COMPENSATION FOR THE INDIRECT COSTS OF THE RENEWABLES OBLIGATION AND SMALL SCALE FEED-IN- TARIFFS. Guidance for Applicants

Transcription

1 COMPENSATION FOR THE INDIRECT COSTS OF THE RENEWABLES OBLIGATION AND SMALL SCALE FEED-IN- TARIFFS Guidance for Applicants FEBRUARY 2016

2 Contents 1. Introduction Eligibility Eligible Sectors (NACE codes version 2.0) Business Electricity Intensity test How compensation will be calculated Aid intensity Calculating Aid Baseline electricity consumption Baseline output Installations that have changed ownership and structure since historic period Businesses making several products Auto-generation Onward supply or meter sharing Scheme administration The process The initial claim form Deadline for claims Quarterly Declaration Annual Return Appeals Change of details Validation Large Electricity Users Small Electricity Users Monitoring...17 Annex A Explanation of Calculations...18 The 20% Business Level Eligibility Calculation...18 Worked Example...19 Calculation of Compensation...19 Worked Example

3 1. Introduction 1. The UK Government is committed to reducing carbon emissions in a way that is consistent with meeting legally binding targets a reduction of greenhouse gas emissions by at least 80% by This requires a transformation of the UK economy, including the energy market, while keeping energy costs down for business and consumers, and maintaining competitiveness. 2. A key element of the Government s approach to decarbonising energy is policies designed to incentivise generation of electricity from renewable sources. Specifically the Government has put in place the Renewables Obligation (RO) and the micro generation Feed-in-Tariff (FITs) schemes to incentivise renewable energy supplied through the National Grid. 3. However, the Government recognises, that in the short to medium term, the resulting increase in retail electricity prices risks reducing the competitiveness of the UK s most electricity-intensive businesses where they are operating in internationally competitive markets. 4. As a result of this the Government has committed to implement compensation for the impact of renewables policy on the costs of electricity for the most electricity intensive industries in line with the European Commission s published guidelines. 5. A consultation on the proposal for providing relief for electricity intensive industries for the indirect costs of renewables policy was held between 31st July and 24th October The purpose of the consultation was to seek views on the proposed eligibility and design of the scheme. The Government published a response to the consultation on the 19th January This guidance sets out how businesses can claim compensation for the indirect costs of RO/FITs. 2

4 2. Eligibility 7. There are two steps to assessing whether a business is eligible to claim compensation for the indirect costs of RO/FITs - 1) The business must manufacture a product in the UK within an eligible sector (defined by 4-digit NACE code). 2) The business must pass the 20% electricity intensity test. In this guidance business (the applicant ) refers to the legal entity manufacturing a product in the UK within an eligible NACE code. This will typically be a business as registered at Companies House however entities not registered at Companies House may also apply. The legal entity must have separate accounting. 2.1 Eligible Sectors (NACE codes version 2.0) 8. The European Commission provided framework guidance to European Member States, setting out which sectors (by 4-digit NACE code) can be eligible for compensation for the indirect costs of renewables. The UK used the eligible sectors in the Commission s guidance (EEAG) 1 to determine those UK sectors that will be eligible for the compensation schemes. 9. To ensure that support is targeted at those most at risk, we further limited eligibility to those sectors which are electricity intensive and subject to international competitive pressures using UK specific data from the Annual Business Survey. To be eligible, sectors must also have a trade intensity of at least 4% and an electricity-intensity of at least 7% to pass this test. 10. The list of eligible sectors will apply to compensation for both the RO and the FITs schemes. Applicants will need to establish that they manufacture a product (as defined at the 8-digit prodcom level) in the UK which falls within one of the eligible 4-digit NACE codes in Table 1 or Table 2. 2 If a business does not manufacture a product in one of these sectors it will not be eligible for compensation for the RO or FITs. Table 1. The list of eligible sectors NACE code Description (v2.0) 0510 Mining of hard coal 0811 Quarrying of ornamental and building stone, limestone, gypsum, chalk and slate 0899 Other mining and quarrying n.e.c Manufacture of malt The first 4 digits of an 8-digit prodcom code represent the sector of a product. 3

5 NACE code (v2.0) Compensation for the indirect costs of the Renewables Obligation and Small Scale Feed-In-Tariffs Description 1310 Preparation and spinning of textile fibres 1320 Weaving of textiles 1395 Manufacture of non-wovens and articles made from non-wovens, except apparel 1610 Sawmilling and planing of wood 1621 Manufacture of veneer sheets and wood-based panels 1712 Manufacture of paper and paperboard 1722 Manufacture of household and sanitary goods and of toilet requisites 1920 Manufacture of refined petroleum products 2011 Manufacture of industrial gases 2013 Manufacture of other inorganic basic chemicals 2014 Manufacture of other organic basic chemicals 2015 Manufacture of fertilisers and nitrogen compounds 2016 Manufacture of plastics in primary forms 2017 Manufacture of synthetic rubber in primary forms 2060 Manufacture of man-made fibres 2221 Manufacture of plastic plates, sheets, tubes and profiles 2222 Manufacture of plastic packing goods 2311 Manufacture of flat glass 2313 Manufacture of hollow glass 2314 Manufacture of glass fibres 2319 Manufacture and processing of other glass, including technical glassware 2320 Manufacture of refractory products 2331 Manufacture of ceramic tiles and flags 4

6 NACE code (v2.0) Compensation for the indirect costs of the Renewables Obligation and Small Scale Feed-In-Tariffs Description 2332 Manufacture of bricks, tiles and construction products, in baked clay 2349 Manufacture of other ceramic products 2351 Manufacture of cement 2352 Manufacture of lime and plaster 2399 Manufacture of other non-metallic mineral products n.e.c Manufacture of basic iron and steel and of ferro-alloys 2420 Manufacture of tubes, pipes, hollow profiles and related fittings, of steel 2431 Cold drawing of bars 2432 Cold rolling of narrow strip 2434 Cold drawing of wire 2442 Aluminium production 2443 Lead, zinc and tin production 2444 Copper production 2445 Other non-ferrous metal production 2451 Casting of iron 2452 Casting of steel 2453 Casting of light metals 2454 Casting of other non-ferrous metals 2611 Manufacture of electronic components 2720 Manufacture of batteries and accumulators 11. The EEAG also allows European Member States to provide aid for the indirect costs of renewables to energy intensive businesses from typically non energy intensive sectors. This is in recognition that not all sectors are homogeneous in their composition so the European Commission set out a list of sectors where an energy intensive business may be eligible for compensation. 5

7 12. In line with paragraph 9 above, the UK Government also narrowed sector eligibility using Annual Business Survey data on trade intensity and electricity-intensity of the sector. Eligible sectors have a trade intensity of at least 4% and an electricity-intensity of at least 7%. Table 2 below outlines eligible sectors. Table 2. The list of eligible sectors based on the European Commission list of trade intensive sectors NACE code Description (rev2.0) 0812 Operation of gravel and sand pits; mining of clays and kaolin 1012 Processing and preserving of poultry meat 1091 Manufacture of prepared feeds for farm animals 1391 Manufacture of knitted and crocheted fabrics 1393 Manufacture of carpets and rugs 1396 Manufacture of other technical and industrial textiles 1399 Manufacture of other textiles n.e.c Manufacture of other wearing apparel and accessories 1431 Manufacture of knitted and crocheted hosiery 1439 Manufacture of other knitted and crocheted apparel 1511 Tanning and dressing of leather; dressing and dyeing of fur 1629 Manufacture of other products of wood; manufacture of articles of cork, straw and plaiting materials 1721 Manufacture of corrugated paper and paperboard and of containers of paper and paperboard 1724 Manufacture of wallpaper 2211 Manufacture of rubber tyres and tubes; retreading and rebuilding of rubber tyres 2219 Manufacture of other rubber products 2229 Manufacture of other plastic products 2344 Manufacture of other technical ceramic products 2362 Manufacture of plaster products for construction purposes 6

8 NACE code (rev2.0) Compensation for the indirect costs of the Renewables Obligation and Small Scale Feed-In-Tariffs Description 2365 Manufacture of fibre cement 2592 Manufacture of light metal packaging 2732 Manufacture of other electronic and electric wires and cables 2891 Manufacture of machinery for metallurgy 2.2 Business Electricity Intensity test 13. The business electricity intensity test intends to ensure that the schemes target only those undertakings where aid is most needed, i.e. those put at a significant competitive disadvantage from renewable energy support. 14. Businesses must pass the test to demonstrate they are electricity intensive and are likely to face a significant competitive disadvantage. 15. In order to satisfy the business electricity intensity test, businesses will need to show that their implied mean electricity costs amount to 20% of their mean Gross Value Added (GVA) Eligibility will be determined using data from the applicant s three most recent financial years 4. For new businesses that do not have three years of recorded data, eligibility will be calculated using the period available, it at least two financial quarters 5 exist: Businesses with fewer than two full financial quarters of data are ineligible. For businesses with only two or three quarters of data, eligibility will be based on a forecast for the year assuming electricity consumption and GVA continues in line with the first quarters of data. We will then reassess eligibility at the end of the year, recovering any compensation paid if, based on a complete year s data, the business is found to be ineligible. For businesses with one full financial year of data, eligibility will be based on that data and will be reassessed when two full years of data are available. If found to be ineligible on the basis of two years of data, compensation paid will not be recovered but the business will not receive further payments. For businesses with two full years of recorded data, eligibility will be based on the arithmetic mean of data for both years and reassessed when three full years of data is available. If found to be ineligible on the basis of three 3 GVA is defined as earnings before interest, taxes, depreciation and amortisation (EBITDA) and staff costs including employers pension and national insurance contributions. 4 If a business is applying for compensation for the initial period 14 Dec Mar 2016 and beyond, we require data for the 12/13, 13/14 and 14/15 business financial years. If a business is applying for compensation from 1 April 2016 and beyond, and they have submitted their 15/16 figures to Companies House, we require data for the 13/14, 14/15 and 15/16 business financial years. 5 A financial year is divided into financial quarters (three months apiece). A business financial year starting 02/03/2015 would have a first financial quarter ending 01/06/2015, the second financial quarter would end 01/09/2015 etc. 7

9 full years of data, compensation paid will not be recovered but the business will not receive further payments. 17. For the purposes of the 20% test, the UK Government will calculate costs and GVA at the aggregate business level i.e. the whole legal entity. To allow comparison across years the Government will deflate all GVA figures to 2012 prices using the GDP Deflator. 18. For sectors identified as eligible due to high electricity intensity (set out in Table 1) business electricity consumption will be the total (grid and non-grid) electricity consumed by the business during the last three years for which data is available. 19. For trade intensive sectors that are not typically energy intensive but nonetheless may have some electricity intensive businesses (set out in Table 2), in line with the European Commission s guidelines, business electricity consumption will be based on energy efficiency benchmarks where available. 6 These benchmarks are intended to represent the most efficient process for the manufacture of that specific product. Please refer to Annex A for further details of how benchmarks may be applied. Box 1. Electricity-Intensity for the business level test for eligible sectors We calculate electricity intensity using the following formula: Electricity-Intensity = BEP x BEC c / BGVA c BEP = Baseline Electricity Price. This is the average electricity price faced by an industrial user, deflated to a common year as outlined below. BEC c = Baseline Electricity Consumption for business c. This will be the average electricity consumption for that business over the period available as outlined above. BGVA c = Baseline GVA for business c. The average GVA of the business over the period available (deflated to a common year) as outlined above. 20. In calculating eligibility at both sector and business level UK Government uses a Baseline Electricity Price (BEP) to allow fair comparison across sectors and businesses. It is based on the industrial electricity price in the Updated Energy and Emissions Projections Publication. This is taken from the last year for which actual data is available and deflated to a common year. For applications in 2016 this will be from 2014 and once deflated to 2012 prices using the most recent GDP deflator is In order to ensure that we do not compensate businesses that make products that are not typically electricity intensive and only pass this test because over the baseline period they have negative GVA, any periods with negative GVA will be treated as having a value of 1. 6 A non-exhaustive list of the European Commission s electricity consumption efficiency benchmarks for products covered by the NACE codes can be found here: ( lex.europa.eu/lexuriserv/lexuriserv.do?uri=oj:c:2012:387:0005:0013:en:pdf 8

10 3. How compensation will be calculated 22. Whilst the 20% eligibility test requires a calculation at the aggregate business-level, the information required to calculate the amount of compensation is focused at electricity consumed at meter points. Businesses with multiple electricity meter points will therefore need to provide electricity and product information associated with each of their meter points. 3.1 Aid intensity 23. The Commission guidelines state that the aid intensity must not exceed 85% of the eligible costs. This means compensation may not exceed 85% of the cost of the RO and FIT. In line with Commission guidance, we will apply this aid intensity level. 3.2 Calculating Aid 24. For the RO and FITs compensation schemes, we will calculate aid for each eligible product using the formula outlined in Box 2. Box 2. Formula for aid amount calculation for the RO/FIT compensation scheme We will calculate the amount of aid using the following formula: Aid p = Ai x PI pol,t x BEC p The Aid for product p is equal to the product of: Ai = Aid intensity, the percentage of costs that the Government is allowed to exempt or compensate under State Aid rules (85%). PI pol,t = Price impact of policy pol (either RO or FiT) in year t. The price for the RO will be calculated based on Ofgem s Renewable Obligation levelisation report and the FiT price will be based on the forecast price which will be adjusted at the end of the year on the basis of Ofgem Feed-in-Tariff levelisation report when published. BEC p = Baseline Electricity Consumption for product p. This will be the average grid electricity consumption for that product over the most recent three years available. If there are less than three years of production we will use data from the most recent year until there are three full years of data when we will fix the baseline as the average of those years. Once fixed, the baseline will only change if there is a significant change as outlined below. 25. The price of the Renewable Obligation and Feed-in-Tariff are updated at the end of each year. The RO price impact cost in Great Britain for 2015/16 is 12.86/MWh. For 2016/17 it is 15.58/MWh in England, Scotland and Wales. For Northern Ireland it is 6.36/MWh. The FiT forecast for 2015 is 3.15/MWh and for 2016 is 4.89/MWh. 9

11 3.3 Baseline electricity consumption 26. Electricity consumption is fixed at a baseline level to provide increased certainty to businesses about the amount of compensation they will receive. Once fixed, the baseline will only change following a significant change in electricity consumption (see paragraph 28). 27. Baseline electricity consumption for applicants in 2016 is fixed at the average grid electricity consumption in MWh associated with the manufacture of the eligible product over the reference period (business financial year which started in 2012, the financial year which started in 2013 and started in 2014) for businesses operating in every year. If however because of verifiable exceptional circumstances, outside the direct control of the business, such as flooding, electricity consumption was significantly lower than the other baseline years, BIS will consider accounting for this on a case by case basis. 28. With regard to new installations, if an installation did not operate during part of the reference period i.e. for all business financial years 2012/13 to 2014/15 - then the baseline electricity consumption will be defined as the mean of available annual electricity consumption until there are three years of operation on record. Once there are three years of historic production on record, baseline electricity consumption will be fixed as the average of the three years of production. 29. If a business reduces its consumption of electricity on which RO and FiT charges are based in a given business financial year by between 50% and 75% compared to the baseline output, the business will only receive half of the aid amount corresponding to the baseline electricity consumption. 30. If a business reduces its consumption of electricity on which RO and FiT charges are faced (grid electricity for eligible products) in a given business financial year by between 75% and 90% compared to the baseline, the business will only receive 25% of the aid amount corresponding to the baseline electricity consumption. If a business reduces its consumption of electricity on which RO and FiT charges are faced by 90% or more compared to the baseline, the business will receive no compensation. 31. If a business alters its structure to the extent that this would increase the number of installations manufacturing eligible products the amount of compensation for the whole business will be recalculated to include the new installations as well as any resultant changes to the other installations. This will then become their revised baseline for output and electricity consumption. 3.4 Baseline output 32. Baseline output is the average production of the eligible product in tonnes per calendar year over the reference period. For applications received in 2016 this will be business financial years 2012/ /15 for installations operating every year during that period. Applications received in future years will use the last three years for which records are available in line with the availability of business level financial data. 33. If a business did not operate during part of the reference period i.e. three years of business level financial data then the baseline output will be defined as the average of production until there are three years of operation on record. Once there are three 10

12 years of historic production on record, baseline output will be calculated as the average of the three years preceding the aid-granting period and this baseline will be fixed for subsequent years. 3.5 Installations that have changed ownership and structure since historic period 34. In many cases, the addition of sites or purchase of another entity by a business will not lead to a reassessment of eligibility but may lead to an increase in baseline electricity consumption and therefore consumption due. An eligible business will need to submit electricity consumption data for the new site. The new site will be assessed in the same way as a new applicant except the eligibility of the business is assumed so financial data is not required. A minimum of two quarters of data will be required of the new site(s) before an addition to the baseline can be calculated and compensation for eligible electricity use is payable. 35. If the addition of a site means total eligible electricity is more than 100% higher than the original baseline i.e. the addition plus any previous additions have eligible electricity exceeding 100% of the original baseline, the business as a whole must reapply. The business as a whole will be assessed for eligibility and re-baselined on the basis of this application. 36. The eligibility requirements set out in this guidance are intended to ensure that the scheme targets those undertakings where aid is most needed. If BIS considers that an applicant has restructured, changed ownership or taken any other steps in order to ensure that an undertaking which would not otherwise be eligible meets the criteria, this will be taken into account when the application is considered. BIS reserves the right to refuse such applications. 3.6 Businesses making several products 37. Compensation will be due for the electricity associated with the manufacture of eligible products. In order to assess this, we will take the following approach Where a business is manufacturing only eligible products from a meter, the baseline electricity consumption will be taken to be the total average grid electricity consumption in MWh over the reference period for the installation. (i.e. electricity costs which fall outside the direct manufacture of the product can be included, as these should be minimal). Where a business is manufacturing both eligible and ineligible products from a meter, the business will need to isolate the electricity usage associated with that product using the one of the following methods Use evidence which clearly demonstrates the proportion of their electricity usage associated with the manufacture of the product in question preferably, in the form of metered records; or Estimate the electricity usage associated with the manufacture of an eligible product using a formula based on the proportion of 11

13 3.7 Auto-generation Compensation for the indirect costs of the Renewables Obligation and Small Scale Feed-In-Tariffs the different products being made (in tonnage) e.g. the % of overall tonnage of all product which is made up of the product in question equals the % of electricity costs which attract compensation. 38. In some cases, businesses will generate some or all of their electricity on site rather than purchasing electricity supplied through the grid. Alternatively, a third party may supply electricity outside of the grid. 39. For those businesses consuming electricity from non-grid sources, the amount of compensation due will be adjusted each year to account for changes in the proportion of electricity consumed from grid and non-grid sources in the preceding year. Upon initial application, applicants must submit their grid and non-grid electricity consumption. If the proportion of grid electricity consumed increases / decreases, compensation due for the following year will be increased / decreased in line with the change in proportion of grid electricity used. 40. Where the auto-generated electricity in question is not subject to RO/FITs costs, the relevant compensation will not be due. 3.8 Onward supply or meter sharing 41. In some cases, businesses will supply electricity to other businesses or have other agreements where a meter point is shared. Electricity which is not consumed by the applicant i.e. consumed by other businesses will not be eligible for compensation. 42. A business may supply another business using both grid and non-grid sources. It will be assumed that the proportion of grid and non-grid electricity used by the applicant is the same as the proportion supplied to others. It is not permissible to assume that all electricity supplied to another business is non-grid and electricity used by the applicant is grid sourced. 4. Scheme administration 43. Compensation for the indirect costs of RO/FITs will be administered by the Department for Business Innovation & Skills (BIS), with payments being made quarterly and in arrears. 4.1 The process 44. The key information required to assess the amount of compensation due relates to the reference period, business financial years 2012/13 to 2014/ There will be three administrative processes which will need to be undertaken by claimants 12

14 1) The initial claim form completed at the outset of the claim. This forms the basis of the decision on eligibility and the calculation of compensation. It is split into two parts. 2) The quarterly declaration - confirming that circumstances are largely unchanged or notifying significant changes in levels of electricity consumption. This declaration will prompt the quarterly payment and should avoid unnecessary under/overpayments. 3) End of Year Report setting out annual totals for the electricity consumption and auto-generation information at installation level and the electricity consumption and output at product level. 4.2 The initial claim form 46. The new claim form will be available on the GOV.UK website. The form should be completed by all businesses wishing to apply for relief from the indirect costs of RO/FiTs and submitted via to energyintensiveindustries@bis.gsi.gov.uk. If businesses applying for relief would like to use more secure channels for submitting applications they should contact the Department on the above address. The application form will require businesses to submit the following information: For eligibility purposes: Businesses name and evidence of its legal status (Companies House registration number). Contact name and details including role in the business. Businesses overall electricity usage over the baseline period. EBITDA, staff costs and total electricity consumption associated with businesses over the baseline period. The eight digit Prodcom codes for the products for which the business will be claiming. Meter Point Administration Numbers (MPAN). (Where the meter is registered in SMRS, the MSID that relates to that meter. Where the meter is registered in CMRS, the BM Unit Identification Number and MSID that relates to that meter). For calculation purposes (the exact requirements depends on the businesses circumstances): Details of installations being claimed for. The output of eligible product (tonnage, from the last three years for which records are available in line with the availability business level financial data for each installation being claimed for. The electricity usage associated with that output and meters for installations making only an eligible product, this can be all electricity consumption. The electricity usage associated with the output of other manufactured products at the relevant installations. Details of any electricity from auto-generation or other non-grid sources the nature of the generation and how much used for manufacture of eligible product. 13

15 Bank account details. Compensation for the indirect costs of the Renewables Obligation and Small Scale Feed-In-Tariffs 47. Following receipt of the initial claim form, BIS will issue a letter to the business which will confirm whether or not the business is eligible for compensation, whether further data will be required to confirm future eligibility (if three full financial years are unavailable), for which products compensation will be payable, the quarterly payment rate, and when quarterly declarations will be due. 4.3 Deadline for claims 48. Initial claims for RO/FITs relief received by Thursday 31 st March 2016 will be payable from 14 th December Following this, initial claims will be valid from the start of the month in which they are received and there will be no facility for the backdating of claims. 4.4 Quarterly Declaration 49. Quarterly declarations should also be submitted via to energyintensiveindustries@bis.gsi.gov.uk. The form will require businesses to submit the following information: Confirmation that the business is still in operation. Confirmation that no significant changes have occurred i.e. o Changes in electricity consumption over the last quarter; o Predicted significant changes for the calendar year; o Any other significant changes. Details of any changes that have occurred. 50. The quarterly declaration should be submitted immediately following the three month period in question i.e. from the first day after the period in question. If the quarterly declaration has not been submitted after a month has passed following the period in question, BIS will issue a reminder to the business via . If the declaration has not been returned by the business by the time the next quarterly declaration is due (i.e. by the first day after the subsequent three month period), the businesses compensation claim will be stopped. Non-receipt of the reminder cannot be used as a reason for non-return of the declaration form. 51. Where changes occur which significantly affect the predicted levels of electricity consumption and therefore the amount of annual compensation due, adjustments will be made (i.e. BIS will calculate the annual amount of compensation due, taking into account the new information). Adjustments will be made to the level of quarterly payments due for the remainder of the calendar year, and a letter issued to the business accordingly. 52. Where the end of year declaration indicates under or overpayment, adjustments will be made to payments going forward into the following year. 53. Following receipt of the quarterly declaration BIS will make payment directly into the business s bank account. 14

16 4.5 Annual Return Compensation for the indirect costs of the Renewables Obligation and Small Scale Feed-In-Tariffs 54. This will require businesses to report grid electricity consumption levels if electricity consumption has fallen by more than 50%. 55. Businesses will also need to report, if applicable, the proportion of electricity that is not sourced from the National Grid (e.g. auto-generation, 3 rd party providers of CHP etc.) 56. Businesses that are treated as new entrants and do not have three years of data will also need to provide relevant data for the year. 57. If there is a significant change in electricity consumption (over 50% as outlined above) this will be factored into the following year s baseline. The proportion of grid/non-grid electricity use will also be adjusted each year. For example, if the baseline level of consumption is on the basis of 50% grid electricity and 50% non-grid electricity an increase in the proportion of grid electricity of 50% (to 75%) will lead to a 50% increase in compensation. 4.6 Appeals 58. Businesses can appeal against decisions made regarding their eligibility or eligible product if they consider that a decision is incorrect for example, where a business is making an electricity-intensive product which falls within the list of eligible Prodcom codes, but has not been awarded compensation or where the business considers the amount of compensation has been incorrectly assessed. 59. Appeals should be made in writing and can be sent via or letter. They should clearly state that an appeal is being made, set out the grounds for appeal and be accompanied by any supporting evidence/documents that are to be relied on. Appeals will be determined on paper not via any oral hearing. 60. Appeals must be made within 20 working days of the date of the original decision (i.e. the date of the decision letter). Following receipt of an appeal BIS will send an acknowledgement of receipt within two weeks and will seek to make a decision on the appeal within eight weeks of receipt of appeal. 4.7 Change of details 61. Any change of business details e.g. names, addresses, and bank account details - should be provided to BIS as soon as possible in writing. 5. Validation 62. A validation process for the application data in Part 2 is required. It has been designed to be robust and minimise the administrative burden by being proportionate to the applicant s electricity consumption. 15

17 63. Paragraphs set out the required validation process. In most circumstances, an independent Accountant s Report will be required. The terms and conditions of the independent Accountant s Report are set out in Annex B and a proposed form of the Accountant s Report in Annex C (Annex B and Annex C are separate attachments on the government webpage). 64. If an independent Accountant s Report is required, we must have received the Report, satisfying the terms and conditions of the scope in Annex B, before any payment can be made to the applicant. 65. If an independent Accountant s Report is required, we would prefer the Accountant s Report to be submitted with the application. However, we recognise that for some companies it may take some time to receive their Accountant s Report, so we will accept applications without the Accountant s Report but, it is our expectation that the Accountant s Report would be received within 6 weeks of receipt of the application documentation. 5.1 Large Electricity Users 66. Applicants are classified as Large Electricity Users if they consume more than 10GWh per year on average over the years of the application. These applicants must submit an independent Accountant s Report as outlined in Annexes B and C to validate the application figures on EBITDA, staff costs and electricity usage. 67. Large Electricity Users who have reported figures for staff costs and/or EBITDA for any given business financial year in Part 2 of the application form, which are lower than that the equivalent figure published in either UK statutory Company Accounts or a published UK annual report must provide an explanation for the difference, citing supporting evidence, in the comments box (Table G) of Part 2 of the application. 68. Large Electricity Users that do not have published figures on staff costs and/or EBITDA available from Companies House, or a published UK annual report, must provide an explanation for any difference between the application figures and those relevant in the supporting evidence (in most cases, a copy of management accounts) submitted to the Accountant. This explanation should be reported in (Table G) of Part 2 of the application. 5.2 Small Electricity Users 69. Applicants are classified as Small Electricity Users if average electricity consumption is 10GWh or less per year over the years of the application. 70. Small Electricity Users who have reported figures for staff costs and/or EBITDA for any given business financial year in Part 2 of the application form, which differ from equivalent figures published in either UK statutory Company Accounts, or a published UK annual report, must provide an explanation of the difference, citing supporting evidence, in the comments box (Table G) of Part 2 of the application. These users may be asked for an Accountants Report depending on the size of any difference and the scale of electricity use. Small Electricity Users must also submit electronic copies (scans of physical documents are acceptable) of electricity bills for the May and 16

18 November of every financial year for which data is submitted in Part 2 of the application form. If a bill was not received on the particular May or November of a financial year, the applicant must also submit a bill for December of that financial year. 71. Small Electricity Users that do not have published figures on staff costs and/or EBITDA in Companies House, or in a published UK annual report, must provide us with a copy of internal documents (in most cases, a copy of management accounts) used to support the figures for EBITDA and staff costs reported in Part 2 of the application, and provide an explanation for any difference between the application figures and those relevant in the internal documents. This explanation should be reported in Table G of Part 2 of the application. Such users must also submit electronic copies (scans of physical documents are acceptable) of electricity bills for the May and November of every financial year for which data is submitted in Part 2 of the application form. If a bill was not received on the particular May or November of a financial year, the applicant must also submit a bill for December of that financial year. 5.3 Monitoring 72. BIS will monitor applications and compensation paid and will from time to time undertake further validation or investigation. This will include but is not limited to - Where a business is claiming a significant amount of compensation. Where a case is complex for example, a restructured business or an installation manufacturing several products. Where the information being provided is significantly different from that declared with Companies House. A random 5% check of all cases, by a more senior BIS official. In some cases, an independent verifier may also be used. 17

19 Annex A Explanation of Calculations The 20% Business Level Eligibility Calculation 1. Electricity intensity is defined as the amount spent on electricity as a proportion of gross value added (GVA) in the applicant s three most financial recent years (when the scheme opens this is 2012/13, 2013/14 and 2014/15). This includes electricity from all sources (grid and non-grid). To allow fair comparison across applicants facing different electricity prices, a common reference price is used. To allow comparison across time, all monetary values are first deflated to a common year using the GDP Deflator. 2. Total electricity consumption provided in Table A of part two of the application form, is added together for each financial year provided e.g. 2012/13, 2013/14 & 2014/15. It is then multiplied by the reference price to give the total cost of electricity over the years provided. Earnings Before Interest Tax Depreciation & Amortisation (EBITDA) and staff costs including pension costs and employer NI contributions is provided in Table A 7. Adding together EBITDA and staff cost creates GVA. GVA for each year is multiplied by the relevant GDP Deflator to convert it to 2012 prices. GVA is then added together over the years provided. The total electricity cost is divided by total GVA to create electricity intensity. A business is eligible if electricity intensity exceeds 20%. 3. In mathematical notation, the calculation of energy intensity is: pp EE pp=11 yy=11 EEEEEEEEEEEEEEEE ppyy RRRRRRRRRRRRRRRR BBRRBBRRBBBBBBRRBB pp BB yy=11 GGGGGG yy ElecCons y = Total electricity consumption applying to product p of the applicant in financial year y. The total number of financial years available is n. This should be provided in Megawatt hours consumed over the course of the financial year i.e. as consumption appears on bills, invoices etc. GVA y = Gross Value Added (GVA) in financial year y. This should be provided as Earnings Before Interest Tax Depreciation & Amortisation (EBITDA) and staff costs including pension costs and employer NI contributions. This should be provided in nominal terms i.e. as it appears in financial reports and BIS will adjust for inflation using the GDP deflator. If GVA is less than zero in any one year it will be given a nominal value of 1. RefPrice = The reference price for the cost of electricity ( /MWh) is fixed in 2012 prices. For applicants when the scheme first opens in 2016, the reference price is in 2012 prices. 7 In accordance with Annex 4 of EEAG guidelines, income and expenditure classified as financial or extraordinary in company accounts should not be included in EBITDA. 18

20 Benchmark p = Where applicable (those products in eligibility table two where a benchmark exists) this is a multiplier to reduce electricity consumption to the product benchmark for product p. Otherwise the multiplier is equal to one. If the benchmark is expressed in electricity use per tonne of output this multiplier is equal to the benchmark multiplied by product tonnage. Worked Example 4. A business has the following figures for electricity consumption, EBITDA, and staff costs: Total Reference Price in 2012 prices (a) 79.24/MWh 79.24/MWh 79.24/MWh Reported Electricity Consumption over 20,000MWh 14,000MWh 16,000MWh Implied Electricity Cost (a*b) 1,584,800. 1,109, ,267, ,962,000. GDP Deflator for FY (c) Reported EBITDA over FY (d) 1,000,000-1,000,000 2,000,000 Reported Staff costs over FY (e) 5,000,000 6,000,000 5,000,000 Nominal GVA (d + e) 6,000,000 5,000,000 7,000,000 Real GVA in 2012 prices c*(d+e) 6,000,000 4,900,000 6,790,000 17,690,000 Electricity Intensity (Total Electricity Cost / Total Real GVA) 22% Step 1 Implied electricity cost in 2012 prices is calculated by multiplying reported electricity consumption (as provided in Table A of the excel form) by the reference price. The total electricity cost over the three years is calculated by adding each year together. If application is for a product in Table 2 relevant energy efficiency benchmarks will be applied. Step 2 GVA is the sum of staff costs and EBITDA (as provided in Table A of the excel form). GVA is converted into 2012 prices by multiplying by the GDP deflator. The GDP deflator is adjusted to match the applicant s financial year e.g. A financial year starting 01Jul13 will use 50% of the GDP deflator for 2013 and 50% of Total 2012 GVA is created by adding together all three years. Step 3 - Electricity intensity is then calculated by dividing total implied electricity cost by total 2012 GVA. In the example above the business passes the 20% test. Calculation of Compensation 5. The compensation allowed per MWh is 85% of the price of Renewable Obligation and Feed-in-Tariff. The amount of eligible electricity is the average grid electricity used by the applicant from all meters during the baseline years available multiplied by the proportion of electricity used by the applicant producing eligible products. Eligible electricity is multiplied by the compensation per MWh to give annual compensation due. 19

21 6. In mathematical notation, the baseline (and payments for first year) will be set using the following equation: kk EE GGFFFFGGGGGGGGGGmmmm BB mm=11 EE yy=11(elprodbbyy) 0.85 (ROPr 16 + FFFFFFFFFF 16 ) nn BB EE mm=11 yy=11 (Inelprod BByy + Elprod BByy ) mm=11 yy=11 ROPr = The price ( /MWh) of the Renewable Obligation in the period for which compensation is being paid e.g FiTPr = The price ( /MWh) of the Feed-in-Tariff in the period for which compensation is being paid e.g GridElec my = The grid electricity consumption of the applicant from meter m in calendar year y (as provided in table B). The total number of calendar years of data provided is equal to n and the total number of meters is equal to k. This should exclude any electricity supplied to the meter that is not consumed by the applicant e.g. supplied to another business. ElProd my = Electricity consumption for eligible products i.e. products from the sectors which pass the sector level test, in MWh (as provided in table C). Inelprod my = Electricity consumption for ineligible products i.e. products from sectors which do not pass the sector level test, in Megawatt hours (as provided in table C). Worked Example 7. A business has the following figures for grid electricity usage and electricity usage for eligible/ineligible products: Average Allowable compensation of 85% (a) Renewable Obligation Price (b) 10/MWh 10/MWh 10/MWh 10/MWh Feed-in-Tariff Price (c) 5/MWh 5/MWh 5/MWh 5/MWh Compensation per Eligible MWh (a*(b+c)) 13/MWh Grid Electricity Consumed (d) 8,000MWh 7,000MWh 7,000MWh Non-Grid Electricity Consumed (e) 1,000MWh 1,000MWh 1,000MWh Grid Electricity consumption for eligible products (f) 7,000MWh 6,500MWh 6,000MWh Grid Electricity consumption for ineligible products (g) 1,000MWh 500MWh 1,000MWh Proportion of grid electricity d/(d+e) 89% 88% 88% 88% Eligible Electricity MWh is (f) 7,000MWh 6,500MWh 6,000MWh 6,500MWh Compensation Due: (Eligible MWh * Compensation per Eligible MWh) 82,875 Step 1 The compensation due per eligible Megawatt hour is calculated by multiplying the allowable proportion of compensation (85%) by the indirect policy cost imposed by the Renewable Obligation and Feed-in-Tariff. Step 2 Grid electricity consumed is the sum of electricity consumed across different sites (as provided in table B). This should equal all the grid electricity 20

22 consumed by the applicant. This is multiplied by the proportion of electricity used for eligible products (as provided in table C) to create the eligible electricity. If a business uses grid and non-grid electricity the baseline electricity will be adjusted at the end of each year to account for changes in the proportion of grid electricity used. In this instance, if the proportion of grid electricity increases from 88% over the baseline to 90% in 2015/16, the baseline will be increased by 2.3% (2.3% = (90-88)/88). Step 3 The eligible electricity is multiplied by the compensation due per Megawatt hour to show the compensation due over the year. 8. If there are less than three years of production BIS will use data from the most recent years until there are three full years of data when BIS will fix the baseline as the average of those years. 21

23 22