Non-commodity charges for 2025
Non-Commodity Charges for 2025: What to expect
Published date: 18/03/2025
Read time: 2 minutes
In 2024, businesses saw various changes in non-commodity charges, aimed at supporting the competitiveness and sustainability of the UK energy market, with discussions around whether to add more costs to bills versus taking the necessary steps to achieve net zero. In our Non-Commodity blog last year, we touched on what new charges may be in the pipeline from the Hydrogen levy to the Carbon Capture Subsidy, and as we move into 2025, we're back with an updated view on what's potentially in store this year.
We'll provide an overview of the latest updates, focusing on the EII Support Levy, the Nuclear Regulated Asset Base (RAB) and how these may impact your business energy bills. Join William Cartwright, our Industry Forecasting Manager as he talks through these critical updates and what they mean for your business, keeping you informed for the year ahead.
Over to you William...
There are a couple of areas which I think are worth mentioning for 2025, specifically the Energy Intensive Industry (EII) Support Levy and the Nuclear Regulated Asset Base (RAB) scheme. These are pivotal as they are set to directly impact the cost structures and competitive landscape for businesses in the UK. The EII Support Levy helps to maintain competitiveness on a global scale, particularly against European counterparts, which is crucial for sectors such as chemicals, plastics, mining, and cement, which rely heavily on energy and face stiff international competition. The Nuclear RAB scheme is worth noting as it represents a new financing model for nuclear projects, aiming to attract private capital to fund new nuclear plants. This is particularly important as the UK transitions to low-carbon energy sources to achieve net zero targets. The successful implementation of the Nuclear RAB scheme could lead to more stable and predictable energy prices in the long term, benefitting not only the energy sector but also the wider economy.
Let's start off with looking at the EII Support Levey in more detail...
The EII Support Levy is designed to bolster the Network Charging Compensation Scheme (NCCS) for Energy Intensive Industries (such as chemicals, plastics, mining, and cement) and starting from 2025 when the levy goes live, it will refund 60% of the network charges for EIIs, aiming to ensure competitive energy costs for these industries.
EII Support Levy...
Compensation & Competitiveness: The scheme refunds network charges, or the costs for using the electricity grid. These costs are Transmission Network Use of System (TNUoS), Distribution Use of System (DUoS) and Balancing System Use of System (BSUoS). Introduced to enhance competitiveness by reducing EII energy costs, bringing these more in line with those from European countries. The NCCS sits on top of existing EII exemptions from paying Renewable Obligation (RO), Contracts for Difference (CfD), Feed in Tariff (FiT) and Capacity Market costs.
Monthly charges: Starting from April 2025, suppliers will be charged monthly based on their market share to cover claims related to the previous year.
Exclusions for EII customers: EII customers will not contribute to the EII Support Levy, meaning their electricity demand will not factor into the supplier's market share.
Inclusion of costs: The charges seen by suppliers will be the EII Levy Payments covering the compensation claims made by EIIs, administrator costs to cover Elexon costs and Reserve Fund Payments that will be built up over the first 12 months of the scheme to ensure there is sufficient money in the scheme to pay EIIs. It's worth noting that we are not expecting a rate to be published, only the industry costs.
Initial cost estimate: The size of the cost will be approximately £1/MWh. Published information so far indicates a rate below this, but we are expecting the costs to increase as more information becomes available relating to actual costs.
Overall, while the EII Support Levy's updates aim to enhance competitiveness for energy-intensive industries, they may result in higher costs and strategic shifts for other business energy customers.
Now onto Nuclear Regulated Asset Base (RAB)...
The Nuclear Energy Bill which came into effect in 2022 set out new funding for the nuclear industry in the UK to tackle challenges around net zero and with this came the RAB model - a new funding method. This was initially targeted for the end of 2024, however due to ongoing discussions with investors, the scheme may not come in until mid-2026.
Reliable revenue: The economic regulation adds a new supplier charge to provide a reliable revenue stream from consumers for the construction and operation of new nuclear projects, starting with the Sizewell C nuclear site planned for construction in Suffolk.
Support: The scheme is designed to support costs for the design, construction, commissioning, and operation of new nuclear projects. It follows a similar structure to the Contracts for Difference (CfD) scheme, which could see the scheme being a benefit as well as a cost once a nuclear site is generating electricity. Until a nuclear site is operating, the Nuclear RAB would be a cost.
Rates: The rates to be charged are still unknown at this time, but we are working with industry to find out more details.
The Nuclear RAB scheme is set to provide long-term benefits by stabilising energy prices through a more substantial nuclear energy supply, mitigating future price volatility and contributing to a more reliable energy infrastructure. However, in the short term, businesses must prepare for potential increases in their energy expenses in 2025 as the scheme takes effect.
Final thoughts...
I think, for UK customers, it's important to prepare for these changes by staying informed about the upcoming charges and their potential impacts. By understanding the new levies and schemes, businesses can then make strategic decisions to manage their energy expenses effectively. While the short-term effects may include higher costs, the long-term benefits of a more sustainable and stable energy market are worth anticipating and planning for.
Overall, 2025 is set to be a year of significant adjustments for the UK's non-commodity charges, reflecting the ongoing efforts to achieve a balanced and competitive energy market. Stay tuned to our updates as we continue to monitor and analyse these developments, ensuring that you are equipped with the knowledge to navigate this dynamic energy landscape.
Keep an eye on our Blog page for further updates, and follow us on LinkedIn to keep up to date on all our latest content.