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Assured Energy Outlook: Issue 22 – July 2018

Government could increase energy bills by exempting industry from cost of renewables

The government has proposed to widen a scheme that exempts some energy-intensive industries (EIIs) from paying the indirect costs related to renewable subsidy schemes. Through a consultation launched 22 June, the changes would allow a greater number of EIIs to avoid fees for Contracts for Difference (CfD) renewables auctions, the Renewables Obligation (RO) for large-scale renewable electricity projects and, if introduced, Feed-in Tariff (FiT), costs which support small-scale renewables.

The government is seeking views on the potential competitive distortions that it believes could have resulted from the current threshold for exemption of 20% electricity intensity. To address any distortions, it has asked whether the threshold should be decreased to 17%, 15% or 10%. Newly eligible businesses would see electricity bills decrease by an estimated average of £2.8mn/ year per business.

However, such a move would create an additional cost burden for those that are not exempt to cover the funding shortfall. If the 10% threshold is adopted, it was estimated that the average annual bill would increase by £300 for a small business, £12,000 for a medium-sized business and £110,000 for an ineligible energy-intensive industry business. The government is therefore also seeking views on how these additional costs can be minimized for non-eligible consumers as well as how the operation of the exemption schemes can be improved. The consultation closes on 7 September.

Laura Cohen, Chief Executive of the British Ceramic Federation, said the lobby group was “disappointed not to see clearer proposals to benefit UK competitiveness on energy for ceramics and other energy-intensive industries”.


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