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Did you know that, as a business, the electricity that you use only makes up around 40% of the total cost on your invoices? The rest is to cover costs from third parties such as the distribution and transmission network to get the electricity to you when you need it. Aside from that, it also covers environmental charges such as RO (Renewables Obligation), CFD (Contracts for Difference) and FIT (Feed-In Tarrifs). The RO, CFD, and FIT charges are included in order to help build a more sustainable future.
These charges are based on the energy that you use and are non-negotiable as they are passed on through suppliers.
There are a large number of energy intensive industries in the UK, and for those industries they already have large energy bills before RO, CFD, and FIT charges were taken into account. The EII legislation was introduced to help energy intensive industries (such as sectors in steel, mining and engineering) compete in the global market by offering them a reduction in their FIT, RO and CFD if they fit a certain criteria. This reduction was up to 85% saving the industry on a whole around £100 million a year.
This can apply to EII companies, assuming they meet a set of requirements laid out by the UK government. That includes (but is not limited to) the fact that the company must manufacture a product in the UK within an eligible sector, they must pass a 20% electricity intensity test, and they must have at least two quarters of financial data. You can read the full list of requirements in the guidelines published by the Department of Business, Energy and Industrial Strategy (pages 5 to 10).
Where this has a huge benefit for EII companies, there is a downside. Due to EII companies not needing to pay as much, it means non-EII’s are having to pay the extra to make up the difference in the charges.
There are three core charges that are included in electricity contracts, each one focused on a slightly different aspect, but all working towards creating a greener future.
The Renewable Obligation originally came into effect on 2002 in England and Wales. RO supports large-scale renewable electricity generation in the UK and requires all licensed electricity suppliers (like us) to source an increasing amount of electricity from renewable sources.
EII’s have been exempt from up to 85% of costs in the RO scheme since April 2018. Since then, non-EII’s have been having to make up the difference.
The Contracts for Difference scheme is a government lead initiative designed to support the generation of low-carbon electricity. Since 2017, the Contracts for Difference scheme has replaced the RO for new entrants investing in low carbon generation. Low carbon generators through auction can guarantee themselves a fixed price for the electricity they produce.
The legislation exempting EII’s from this third party cost was approved in November 2017. This means that since November 2017, as with the RO, non-EII’s have had to pay extra to make up the difference.
The Government introduced the Feed-In Tariff to encourage homes and businesses to generate their own renewable, low carbon electricity.
Since late 2018, EII companies have been given an exemption of up to 85% of small scale Feed-In Tariffs (FIT).
Please be aware that, if your supplier did not build this cost into your energy contract, you could be facing a pass through on your bills. Utility Team is working closely with suppliers to understand what each supplier is doing with current contracts and ensuring that the cost is built into future contracts.
Here at Utility Team, we are experts in energy procurement and contracts. If you would like to discuss your current energy contract in more detail, please feel free to contact us.
Please call us today and one of our specialists will check your current contract to advise if you will see any pass through charges on your invoices.