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Energy Intensive Industries – Contracts for Difference (CfD) Exemption

Following a consultation process, BEIS have issued a draft release of guidance which would exempt certain energy intensive users from charges applied through the Contracts for Difference (CfD) scheme.

This planned initiative will exempt Energy Intensive Industries (EII), like heavy manufacturing companies, from a large proportion of the CfD element of electricity costs, which are otherwise automatically added to electricity bills.

The CfD charge is replacing the Renewables Obligation (RO) as a means of subsidising new large-scale renewable projects. The RO scheme closed to new entrants on 31st March 2017, however, existing RO projects will continue to receive subsidies for approximately 20 years. The Feed-in-Tariff scheme continues to operate, though subsidies for new projects have been reduced significantly in recent years. Nearly 6GW of new CFD-funded capacity is due online by 2020, which will increase the costs of CFD to more than £2bn.

Clearly this scheme will be welcomed by exempt businesses, but those that aren’t eligible for exemption will absorb the extra costs – which is expected to raise RO and FiT costs by around 6% for each business.

Post continues below.

As of this month, the CfD charge is a new addition to the energy bill. The below table shows the impact of the three charges (CfD, RO & FiT) on a range of businesses over the next 3 years:

Company Scenario Charges 2016 2017 2018 2019 2016-19 Increase
A typical small retail store – 1GWh annual consumption RO £14k £20k £20k £20k £6k
FiT £5k £6k £6k £6k £1k
CfD £1k £3k £6k £8k £7k
Total £21k £28k £32k £35k £14k
A typical cinema – 2GWh annual consumption RO £31k £39k £40k £40k £9k
FiT £10k £11k £12k £13k £3k
CfD £0.5k £6k £11k £17k £16k
Total £42k £56k £63k £70k £28k
A typical large retail park – 3GWh annual consumption RO £46k £59k £60k £60k £14k
FiT £15k £17k £18k £20k £5k
CfD £2k £9k £17k £25k £23k
Total £63k £85k £95k £105k £42k
A typical inner city university building – 5GWh annual consumption RO £78k £98k £99k £100k £22k
FiT £3k £15k £29k £42k £39k
CfD £25k £28k £31k £32k £7k
Total £106k £141k £159k £174k £68k
A typical manufacturing site – 10GWh annual consumption RO £156k £196k £199k £201k £45k
FiT £50k £57k £61k £65k £15k
CfD £6k £30k £57k £85k £79k
Total £212k £283k £317k £351k £139k

Using published rates and forward-looking estimates, Inenco have created an Interactive Non-Commodity Cost Dashboard for users to calculate how their business will be exposed to incremental non-commodity costs (also known as ‘third party costs’ over the coming years.

To view the make-up of your typical energy bill going forward and how your business will be impacted, click here.

Please note: the figures included in the dashboard should only be used for indicative purposes.