16 April 2024
Brook Green Supply
The UK government recently announced the introduction of the nuclear Regulated Asset Base (RAB) Levy and industry modifications began on the 29th February 2024.
This means that UK businesses will have extra charges added to their energy bills, though EII customers may be exempt.
EMR Settlement (EMRS) Limited will be established as the provider, carrying out nuclear RAB settlement functions on behalf of the Revenue Collection Counterparty as well as the Low Carbon Contracts Company (LCCC).
The Nuclear RAB will work in a similar way to the Contracts for Difference (CfD) and represents the funding model chosen to deliver Sizewell C.
It’s possible that it may also be used to deliver future nuclear plants.
This model has been used to deliver other major projects like the Thames Tideway Tunnel in the water industry and Heathrow’s Terminal 5.
The RAB is similar to the CfD but the major difference is that it allows for revenues during the construction phase of the project.
The rules allow nuclear plant developers to receive funding from all licensed electricity suppliers to progress the design and construction phase of new nuclear plants.
This means that until the site starts generating, suppliers will pay the allowed revenue (set by Ofgem).
The Nuclear RAB will be funded by a levy on all electricity consumers, via their supplier.
While the implementation date for the levy is yet to be decided, it’s likely to come into effect between April 2024 and April 2025, and any EII customers are likely be exempt from this scheme.
The operational cost of this scheme will be chargeable from 31st March 2024 and is currently expected to be set at £0.0028/MWh.
This fee is due on all non EII volume delivered from the 31st onwards, even if the levy is delayed or not yet agreed and chargeable.
To sharpen the UK’s competitive edge in Europe and beyond, the government has introduced the; ‘British Industry Supercharger Network Charging Compensation Scheme’.
Driven by the Department for Business and Trade and the Department for Energy Security and Net Zero, this policy puts forward solutions to improve international competitiveness for large UK businesses in Energy Intensive Industries (EII) such as steel, glass and paper manufacturing who are currently paying more for electricity than their European counterparties.
The proposal consists of three measures:
- To increase the maximum amount of the current exemption scheme (RO, FiT, CfD) from 85% to 100%. Organisations and suppliers will be notified of the percentage increase in their EII exemption before they receive their April 2024 invoices.
- 100% exemption from capacity market charges – taking effect as of October 2024.
- Implementation of the Network Charging Compensation (NCC) Scheme subsidy which will see a 60% exemption from network charges from April 2025 – these are for costs such as the Balancing Services Use of System (BSUoS), Transmission Network Use of System (TNUoS) and Distribution Use of System (DUoS).
The NCC Scheme will be paid for by a levy on all non-EII customers (The EII Support Levy) and compensation payments start in April 2024, however the collected amount will only be distributed from April 2025.
This means all non-EII consumers will likely see an additional charge whilst EIIs will continue to pay their share of the network costs for this upcoming financial year, before the monies collected from the EII Support Levy are redistributed as a credit to EII’s.
Elexon has been appointed as the scheme administrator, meaning organisations and suppliers can expect to receive notice of the levy’s impact in the coming months. They will be show what needs to be collected and paid in arrears to any EII consumers.
Based on the government’s Energy Security and net zero goals, a new Hydrogen Levy may be introduced between April 2025 and April 2026.
New hydrogen projects are run through the Hydrogen production business model, which is currently exchequer funded. However, it’s expected that future rounds will be funded by a levy on gas shippers.
Whilst details are yet to be confirmed, it’s likely that shippers will be charged based on consumption supplied, which will be passed through to customers in the same manner.
The government is considering an introduction to a gas intensive exemption from the Hydrogen Levy, similar to the EII exemptions that exist for some electricity non-commodities.
At Brook Green Supply, we’ll be engaged in decisions relating to the future hydrogen levy, and we’ll ensure you’re kept up to date on developments.
We estimate that this could result in an additional £2-4/MWh to customer’s bills by April 2026.
Much depends on the successful rollout of each technology but ultimately, the introduction of new levies will impact energy bills.
The UK government have introduced the Industry Supercharger which aims to make the UK's largest industrial usinesses, competitive with the rest of Europe and the World. The Department of Business & Trade and the Department of Energy Security & Net Zero have jointly proposed solutions to improve international competitiveness.