The high cost of energy for UK industry compared to other countries has long been a source of pain; Inenco analysis published in December 2018 confirmed that manufacturers had faced ten years of successive price rises and forecasts predict costs to continue rising over the short to medium term, fuelled predominantly by the taxes, levies and system charges increasing to fund the transition to low carbon energy infrastructure. In fact, the analysis revealed that some organisations could find energy bills increase by as much as 50% in 2020 compared to 2016 prices.
To enable energy intensive users to compete on a global market against organisations with lower energy costs, the UK Government offers Energy Intensive Industry (EII) exemptions on some low carbon levies to those businesses with an electricity expenditure of more than 20% of total site costs – exemptions believed by BEIS to be worth over £100 million to UK industry.
However, even those organisations are not shielded from rising energy prices: despite a 36% saving through EII exemptions, total energy costs could still rocket by as much as 40% in 2020 compared to 2016 levels. Such an increase will only compound the issues of economic uncertainty and market supply for the UK’s steel industry.
The exemptions relieve organisations of up to 85% of the Contract for Difference (CfD) and Renewables Obligation (RO) costs. Organisations can claim rebate compensation against the cost of the Feed-in-Tariff (FiT) scheme, although this may also be changed to a straightforward exemption scheme.
Government has consulted upon widening the thresholds for these exemptions to lower the 20% site cost eligibility criteria. Leaving the EU would also open up the potential for more industries to be added to the current qualifying list of 50 that can apply for an exemption (an attempt to broaden this list has previously been thwarted due to EU state aid rules). This could help to alleviate the high cost of energy for many more organisations, although it would mean the cost of energy would rise for all other business energy users across the UK to absorb the changes, including sectors such as retail who are also experiencing squeezed margins and tough economic times.
Industrial energy users have also been able to sign up to a Climate Change Agreement – a voluntary scheme to reduce carbon emissions in order to receive an exemption of up to 93% of the Climate Change Levy (CCL). The cost of the CCL increased significantly in April 2019 (by 45% for gas and 67% for power), making Climate Change Agreements a valuable tool, although the scheme is currently under review and not available for new entrants.
Rising energy costs are having an impact on the bottom line of all manufacturers, so it would pay for any organisation to take action, regardless of size or industry. Inenco’s top recommendations for industrial users are:
Industrial energy users may not realise that they are eligible for exemptions – these are not applied automatically and payments cannot be backdated. The impact of rising energy costs could have pushed more businesses into the 20% threshold, so it pays to check whether any sites are eligible to receive the relief. Inenco has a team of compliance experts that can make the process as hassle-free as possible, from checking eligibility to completing the application process.
The most sustainable way to drive down energy costs is to reduce consumption. This year, industrial energy users will need to conduct energy audits by December to comply with the Energy Savings Opportunity Scheme (ESOS), which should identify a number of ways to reduce consumption. From implementing energy saving measures to shifting production schedules outside of the more expensive peak demand periods, there are multiple measures to cut costs.
Inenco’s Energy Intensive Industries hub provides updates on the latest policy and regulation impacting EIIs, including an in-depth guide to proposed exemption changes.
You can also talk to one of Inenco’s industrial energy experts to discuss anything from exemption applications to ESOS compliance and energy reduction: get in touch today on 08451 46 36 26 or emailing firstname.lastname@example.org