Energy intensive industries (EII) will be made exempt from the costs of the Renewables Obligation (RO) from 1 April 2018, after the government published a revised RO for 2018-19.
Published on 18 December, the revised RO is to be set at 0.468 Renewables Obligation Certificates (ROCs)/ MWh of electricity produced from April 2018. The RO requires suppliers to source an amount of electricity from renewable sources.
This represents a 3.5% increase from the previous level of 0.452 ROC/ MWh, before the exemption for energy intensive industries was applied.
In November, the draft Renewables Obligation (Amendment) (Energy Intensive Industries) Order 2017
won cross party backing and was agreed in the Commons. With the government publishing the revised RO, the exemption can now take effect.
Threat to Competitiveness
The government has sought to introduce the exemption as the costs of renewables schemes can impact the competitiveness of the UK’s energy intensive industries.
For example, it explained within its impact assessment published in July that competing businesses in other countries may not be subject to similar energy and climate change policy costs.
The exemption is an attempt to lower the cost disadvantage facing British EIIs, when compared to EU and international competitors.
It said that EIIs would be exempt from up to 85% of the indirect costs of the RO, therefore forecasting the amount of EII excluded electricity supplied to customers to be at 9.9TWh.
The exemption has not been introduced for Northern Irish businesses, but government said it may be extended to NI in the future.
Small Business Impact
While the exemption will benefit heavy industry, it will consequently also impact non-exempt smaller businesses upon taking effect.
In its July impact assessment, the government forecast that EIIs would save around £196mn annually.
However, using the government’s best estimates, non-exempt, smaller business energy users will face an annual increase of around £160 in costs.
Meanwhile, medium-sized businesses are to see costs grow by circa £6,700, with large-sized energy users dealing with additional costs of £62,900 as a result of the exemption.
The exemption for heavy industry will result in small per unit cost increases for other customers, including both households and business.
It remains to be seen when or whether similar exemptions will be introduced for the costs of the Feed-in Tariff scheme.