The Government has declared that it is committed to moving to a low-carbon economy and meeting its carbon reduction and renewable energy targets however, the indirect cost of supporting renewable electricity deployment measures, such as the Renewables Obligation and Feed-in Tariff, risks certain energy intensive industries being placed at a significant competitive disadvantage where they operate in international markets. These industries are often large employers and form a vital part of the UK economy. Current support includes a compensation scheme for the indirect costs of the RO and FIT.
In the Spending Review 2015, the Chancellor stated that the government will move to provide an exemption for Energy Intensive Industries, including the steel industry, from the policy costs of the Renewables Obligation and Feed-in Tariffs, to ensure that they remain competitive. DECC has launched a consultation to seek views on how the Government proposes to implement the exemption.
Transitioning from a compensation scheme to an exemption would have a number of benefits for energy intensive industries, notably that support will be faster, more accurate and more certain. Once implemented, the exemption will reduce the electricity bills of eligible energy intensive industries. There will be a consequent increase in the electricity bills of consumers not eligible for the exemption (i.e. households, businesses and non-eligible large energy users). The Government has stated that, the increase for non-exempt consumers should be considered in the context of the action already taken and that is planned to increase competitiveness in the electricity supply sector to reduce overall consumer bills. The Government claims that, even with the exemption, there will be an overall decrease of £30 on average household bills.
This consultation, launched by The Department for Business, Innovation and Skills, sets out how the Government proposes to implement the exemption. Subject to stakeholders’ views, state aid approval and Parliamentary approval, the government intends to bring the changes into effect in April 2017. In summary, it proposes to:
- change each scheme so that a supplier’s market share does not include a certain portion of its supply to each (if any) of its eligible EII customers;
- make the RO and FIT scheme exemption available to the same EIIs that are eligible for the existing RO and FIT compensation scheme and CFD exemption; and
- implement the exemption in relation to the FIT scheme in Great Britain and in relation to the RO in England and Wales.
Backdated compensation is also being explored in the consultation. The aim of the change will make the regulatory processes more transparent, more straightforward, will reduce the burden on businesses and would provide them with greater clarity about their finances. According to a recent survey, nearly three quarters (74%) of businesses are unaware of government consultation on energy exemptions from green energy tariffs for energy intensive industries. It is vital that those affected share their views.
The Department for Business, Innovation and Skills is seeking views on all aspects of the proposed changes and has specifically asked the following questions:
- Do you agree that the main benefit to energy intensive industries of implementing the exemption through changes to the RO and FIT legislation are greater certainty, more accurate and faster support, compared with the current compensation scheme?
- For non-exempt businesses, to what extent do you think the estimated increase in electricity bills will affect competitiveness and decisions regarding output, employment and investment?
- Should the RO and FIT scheme exemption be available to the same industries that are eligible for the RO and FIT scheme compensation scheme and the CFD exemption currently?
The deadline for response is 27 May 2016. We are formulating our response to the consultation and would welcome your feedback to incorporate into this. To have your say, please email the compliance team at compliance@carbon2018.com or alternatively complete the contact form. To discuss this further please call Melanie Kendall-Reid on 01252 87 87 22.