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A group of industrial companies has written to energy minister Kwasi Kwarteng to warn they may be forced to install their own private pipelines to bypass the gas transmission network unless they are relieved from a “crippling” rise in charges.
The companies said the increase will be “extremely damaging” for the affected businesses and leave them with a competitive disadvantage to international rivals.
The letter was written by Philip Aldridge, chief executive of the North East Process Industry Clusters, and signed by five companies operating industrial facilities in the Tees Valley area – Sembcorp Energy UK, BOC, CF Fertilisers, Huntsman Polyurethanes and Lucite International. Owing to their close proximity the Easington gas terminal, the companies have enjoyed a discounted short-haul tariff for several decades.
In May, Ofgem approved an overhaul of the charging regime for gas transmission that was intended to reduce variation in prices between different points of entry to and exit from the network. The modification to the Uniform Network Code also removed the short-haul tariff without a replacement.
At the time, Ofgem recognised the possible need for such a tariff to avoid bypass of the transmission network but said a replacement was not contained within the specific modification it chose to approve and that none of the others were acceptable.
The following month, National Grid Gas Transmission submitted a further code modification reintroducing a short-haul tariff, and in July, Ofgem granted urgent status to the proposal named UNC728.
However, with the new gas transmission charging regime coming into effect today (1 October), the regulator has still not made a decision on whether to approve the modification. The group of companies writing to Kwarteng criticised this “inaction” as “unacceptable”.
“The reality is this – significant employers in the region could be under threat,” their letter stated. “The loss of short haul would be extremely damaging for both businesses and the region, whilst coming at a time when important net zero investment decisions are being taken to safeguard existing and create new highly skilled jobs in the local area.”
It continued: “As a significant chemical producing region, we ask that you make urgent representations to Ofgem on the introduction of a replacement for short haul to keep affected energy intensive industries on Teesside, and in the UK, on the national gas grid.
“As a minimum, we request your support in seeking early certainty to modifications to allow vital businesses in the region to work towards mitigating the significant impact of a potential new gas transmission charging system.”
Responding to the letter, Ofgem said: “We considered the impact of our gas charging decision on all types of energy consumers, including industrial and commercial users. The overall the change will deliver benefits to consumers of over £3 billion over the next ten years.”
The regulator said it is “acutely aware” that some network users urgently want a replacement for the short haul tariff but added that it needs to complete an impact assessment before reaching a decision due to the significant sums of money involved.
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