Aid for Energy Intensive Industries (EIIs) set to increase CfD charges

Aid for Energy Intensive Industries (EIIs) set to increase CfD charges

The effects of the Contracts for Difference (CfD) scheme on energy bills are set to become even more complex.

The Government has issued new guidance on planned exemptions for Energy Intensive Industries (EIIs). It has also started the process of changing the law to allow the exemptions to be provided. While some businesses will see a reduction in charges, the discount will result in higher charges for the rest of the UK.

What are EIIs and how do they benefit?

EIIs are businesses with high levels of electricity usage. They predominantly cover areas such as mining and heavy manufacturing, of which high energy usage is integral to their day-to-day operation.

Plans were set out to reduce the cost of renewable policies on EIIs as part of the Autumn Statement in 2015. Qualifying firms were initially offered compensation from the cost of the schemes as part of a rebate.

What’s changing?

The new scheme for EIIs will see these businesses exempt from paying the bulk of CfD costs. CfD exemption will be for a maximum of 85% of an EII’s volume. It has received State Aid approval from the European Union, but will still require new UK legislation. Similar plans for the costs of the Renewables Obligation (RO) and Feed-in Tariff (FiT) are still under discussion with the EU.

Businesses which believe they could qualify for such support can contact Utilitywise for guidance.

Current expectations are that the CfD exemption will be fully rolled-out by the end of the year. However, the timescale is uncertain, with UK legislation needing to be approved before it can come into force.

What does this mean for non-exempt businesses?

The costs for CfD are passed to bill payers via electricity suppliers. The proposed modifications will not change the overall costs of the CfD scheme, just how it is recovered from bill payers.

EIIs 1

The exemption for eligible EII volume will mean that the costs of the CfD scheme are spread over a smaller consumption base than is currently the case. As such, the unit rate for those who will still have to pay for the CfD will increase. Based on Government estimates of EII exempt demand, the CfD unit rate will rise by around 4%.

EIIs 2

While EII’s will still be paying the higher CfD unit rate on their ineligible volume, their effective unit rate will be lower. They are still using the same volume of electricity, just not being charged for CfD on all of it. It is expected, as with other similar exemption schemes such as the CCL, the unit rate will be reduced on EII bills to reflect the scale of eligible volume that is exempt. The potential impact is illustrated in the table below.

EIIs 3

The latest Government forecasts have suggested a lower impact on final bills than initially expected. This is partly a result of a lower volume of EIIs seeking exemption than previously forecast. However, the actual price impact of the EII exemption is uncertain, as it is not yet clear how many businesses will be taking part and to what degree their electricity consumption will be exempt. The exemption is on the eligible electricity used by the EII. Based on a site’s usage, not all of their metered volume could be considered to be eligible. In addition, this is likely to change from year to year. This further underlines the inherent uncertainty over potential cost imports for final bills, as the volume of those taking part will be highly variable.

We’re here to help

Utilitywise has undertaken its own forecasting in regards to charges for EIIs and businesses. When the changes come into force, it is important for customers to check that their charges correctly reflect the new rates.

Utilitywise has a range of tools and services which can help clients manage their exposure to these and all changes to electricity charges expected.

For more information call 01527 511 757 or email corporate@utilitywise.com.

The following is a list of sectors which can claim for EII status. To secure aid, a business must be in one of these sectors as well as pass an electricity intensity assessment.

EIIs 4

 

Paul Anderson

Posted by on Wednesday, the 5. April at 9.56

Paul Anderson joined Utilitywise in 2000 as a member of the Market Intelligence team.As a Senior Analyst, Paul is responsible for the production of bespoke strategic consultancy projects as well as developing analytical models. This has included a market-leading Triad forecasting model and a fully inclusive delivered energy pricing forecast tool. Paul has an Honours degree in Film and English from the University of Kent.