemptions for energy intense industry to all manufacturing SIC codes and increase the exemption to 100% for the next three years. The government are already consulting on this: the costs and benefits are relatively small and rather than agonise about which codes should be included, in the context of a national crisis the government should simply extend the scheme to all manufacturing firms.
   
   In the medium- and longer-term, these schemes are far too complex and bureaucratic for most firms to access, and they should be abolished and replaced with much simpler mechanisms to incentivise and pay for carbon reduction.
   
   
5. Immediately exempt strategic West Midlands manufacturing business from at least 90% of energy network levies and charges. This will bring the West Midlands into line with competing economies across Europe and again provide a small but tangible relief for manufacturers. Strategic manufacturing sites can be identified regionally, for example by using the same criteria applied to identify essential businesses during the Covid pandemic.

The West Midlands Industrial Energy Taskforce was established by the Mayor, Energy Minister and Mike Wood MP to identify and propose solutions to the energy crisis for West Midlands manufacturing on 3 August 2022. It and has a work programme between now and June 2023, with a first interim report due by November.

Matthew Rhodes, Director of Repowering the Black Country and Chair of the West Midlands Industrial Energy Taskforce said:

“While we welcome the short-term price caps announced by government in the past week, the actions that will make a real difference to our region’s economic competitiveness and energy resilience are support for the industrial energy efficiency and onsite generation.

“This five point plan is an initial response to the urgency of the current crisis and we will be working both with government and industrial stakeholders over the coming months to augment and detail these proposals, but these five points are all obvious actions government could take now.”

The West Midlands Industrial Energy Taskforce was established to identify and propose solutions to the energy crisis for West Midlands manufacturing. It has a work programme between now and June 2023, with a first interim report due by the end of October.

Led by the West Midlands Combined Authority and Repowering the Black Country the taskforce members include MAKE UK, William King, The Coventry and Warwickshire Chamber of Commerce, Thomas Dudley, Westley Group, Jaguar Land Rover, Mondelez International and Repowering the Black Country.

For further information on Repowering the Black Country, visit: www.repoweringtheblackcountry.co.uk

ENDS

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