Energy Intensive Industries (EIIs) update following the latest move towards an exemption scheme

After various steps towards an exemption scheme for Energy Intensive Industries (EIIs), we look at the progress that’s been made and what’s to be expected next for the industry sector

Background

Energy Intensive Industries (EIIs) are distinguished by their industry sector and electricity intensity, with the government using strict qualifying criteria. Eligible sectors include (but are not limited to) steel, chemicals, and engineering; those industries in which energy usage makes up a significant part of the product cost.

While the UK is committed to cutting greenhouse gases and helping businesses reduce their carbon footprint, it creates a cost differential on energy prices compared to other countries.

For EIIs this would result in significant costs therefore over recent years the government has run a compensation scheme whereby EIIs can receive back 85% of their renewable obligation (RO) and their feed-in tariff (FiT) costs in a bid to encourage them to remain part of the UK economy.

In the 2015 Autumn Statement the government announced it intended to reduce the impact of renewables policies even further for EIIs. This proposal will see the compensation scheme replaced by an exemption scheme, which was originally was targeted for implementation in April 2017.

Impact

Whilst the CfD exemption was given State Aid approval by the EU, the RO and FiT schemes took longer to achieve this. However, State Aid approval was finally granted to the RO in July 2017. The FiT approval currently remains outstanding, due to the increased complexity when dealing with a scheme that is still open to new applicants.

Having achieved State Aid approval BEIS then presented the legislation before parliament with the aim of introducing the exemption from January 2018. For this to happen, however, parliamentary approval was required before the end of October 2017 and BEIS also needed to release the revised obligation targets for the RO.

Parliament approved the legislation before the end of October 2017 but this didn’t  give BEIS enough time to implement the revised targets for January 2018. Therefore, whilst the CfD exemption will be in place from early November, for the RO it depends on when the revised targets are published. As per the contingency BEIS outlined in their consultation response it will be four months from when this is done, therefore the earliest possible date is now 1 March 2018.

 

 

With regards to the impacts that this may cause, the table highlighted is taken from BEIS consultation response issued in July 2017. It shows one of their estimates on additional costs to non-exempt businesses are estimated to increase average annual electricity bills by around 0.2% to 0.6% over 2017/18 to 2027/28.

The RO costs without exemption are estimated to be over the same period equivalent to around £17.40/MWh (2016 prices) on average over the ten year tenure and could rise, on average, to around £18.20/MWh when including the exemption for eligible EIIs.