Energy Intensive Industry (EII) Support Levy - EIC Partnership

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Energy Intensive Industry (EII) Support Levy

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Ashley Game

Insight Analyst

Overview

In February 2023, the UK government announced the British Industry Supercharger (BIS) with the intention of making Britain’s energy intensive industries (EII) more competitive across Europe. The BIS is set to benefit around 300 companies, employing 400,000 skilled workers in vital sectors including steel, metals, chemicals and paper.

The BIS is comprised of 3 measures which will together address the areas of the domestic energy system which currently contribute to higher electricity costs for EIIs than comparable countries. This includes an increase in the subsidy under the existing EII Renewable Levy Exemption scheme from 85% to 100%, a new full exemption from the indirect costs associated with the GB Capacity Market, and a proposed EII compensation scheme for network charges.

In October 2023, the Department for Business and Trade (DBT) published the outcome of its consultation on a Network Charging Compensation (NCC) scheme and Energy Intensive Industries (EII) Support Levy (ESL). They confirmed that the NCC scheme will allow EIIs to claim back 60% of TNUoS, DUoS and BSUoS costs from government which will be funded by a new levy (ESL) on other end users.

Energy Intensive Industry (EII) Support Levy

What this means for Energy Intensive Industries

Previously, EIIs received 85% exemption from Renewable Obligation (RO), Feed-in Tariff (FiT) and Contracts for Difference (CfD) charges. From April 2024, EIIs will receive 100% exemption from RO, FiT, CfD and Capacity Market (CM) charges.

Subject to getting the necessary legislation in place, the NCC and ESL will launch in April 2025 with support for EIIs backdated to April 2024. This will see EIIs compensated for 60% of their network costs, which includes Balancing Services Use of System (BSUoS), Transmission Network Use of System (TNUoS) and Distribution Network Use of System (DUoS).

The government has modelled that the provision of compensation on 60% of network costs would equate to an average saving of £14/MWh off electricity bills. This is in excess of the £10/MWh in relief that the policy was intending to offer when it was initially developed and modelled.

The government’s view is that the 60% compensation offered will ensure that eligible EIIs will receive an average electricity price reduction of £24-31/MWh once all the measures in the Supercharger are implemented. This level of reduction will bring industrial electricity prices down to an internationally competitive level.

What this means for non-EIIs

With EIIs being exempt from contributing towards all renewable levy costs and some network costs, all other users will see an increase to the £/MWh rate they are charged. This compensation will be paid through funds raised from the new EII Support Levy. This levy will be charged to suppliers based on volumetric market share, so it will be included in the unit rate in customer offers. 

The government has estimated that providing 60% compensation on network costs would ensure that the redistribution of costs of the British Industry Supercharger would not exceed £3 to £5 annually for household consumers and £1/MWh for non-domestic consumers.

Based on internal modelling, the government estimates that it will need to raise between £190 million to £260 million per annum or £16 million to £22 million per month in order to compensate EIIs for 60% of their network charging costs. When divided across all non-EII demand, this represents an increase of £0.8-1.1/MWh on bills.

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