Update on EII exemption from Renewables Obligation costs

Update on EII exemption from Renewables Obligation costs

Some businesses may soon be able to reduce their energy costs related to the Renewables Obligation (RO), with the Government confirming the details of its plans to exempt Energy Intensive Industries (EIIs) from the bulk of RO charges.

This follows the development of similar plans for an exemption from some of the Contracts for Difference (CfD) costs. However, the exemption will come at a cost for all other consumers, with the result being higher Renewables Obligation and CfD charges for non-EII businesses.

EIIs are businesses with high levels of electricity usage relative to their output. They predominantly cover areas such as mining and heavy manufacturing, of which high energy usage is integral to their day-to-day operation. An exemption from charges under the Renewables Obligation scheme was granted EU State Aid clearance last month. It is on track to come into force on 1 January 2018 and will run for a ten year period. It will allow eligible business to be exempt from the RO costs from their supplier on up to 85% of their electricity consumption.

The start-date, however, is subject to Business, Energy and Industrial Strategy (BEIS) publishing a revised 2017/18 obligation level by 31 October 2017. In case the government department does not meet this deadline, BEIS said that the “intention is that the exemption will come into effect from the start of the fourth month after the necessary approvals have been obtained and a revised Renewables Obligation is published.” In a similar way, the CfD exemption for EIIs is still pending new UK legislation to allow it to begin, even though EU State Aid has been provided.

Will this impact energy bills?

As a result of the RO exemption, households will see a rise in their electricity bills from 0.2% to 0.7%. Non-exempt businesses bills will also see an increase from 0.2% to 0.6% over the period of the exemption (2017/18 to 2027/28).

The actual RO element of energy bills, without exemption, is estimated to average £17.40/MWh (2016 prices) over the ten year period, rising to around £18.20/MWh when including the exemption for eligible EIIs.

The RO exemption will not be introduced in Northern Ireland from the outset, but it might be included in the future.

The Government had also been seeking EII exemption from the Feed-in-Tariff (FiT), but this has not yet received EU State Aid approval.

Renewables Obligation exemption

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Ross Moffat

Posted by on Wednesday, the 26. July at 12.34

Ross Moffat has been a part of the Market Intelligence team at Utilitywise since early 2014. His responsibilities include delivering Market Intelligence reports to clients and managing the Utility Insights Twitter account. Ross has a first class Honours degree in Business and Marketing from the University of Stirling.