The Energy Act 2023: the future of carbon-intensive industries

The Energy Act 2023 represented a significant development in the UK’s energy policy. It introduced measures aimed at reducing carbon emissions across various sectors. One of the key aspects of this legislation is the transformation of carbon-intensive industries, aligning economic growth with sustainability goals. As global climate challenges intensify, the Act provides a framework for industries traditionally reliant on fossil fuels to transition towards more sustainable practices.

 

Power Purchase Agreements (PPAs): Stabilizing Costs, Securing Renewables

The Energy Act 2023 indirectly reinforces PPAs as a critical instrument for industrial decarbonization. By facilitating long-term renewable energy contracts, the Act enables manufacturers to lock in stable energy prices, shielding against fossil fuel volatility while reducing Scope 2 emissions through renewable sourcing.

For example, cement plants that rely on consistent high-temperature processes can now access cost-competitive renewable power through PPAs, supporting the Act’s ambition to reduce fossil fuel reliance. This shift is reinforced by government-backed incentives designed to help industries navigate the increasingly stringent carbon pricing established by the UK Emissions Trading Scheme (UK ETS). Companies securing PPAs also gain preferential access to matching Guarantees of Origin (GOs), simplifying the verification of their renewable procurement in corporate sustainability disclosures.

Under the upcoming Industrial Competitiveness Scheme, electricity cost reductions of up to 90% on network charges will be available starting in April 2026 for energy-intensive industries. These savings build on existing PPAs and green‑levy exemptions. Together, they create a favourable cost environment for operations powered by renewable energy. This change elevates PPAs from a simple hedge to a powerful commercial enabler. Moreover, by bundling PPA volumes across multiple sites, large manufacturers can negotiate even more competitive tariffs, lowering barriers for smaller sub-contractors to join in pooled off-take arrangements.

 

Hydrogen Integration: A Fuel for Industrial Transformation

The Act allocates substantial funding to build hydrogen infrastructure, including electrolysis plants powered by renewables, retrofitting grants for adapting existing furnaces and kilns, and distribution networks to ensure reliable supply chains.

As of mid‑2025, the UK has accelerated this effort: 27 projects were shortlisted under Hydrogen Allocation Round 2 (HAR2), marking substantial progress in scaling renewable-powered hydrogen production. Furthermore, the Green Hydrogen Action Plan secures funding not just for production, but also for essential storage, pipelines, and hydrogen-fired power infrastructure, reinforcing the sector’s investment certainty. These measures are complemented by innovations in compressed and liquid organic hydrogen carrier (LOHC) technologies, enabling more efficient long-distance transport to industrial clusters.

Steelmakers, traditionally reliant on coal-based blast furnaces, can transition to hydrogen-based direct reduction iron (DRI) processes – a shift supported by the Act’s funding for pilot projects and scalability pathways. HPBM (the Hydrogen Production Business Model), first tested under HAR1 (125 MW), is now targeting up to 875 MW of new electrolytic capacity in 2025, ensuring continued growth in availability of clean hydrogen. Early estimates indicate that large-scale hydrogen DRI could reduce steel’s process CO2 by up to 90% compared with traditional blast furnaces, unlocking a pathway to near-zero emissions in primary steelmaking.

 

Sector-Specific Applications: Cement and Steel

Cement Industry

Cement production accounts for approximately 8% of global CO2 emissions, primarily from clinker kilns operating at extreme temperatures. The Energy Act 2023 addresses this through funding for hydrogen-ready kiln retrofits, enabling manufacturers to blend or fully replace fossil fuels with hydrogen. Additionally, PPAs under the Act support electrification efforts, allowing plants to power electric kilns and grinding processes with renewable energy, thereby reducing reliance on coal and gas.

Steel Industry

Steelmaking faces dual pressures from carbon pricing and the EU’s Carbon Border Adjustment Mechanism (CBAM). The Act mitigates these risks by subsidizing electric arc furnaces (EAFs), which use scrap steel and hydrogen-DRI – enabled by PPAs for affordable renewable power. Pilot projects integrating green hydrogen into primary steel production also receive financial backing, positioning UK manufacturers to meet stringent EU carbon standards while avoiding CBAM-related costs.

 

CBAM Compliance: Aligning with the Energy Act’s Tools

The EU’s CBAM enters its definitive phase in January 2026, when importers must begin purchasing carbon certificates for high-emission goods like steel and cement. The UK’s own CBAM is expected to launch in January 2027. UK exporters can leverage the Energy Act 2023 to demonstrate compliance through verifiable decarbonization. By utilizing PPAs to secure renewable energy and adopting hydrogen in core processes, manufacturers lower embedded emissions in exports, aligning with EU requirements. This strategic alignment not only avoids penalties but also enhances competitiveness in a market increasingly prioritizing sustainability.

 

Conclusion: A Blueprint for Industrial Resilience

The Energy Act 2023 is not merely a regulatory shift – it is a strategic blueprint for steel and cement industries to thrive in a net-zero economy. By prioritizing PPAs for renewable energy security and hydrogen for process innovation, the Act equips manufacturers with legally grounded, economically viable pathways to decarbonize. Compliance evolves from a burden into an opportunity, enabling these sectors to future-proof operations and maintain global relevance.

For further insights into how the Energy Act 2023 affects UK businesses, and for sector specific regulatory updates, visit our UK Energy Act 2023 and policy updates hub. If you’d like more information around Corporate Power Purchase Agreements (PPAs) and how they could work for your business, take a look at our interactive cPPa guide.