Navigating the future policy landscape

SSE Energy Solutions Director of Business Energy, Aled Humphreys , considers what’s ahead for Energy Intensive Industries, the Regulated Asset Base levy and Market-wide Half-Hourly Settlement.

Energy-Intensive Industries (EIIs) can breathe easier in 2025, but uncertainty remains over what lies in store for many major energy users. With a new UK Government established, keeping up with policy developments is key to planning for your energy bills. Let’s look at some major changes coming up.

Non-commodity energy costs are falling for EIIs

Many of you will be familiar with the representations to policymakers of major manufacturing organisations and sectors such as steel, chemicals, and glass, pointing out starkly higher electricity costs for UK EIIs compared to those in France and Germany.

The pleas for a long-awaited level playing field, enabling UK and continental european companies to compete more evenly based on the quality rather than the cost of products, have repeatedly gone unheeded by successive governments.

However, the tide has started to turn. In 2025, EIIs are set to enter said level playing field as the final component of the British Industry Supercharger Scheme (BIS) comes into effect from April. Introduced by the previous Government in 2022, the scheme recognises EIIs’ economic contribution.

The BIS has gradually come into effect over the past six months. Firstly, in April 2024, it increased EIIs’ exemption from 85 per cent to 100 per cent of Renewables Obligation (RO) and Contracts for Difference (CfD) costs. Secondly, in autumn 2024, it introduced a full exemption from Capacity Mechanism charges.

The most considerable benefit for EIIs will take effect from May 2025, with the third and final phase of the BIS filtering through to those EIIs that applied to have 60 per cent of their network costs compensated. This compensation will be backdated for network costs incurred by EIIs on their bills since 1 April 2024.

As with all charges across the energy system, a relief for one part of the consumer base will lead to a redistribution of cost to others. For the non-domestic energy market, the Government estimates that the levy imposed on suppliers will lead to an increase in electricity costs for other business energy consumers by approximately ￡1/MWh once all BIS components are implemented in 2025.

The Government also plans to ensure that EIIs will receive a 100 per cent exemption from the Regulated Asset Base (RAB) levy when it comes into effect.

What’s in store for european carbon emissions trading?

One other policy conundrum for the Government, which relates to EII energy costs, is the EU’s full implementation of a Carbon Border Adjustment Mechanism (CBAM) in 2026.

While the UK Government has its own plans to implement a CBAM in 2027, there’s a risk that lack of alignment between UK and EU emissions trading regimes could harm UK exports to the EU and create different dynamics for imports into the UK/EU trading zone from outside of Europe.

The hope is that the UK trading systems as soon as possible and conclude them by the end of 2025.

When will the RAB levy for new nuclear generation hit bills?

The simple answer is: no-one knows – not even the Government at this stage.

The RAB model for financing new nuclear power first entered public consciousness in the summer of 2022, when the Government outlined its plans to reduce investor risk by ensuring levy payments are made during the construction phase, rather than only once power generation begins.

The Government has since confirmed that the RAB model will be used to finance the nuclear sector. However, payments will only start being drawn from suppliers once construction starts on a new nuclear power plant.

For now, most of us can only look to various media outlets to gain a sense of progression towards final investment decisions (FID) on new nuclear.

When will Market-wide Half-Hourly Settlement (MHHS) take effect?

MHHS marks a significant shift in how electricity consumption is measured and billed in the UK. Initially scheduled for implementation by October 2026, a request has been made to Ofgem to delay it by around six months, pushing it back to mid-2027.

Under MHHS, energy suppliers will use data from meters that record consumption every 30 minutes, replacing estimates based on monthly or quarterly usage. Any remaining meters without this capability will need to be read every four months.

This system aims to make energy markets more efficient and transparent by ensuring bills reflect real-time consumption. MHHS provides businesses with precise information on usage patterns, helping identify opportunities to reduce waste and costs. It also facilitates flexible energy use, such as smart EV charging and time-of-use tariffs and supports the integration of renewable energy into the grid by better matching supply with demand. All this will contribute to national Net Zero carbon goals.

To benefit from MHHS, businesses should install smart meters and invest in energy management. Open communication with energy suppliers is essential to stay informed about any changes related to MHHS. Learn more at mhhsprogramme.co.uk.

This article appears in Buying and Using Utilities Winter 2024 issue

Read more ??https://meucnetwork.co.uk/buu-winter-2024/