A short guide to the Energy Intensive Industries exemption scheme
We’ve put together an easy explainer on the EII exemption scheme, to help you understand the basics, and whether you qualify.
What is the Energy Intensive Industries (EII) exemption scheme?
The EII exemption scheme is a UK government scheme intended to help energy-intensive industries stay competitive as our economy transitions to zero carbon.
In order to meet its legally binding pledge of zero carbon emissions by 2050, the government has created various schemes to boost the share of electricity generated from renewable and low-carbon sources. (These include the Contracts for Difference and Renewables Obligation scheme, among others.) Electricity suppliers bear the upfront costs of these schemes, but they are ultimately passed on to energy customers in the form of higher prices. The resulting rise in costs for energy-intensive industries risks putting UK heavy industry at a disadvantage against other countries. The Energy Intensive Industries exemption scheme is designed to remove this disadvantage by exempting heavy industry from these costs.
When did the EII exemption scheme come in?
The EII exemption scheme in its current form was rolled out between autumn 2017 and spring 2018.
Its predecessor was the EII compensation scheme, launched in 2016, which allowed businesses in certain sectors to apply for relief from the costs they had already paid. Compensation was capped at 85% of the costs, because of EU State Aid rules. The move from compensation to exemption was intended to give energy-intensive industries more long-term certainty and bigger cost savings.
What is an energy-intensive industry?
Sectors count as energy intensive if they carry out certain specified activities. The list of eligible activities specified in the government guidance is extensive and includes coal mining, quarrying, leather tanning and meat processing. It also includes the manufacture of things as diverse as wallpaper, tyres and electronic components.
Does every EII qualify for the exemption?
No. To be eligible for an EII exemption, a business must meet five key requirements. Being in an energy- intensive sector is just one of the five. You must also pass what the government calls a “business level test”, where you prove that your electricity costs amount to 20% or more of your Gross Value Added over a reference period. A business must also prove that it is not in financial difficulties, provide at least two quarters’ worth of financial data and show how much of the electricity used by the business actually goes on activities that would qualify for the exemption.
How does my business apply for the EII exemption?
The Department of Business, Energy and Industrial Strategy (BEIS) has created application forms along with guidance and spreadsheets to help you calculate what costs your business may be exempt from.
Has COVID affected the EII exemption scheme?
The first six months of 2020 saw a drastic fall in energy consumption, leading to an unusually sharp decline in electricity prices. This could have a distorting effect on the calculations about what percentage of business costs relate to electricity, and make it less clear whether a business counts as being “in difficulty” or not. The UK government has decided to exclude the period from 31 December 2019 to 30 June 2020 from its assessment of whether or not a business is in financial difficulty.
Does a business qualify for the EII exemption scheme if it has a mix of activities?
If some of your activities are on the approved list, you can still apply for an EII exemption certificate even if other activities do not count as energy intensive. However, the exemption that you receive will only be in proportion to the electricity used for approved activities. For example, if your business manufactures and sells carpets, you will only be exempt from costs relating to the manufacture side of your business, not the retail side.
What if a business changes its activities?
We’ve seen that eligibility for the scheme requires meeting a range of different criteria. If you are no longer carrying out the same activities as when you qualified for exemption, you may no longer be eligible. You should contact BEIS directly about any change of circumstances for your business.