Network charge relief tabled for heavy industry

Exemptions from policy costs and capacity market charges as well as partial refunds on network charges could be offered to around 300 firms under a government package to relieve energy cost pressures on industry.

The proposals are outlined in a consultation on the British Supercharger Initiative for energy intensive industries (EIIs), which was published yesterday (18 May) by the Department for Business and Trade.

The package proposes increasing the EII exemption from policy costs, such as those related to Contracts for Difference, from 85% to 100%. It also proposes exempting EIIs from suppliers’ capacity market charges on their bills.

In addition, the consultation paper proposes that EIIs should be provided with a partial refund on network charging costs, which would reduce prices by up to £10/MWh.

The combination of these exemptions and reliefs would reduce electricity prices for EIIs by £20/MWh by 2025, bringing them closer in line with those in the UK’s competitor countries, the paper says.

Costs removed from eligible EIIs’ bills will be redistributed to all other electricity billpayers, including households and non-eligible businesses.

But the proposed measures will only implemented following the conclusion of the Energy Price Guarantee and Energy Bills Discount Scheme in 2024, when wholesale prices are expected to have stabilised before falling further.

It estimates that the package will add between £3 and £5 to the average household bill once all measures have been implemented by 2025/26.

Electricity costs for non-eligible businesses will increase by approximately £1/MWh.

The impact on these firms’ bills will depend on the overall size of the business and the amount of electricity they use but will work out at an additional less than one per cent, according to the consultation.

The paper justifies the government’s decision to target support at EII industries by pointing out that the eligible businesses provided 28% of total UK exports in 2019 and employ around 400,000 staff as well as supporting thousands of additional indirect jobs through their wider supply chains, many paying higher than average wages in more economically vulnerable areas.

The consultation also says the government will in 2026 review the eligibility criteria for the EII exemption. This is currently limited to firms, which are exposed to international competitors in lower cost jurisdictions that also pay at least  a fifth of their costs in electricity bills.

Responding to the government’s proposals, Dave Dalton, chair of the Energy Intensive Users Group and CEO of British Glass, said: “We welcome the decision to improve the EII exemption schemes and the proposals to exempt certain energy intensive industries from the capacity market charge.

“These measures will bring our industrial electricity prices more in line with those in other countries and help the competitiveness and decarbonisation of energy intensive industries in the UK”.