What is it?
Energy intensive industries (EIIs) are distinguished by their industry sector and electricity intensity, with the government using specific qualifying criteria.
Previously, the most energy intensive companies had been compensated against the varying renewable energy schemes in the GB market. From the end of last year, however, this compensation scheme was replaced with an exemption scheme, whereby these companies would avoid a large percentage of the charges.
Currently businesses with an electricity intensity of 20% are exempt from up to 85% of the costs of the Renewables Obligation (RO) and Contracts for Difference (CfDs). However, the Department of Business, Energy and Industrial Strategy (BEIS) has recently released a consultation outlining six policy options that would widen the eligibility criteria to include more businesses in the exemption.
What does this mean?
Six main options have been proposed for widening the eligibility criteria for EIIs. The highest impact proposal would, according to BEIS’s estimates, exempt just over 8.5TWh of additional electricity from the costs of the renewable subsidy schemes, shifting £300mn onto non-EII consumers’ bills.
The lowest impact proposal would exempt an additional 1.5TWh of electricity and shift approximately £50mn onto other consumers’ bills.
The first three policy options would simply see the current threshold of 20% electricity intensity dropped to:
The second three of the six policy options would also amend the amount of relief those EIIs would receive:
The below table outlines the expected impact of the above options (Policy One is as the counterfactual):
Source: Cornwall Insight
What happens next?
The consultation is open until 7 September and following the close of the consultation period, BEIS will consider the responses and the evidence received.
Until then BEIS is working to the assumed timeline that the CfD exemption (subject to any approvals) could be implemented from 1 April 2019. The RO, however, would not be implemented until 1 April 2020.