EII Exemption SchemeUnder the current EII exemption scheme, high electricity using businesses, such as steel and paper mills, see a proportion of their costs relating to the Contracts for Difference (CfD), Renewables Obligation (RO), and Feed-in Tariff (FiT) made exempt.
The Energy Intensive Industries (EII) Exemption Scheme
BEIS recently released a consultation seeking to review the energy intensive industries (EII) exemption scheme to consider whether there is a rationale for increased measures to mitigate the costs from renewable electricity policies for high electricity using businesses.
Under the current EII exemption scheme, high electricity using businesses, such as steel and paper mills, see a proportion of their costs relating to the Contracts for Difference (CfD), Renewables Obligation (RO), and Feed-in Tariff (FiT) made exempt.
The EII scheme is designed to keep these industries internationally competitive by preventing electricity policy costs significantly adding to energy bills compared with those in other international jurisdictions.
It also aims to limit the risk of carbon leakage where additional costs could discourage electrification of manufacturing processes and slow progress towards the UK’s net zero target.
The costs of funding the CfD, RO, and FiT schemes are recovered through obligations and levies placed on electricity suppliers, which are ultimately passed on to consumers through electricity bills.
The EII exemption scheme currently provides a discount of up to 85% of the indirect costs of these support schemes, with the exempted costs then distributed among the remaining eligible consumers.
However, following a commitment in its recent Energy Security Strategy, the government is proposing to increase the level of exemption from 85% of environmental and policy costs up to 100%, which would see prices for EII eligible companies potentially fall more into line with the EU-14 average. In its current form, the scheme reduces net electricity prices for EIIs by between £19/MWh and £37/MWh on average.
A 95% subsidy intensity would see a reduction in average electricity costs of between £23/MWh-£37/MWh for eligible EII firms, while a 100% reduction would see a reduction of between £34/MWh-£38/MWh. However, it is noted that a subsidy intensity of 100% may lessen the incentive for businesses to invest in energy efficiency, which would support businesses to reduce their energy bills and emissions in the longer term.
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