The Government introduced a number of policies to help the UK meet its low carbon targets. While effective in driving renewable growth, these did increase electricity prices, making UK prices higher than other countries.
To ensure energy intensive industries (EIIs) in the UK were competitive with their EU counterparts, the Government proposed they should be exempt from some third party charges (TPCs). The cost of the exemption would be paid for through an increase in cost for non-EII businesses.
The Government proposed that EIIs should be exempt from the costs of the Renewable Obligations (RO) scheme, the Contracts for Difference (CfD) scheme and the Feed-in Tariff (FiT) scheme.
EIIs are Energy Intensive Industries. These include sectors such as mining, steel, engineering and heavy manufacturing. They are distinguishable by their trade and electricity intensity. Energy usage makes up a significant proportion of production costs for these businesses.
Before implementing the exemptions, each needed State Aid Approval from the European Commission. Currently, EIIs receive compensation from the cost of these schemes (i.e. they pay but receive compensation from the Government). This may change to direct exemption at source in early 2018 if approved by European Parliament.
In June 2017, State Aid Approval was received to exempt EIIs from the indirect costs of the RO scheme. Shortly after, the Department for Business, Energy & Industrial Strategy (BEIS) published the response to its consultation. The intention is to implement the RO exemption from Q1 2018 once parliamentary approval is received.
The CfD scheme exemption received Parliamentary approval in Q4 2017. EIIs are now starting to receive their exemption certificates and as a result, the cost of CfD will gradually increase as more certificates are issued.
Under this exemption, EIIs such as metal casting, heavy manufacturing and mining will benefit. Non-exempt customers will cover the cost of the exemption, resulting in price increases for non-EII businesses.
BEIS expects the measures to benefit over 130 companies and save heavy users around £100m a year in energy costs. The total energy exempt volume will be around 10TWh per annum.
We believe that, once implemented, the EII exemption will add an extra £0.25/MWh to the small scale Feed in Tariff (ss-FiT), £0.75/MWh for Renewables Obligation (RO), and around £0.15/MWh for Contracts for Difference (CfD).
Once all exemptions are implemented, this cost will be recovered through customer charges. So that you can forecast and manage cost increases, we’ll keep you up to date with any changes associated with EII exemption.
Our Complete product gives customers the opportunity to fix their energy price, so they don’t end up with any unexpected changes. Complete includes the predicted costs of EII exemption, giving businesses the budget certainty they need.
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