As part of the drive towards a low carbon economy, the government has introduced several policies in recent years to help pay for the transition towards a more sustainable future. However, as a result of these policies, many Energy Intensive Industries (EIIs) had found that the cost of their electricity uncompetitive, compared to their European counterparts.
To ensure that EIIs in the UK remain competitive, the government is introducing exemptions for businesses with EII status to some Third Party Charges (TPCs). These exemptions will apply to Renewables Obligations (RO), Contracts for Difference (CfD) and the Feed-in-Tariff (FiT) schemes. To cover the cost of these exemptions, TPCs for non-EII businesses will be increased.
What are EIIs?
EIIs are industries, such as heavy manufacturing, mining and engineering, that use significant energy as part of their standard production processes. The full list of eligible industries can be found here.
To be classed as an EII, businesses have to apply to the government for EII status and will need to have a total energy expenditure that accounts for more than 20% of their total site costs.
Why are EII exemptions being introduced?
Due to the significant amount of energy used within their business processes, EIIs have found that electricity costs contribute a considerable amount towards their overall production costs. This situation has lead to concerns that the overall cost of energy needed to maintain ‘business as usual’ production levels was not competitive.
How do EII exemptions work?
Businesses that are granted EII status will have their RO and CfD charges reduced by a maximum of 85%. Approval has already been awarded for RO and CfD exemption schemes, with the CfD exemption rolled out in December 2017. Approval is still pending for FiT exemption costs.
The exemptions replace the current rebate scheme in place, where EIIs receive some of their energy costs rebated from the government. Businesses with EII status will have the costs removed from their energy bills automatically, which means that they’ll no longer need to pay upfront before requesting their rebate on up to 85% of their electricity consumption.
There is, however, no backdating to EII exemptions, so the reduction will only be applied once EII status is confirmed by the government and the energy supplier has been updated.
What are the benefits of EII exemptions?
The Department of Business, Energy and Industrial Strategy (BEIS) predicts that EII exemptions will help in excess of 130 heavy energy users by saving them approximately £100m a year in energy costs.
What is the impact on non-EII exempt businesses?
The revenue previously generated from the TPCs applied to EIIs will now be passed onto other businesses and consumers. This change will result in an estimated energy bill increase of between 0.2% and 0.6%. And, as TPCs are already due to increase over the coming months and years, non-EII exempt businesses will need to look at energy efficiency measures to mitigate this rising cost.
How can E&CM help?
Whether your business is exempt or not, the non-commodity costs built into your energy contracts are set to change – read our Third Party Cost Calculator to find out how what charges could be affecting your business.
Now is the time to ensure your energy procurement and management strategy is working for your business, and will continue to do so once changes come into force. If you’d like to talk to us about how we can help you, call us today on 0330 166 4444 or send us an enquiry here.