Business energy regulatory changes 2018: an essential overview

30 April 2018

From April 2018, significant energy reform changes are coming into effect, some of which could impact your business.

Here, we’ll highlight the changes to energy regulation you need to know about, as well as information on how they could affect your existing business energy contracts. 

Energy Intensive Industries (EIIs)

From 1 April, any business that is deemed to be in an Energy Intensive Industry can receive up to 85% exemption on the costs of the Renewables Obligation (RO). Businesses that fall under the Energy Intensive Industry banner include (but are not limited to) those involved with mining, steel, engineering and heavy manufacturing. They are businesses that consume a lot of energy, so their resulting electricity costs make up a considerable proportion of their production costs. 

energy intensive industries

EII exemption is coming into effect as a means of ensuring the UK can meet its low carbon target, and that the country can compete with its EU counterparts. However, electricity prices will also rise, making UK prices higher than in other countries. 

Contract for Difference (CfD) exemptions started back in November of last year, while the Renewables Obligation (RO) exemption began at the start of this month. If your business qualifies as part of an EII, it can claim exemption from both of these. Feed-in-Tariff exemptions still require the approval of State Aid, which the other two exemptions already have. The Government has been in discussion with the European Commission for approval, but it looks unlikely anything will come into effect before April 2019.

Non-EII businesses won’t qualify for rebates, with the cost of this scheme effectively being paid for by all non-EII exempt electricity users across the UK rather than by the government. Revised RO levels for non-EIIs were issued at the end of 2017 and can be found here. 

demand residual values

Changes to the demand residual value for embedded generators

Towards the end of last year, Ofgem approved the Connection and Use of System Code (CUSC) modification CMP 264/265, which altered the way the demand residual element of TNUoS was calculated, greatly reducing the value given to embedded generators in the process.

 After two open letters, Ofgem conducted a review where it found that transmission charges and Triads are expected to rise significantly, growing from the current standing of £45/kW to a potential of £70/kW by 2020/21 if this modification isn’t implemented. As a result, there could be serious distortions if these TNUoS Demand Residual payments to embedded generators continue to rise.

Ofgem has proposed that the reduction of TNUoS Demand Residual payment as an embedded benefit be set to the value of the Avoided GSP Infrastructure Credit (AGIC), which is currently £1.62/kW. Despite the pushback, Ofgem has won a High Court challenge allowing them to proceed with their implementation proposal, which will reduce triad payments by a third each year over a three-year period until the demand residual only consists of the AGIC.

business workers discussing energy

Meanwhile, the Judicial Review process seeking to overturn this decision is expected to commence from the end of April 2018. This is expected to take several months and, if the challenge is successful, would require Ofgem to undo any of these changes. 

If the Judicial Review finds in favour of Ofgem and the change is implemented, Ofgem intends to replace the current net charging of the TNUoS demand residual charges with a new structure where demand is measured on a gross basis. Embedded generators would recoup the new demand residual embedded benefit through an explicit ‘embedded benefit tariff’ which is applied to smaller embedded generator exports on a gross basis. 

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