Energy prices may have fallen from their summer 2022 high, but many businesses are not yet seeing a reduction in costs. The net zero transition and the rising price of carbon is another challenge for energy-intensive businesses. Because the UK government wants businesses in Energy Intensive Industries (EII) to remain competitive, it is offering various forms of support. We’ve outlined them here.
British Industry Supercharger
In February 2023, the government announced a set of measures it coined the “British Industry Supercharger (BIS)”, with the aim of making Britain’s strategic EIIs more competitive across Europe and tackle the challenge of indirect carbon leakage. The package of support is aimed at reducing electricity costs for EIIs by £20/MWh by 2025.
The measures are:
- An increase in the subsidy under the existing EII Renewable Levy Exemption scheme from 85% to 100% aid intensity, which is anticipated to amount to around a £5/MWh reduction from current levels. This is due to be implemented in April 2024. See our separate section on this below for more details.
- Capacity Market Charges Exemption: A new, full indirect exemption from the costs associated with the UK Capacity Market, which is also anticipated to amount to around £5/MWh. Details are being consulted on at the moment, but it is expected to be implemented in 2024.
- EII Network Charging Cost Compensation: A proposed compensation for the charges paid for using the GB electricity grid to reach a £10/MWh reduction. This is proposed to be implemented in April 2025, and details of delivery will be consulted on in June 2023.
The EII Renewables Levy Exemption Scheme
What is the EII Renewables Levy Exemption scheme?
The UK government has three main schemes for supporting the delivery of new renewables: Contracts for Difference, Renewables Obligation and Feed-In Tariffs. It pays for these schemes through levies on electricity suppliers, who then pass the costs on to customers. The problem for energy-intensive businesses is these additional costs add roughly £43 to every MWh consumed. This could potentially leave to counterproductive outcomes like UK businesses going to the wall or moving overseas. The government offers the EII Exemption Scheme to reduce this risk.
The scheme currently (May 2023) provides a discount of up to 85% of the indirect costs of the three schemes. The government has confirmed that this will increase to 100% aid intensity in April 2024, which is anticipated to amount to around a £5/MWh reduction from current levels.
Who benefits from the Renewables Levy Exemption scheme?
Businesses operating within energy-intensive sectors in England, Wales and Scotland can benefit from the EII exemption scheme if they meet all the criteria. The EII exemption scheme does not operate in Northern Ireland.
Does my business qualify for the Renewables Levy Exemption scheme?
Businesses must meet a number of tests to qualify for the EII exemption scheme.
- The Sector Level Test. This means your business must carry out one of the activities the government deems to be eligible. These all have an electricity intensity of at least 7% and are subject to international competitive pressures. The full list of eligible activities is listed in Annexe 1 of the official guidance.
- The Business Level Test. The business must demonstrate that its own electricity intensity is 20% or over – that is, its electricity costs amount to 20% or more of its Gross Value Added (earnings before taxes, interest, depreciation and amortisation) over a specified reference period.
- The business must have at least two quarters of financial data.
- The application for EII exemption must include evidence of the proportion of electricity needed to manufacture the product for at least three months.
How do I apply for the Renewables Levy Exemption Scheme?
Download and fill in the forms on the government website. (Read the full official guidance first.) If your application is successful, you will be issued with a certificate confirming your exemption. Then you should pass this certificate on to your electricity supplier so that they can pass on the exemptions in future bills.
What if my business carries out a mix of activities?
You will be eligible for the EII exemption scheme, but only in proportion to how much of your activity is eligible under the government rules. You will ideally need to calculate exactly how much electricity your business consumes in relation to eligible products and/or processes and show evidence of this in the form of records from your meter.
If that isn’t possible, you could alternatively calculate the proportion of your activity that relates to the eligible product and then base the proportion of electricity usage on that. For example, if your output is 60% non-woven fabric (not apparel) and 40% apparel, you could estimate that 60% of your electricity use is eligible for the exemption.
What if the business dramatically reduces its electricity consumption because of exceptional circumstances?
The rules recognise that unusual circumstances, such as a flood or fire, may drastically reduce the electricity consumption of a business to below a point where it passes the Business Level Test. If these circumstances were beyond the company’s control and not foreseeable or avoidable, you may still be able to get an EII certificate. You will need to supply evidence of whatever impacted your business (the so-called force majeure).
If COVID had a negative impact on your business’s energy usage, you are allowed to exclude the financial years for 2020 and/or 2021 from the data you supply in support of your application.
What is likely to happen with the Renewable Levy Exemption scheme in future?
In a consultation response published in May 2023, the government confirmed that there will be an increase in the subsidy from 85% to 100% aid intensity in April 2024, which is anticipated to amount to around a £5/MWh reduction from current levels.
Energy Intensive Industries Compensation Scheme
What is the EII Compensation Scheme?
Carbon pricing and emissions trading schemes increase costs for electricity generators because they have to buy allowances for the emissions they cause. These costs are then passed on to consumers, and energy-intensive industries pay more because of their higher consumption. This could lead to a significant price differential between the UK with its emissions trading scheme and countries which have lower or zero pricing for carbon. The EII compensation scheme is designed to help UK businesses stay competitive globally and reduce the risk that they will move overseas to territories with a lower carbon price.
Who benefits from the EII compensation scheme?
Businesses in certain energy-intensive sectors are eligible for the scheme. You need to establish that you manufacture a product which has one of the relevant SIC (standard industrial classification of economic activities) codes. The categories are updated periodically and listed in the official guidance.
The EII compensation scheme does not operate in Northern Ireland.
Does my business qualify for the EII compensation scheme?
To qualify for the scheme, as well as being in an eligible sector, your business has to pass the “5% test”. This means proving that the indirect carbon costs of the business amount to more than 5% of its Gross Value Added. Calculations should be based on the most recent five years of accounting data, unless a business has been operating for less time than this. The official guidance has information on how to calculate this.
How do I apply for the EII compensation scheme?
The official guidance has details on how to apply and worked examples to help you calculate the compensation due to your business.
What if my business carries out a mix of activities?
As with the EII exemption scheme, your business is still eligible, but only in relation to the proportion of its activities which count as eligible. As with the exemption scheme, you will need to identify the proportion of electricity usage which is connected to producing eligible products, ideally through metered records.
Industrial Energy Transformation Fund
What is the Industrial Energy Transformation Fund?
The Industrial Energy Transformation Fund (IETF) is funding to help businesses with high energy usage to cut their consumption through investment in energy efficiency measures and low carbon technologies. Phases 1 and 2 are now closed, but IETF Phase 3 will launch in early 2024.
Who benefits from the IETF?
The IETF is for businesses with specific projects designed to cut industrial energy use. Phases 1 and 2 allocated money for feasibility studies, industrial energy efficiency projects and deep decarbonisation technologies. It is not clear exactly how the funding for Phase 3 will be allocated, but there will be a consultation in late 2023 on the design of this phase.
Businesses in England, Wales and Northern Ireland can apply for the IETF. Businesses in Scotland can apply for the Scottish Industrial Energy Transformation Fund (IETF) instead.
Does my business qualify for the IETF?
For Phases 1 and 2, only businesses in specific sectors were eligible: mining and quarrying, manufacturing, recovery and recycling of materials and data centres. It is likely that this will also be the case for Phase 3, so your business will need to have one of the eligible SIC codes.
How do I apply for the IETF?
You can’t apply right now, but keep an eye on the Energy Advice Hub for the consultation on Phase 3 later this year and the opening of applications early next year. Phase 3 will be worth £185 million in funding.
Climate Change Agreements
If your business holds a Climate Change Agreement (CCA), you can receive a discount on the Climate Change Levy (CCL) which is otherwise automatically added to your energy bills. A CCA is a voluntary agreement between your business and the Environment Agency to reduce its energy use and carbon emissions. If you achieve your target, you get a discount on the CCL portion of your bills.
Who benefits from Climate Change Agreements?
As with other schemes, your business must carry out eligible activities as listed in Appendix A of the operations manual.
How do CCAs work?
There are two kinds: umbrella agreements and underlying agreements. Umbrella agreements apply to a whole sector and is managed by your sector body – for example, the Metal Packaging Manufacturers’ Association. Underlying agreements are held by an operator for a specific site, or group of sites. The targets for these are calculated based on the metrics in the umbrella agreement for the sector.
How do I apply for a CCA?
If your industry has a sector association, approach them because they will be managing the agreements for your sector.
The window for individual business to apply for CCAs is currently closed, but the government has confirmed there will be an extension of the scheme, with new targets in place from 1 January 2024 to 31 December 2024. As in the previous scheme, targets against those requirements allows participating businesses access to reduced rate of CCL until 31 March 2027. The government is currently consulting on the design of this CCA scheme extension, we should know more soon.
Energy bill support for ETIIs
In April 2023, the UK government replaced the Energy Bill Relief Scheme with the less generous Energy Bill Discount Scheme (EBDS). Organisations classed as Energy and Trade Intensive Industries (ETIIs) may be eligible for greater support under this new scheme. These kinds of firms don’t automatically; they will need to apply.
Who is eligible for ETII energy bill support?
Organisations must be UK-based and able to prove that at least 50% of revenue generation is from UK-based activity within eligible SIC code sectors.
Local Authority sites may also be eligible for support under the scheme, including libraries and museums.
What support is available?
Organisations will receive discounts based on the difference between the price threshold and the relevant wholesale price, which are listed as follows:
- Electricity – £185 per MWh
- Gas – £99 per MWh
Only 70% of energy volumes will be eligible for this discount, which has a “maximum discount” of £40/MWh for gas and £89/MWh for electricity. The remaining 30% will receive the baseline level of support where customers wholesale price meets the baseline eligibility criteria.
Read our full guide to ETII energy bill support.
“Non-standard customer” energy bill support
“Non-Standard Customers”, or NSCs, can also apply for help with their bills from April 2023 to March 2024, similar to the support others will receive under the government’s Energy Bills Discount Scheme (EBDS).
Non-standard customers are those in Great Britain and Northern Ireland that consume gas or electricity supplied by wire or pipe from a license-exempt supplier, for which they pay a price that is pegged to wholesale energy prices. Customers include some public sector organisations and energy intensive industries, such as steelmakers, recycling plants and manufacturers.
Backdated support is available too
NSCs can also apply for backdated support under the previous Energy Bill Relief Scheme (which supported firms through a tough winter, and ended in March 2023). It applies to those that get their licence-exempt supply from the public grid, as well as those that get a licence-exempt supply from waste, anaerobic digestion and biomass plants.
The government is urging companies to check their eligibility on GOV.UK.
Should we look into applying for NSC support now?
Yes. The claims window is open now and it is possible to backdate your claim as far back as October 2022. Since this is a new and complex scheme, it makes sense to read the technical guidance first and get in touch with your QEP about its application on your behalf.
If you’d like to know more about any of these schemes and how you can benefit, get in touch for advice.