Network Charges Compensation Scheme for Energy Intensive Industries

Together, with the support of our partner the Cast Metals Federation, LGE has responded to a government consultation on a potential compensation scheme for network charges paid by energy intensive industries (EII), read all about it below:


February 2023 saw the UK government launch the British Industry Supercharger (BIC) scheme, a set of measures to make EIIs more competitive. The scheme has 3 central measures:

  • Increasing the EII Renewable Levy Exemption, consulted on in 2022 and is now due to be implemented.
  • A new full indirect exemption from the costs associated with the Capacity Market.
  • A proposed compensation for the charges paid for using the GB electricity grid through the EII Network Charging Compensation Scheme.

The government consequently launched a consultation which sought responses to their plans on the third of these measures, a network charges compensation scheme.


  • UK electricity costs are significantly higher than other countries and a particular issue for EIIs therefore making them less competitive to comparable companies in other countries and putting the UK at an economic disadvantage.
  • EIIs employ around c.400,000 people and have a combined gross value of £32.8 billion to the UK economy, totalling 3.6% overall.
  • Around 300 firms will be eligible for the compensation and figures suggest that it could reduce EIIs costs by around £20/MWh, helping cut the gap that exists with other countries but without undercutting them given the interconnected nature of energy systems.
  • Germany, France, the Netherlands and Spain offer discounts on network costs for EIIs which range between 55% and 90%. However, research has found that the structure of UK charges is different and the schemes that other countries use would have greater complexity in the UK.

The UK Proposal

  • An EII Network Charging Compensation Scheme (NCC) to be introduced which will compensate EIIs for a portion of their network costs. The compensation will be raised through a EII Support Levy (ESL) which will be raised on licensed UK electricity suppliers.
  • The scheme would compensate all three types of network charges as a collective but will not compensate the operation of private wire networks that companies have, will not compensate on the charging costs from the gas grid and will not compensate on infrastructure costs or new connections to the grid.
  • It is proposed that the compensation will be paid to EIIs in arrears on a quarterly basis and an administrator will be appointed to manage this.
  • The ESL methodology has been considered in two ways:
  1. A volumetric calculation based on the amount of electricity a supplier provides over a period.
  2. A per meter point calculation based on the number of meters supplied over a period.
  • The government is currently favouring a volumetric approach but is open to evidence for both methods.
  • Each quarter the administrator would calculate a supplier’s levy obligation using set formulas and the scheme will provide a mechanism against the risk of suppliers defaulting but also minimise the cost burden on suppliers.

Impact on the Regulation, Consumers and Suppliers

  • The proposal will not interfere with the ability of Ofgem to determine the way network charges are set or interfere in the payment of network costs by EIIs.
  • On domestic consumers it is estimated that the package will increase costs between £3 and £5 to average household bill once measures have been implemented by 2025/2026. For non-domestic consumers the expected increase to costs is on average £1/MWh.
  • There will be some additional costs on suppliers as the scheme will cause them to increase prices which comes with administrative costs and will also be a small familiarisation and administration cost on the EIIs.

LGE’s view

LGE believes that the proposal is logical due to network costs being a significant proportion of electricity bills and EIIs competitiveness suffering compared to European counterparts due to high energy prices and a lack of support. Not compensating for charges associated with the gas network and private wire networks also seems logical as the industry looks to move away from its reliance on natural gas and the fact that use of private networks negates some of the costs to be compensated under the scheme. Nevertheless, many manufacturing processes are still reliant on gas and therefore an approach which decreases the level of support over time might be proportional to allow the industry to adapt to cleaner fuels such as hydrogen. LGE does, however, question the proposal to not compensate costs associated with new connections as this could act as a deterrent for new industry developments due to having to compete with existing companies without the compensation.

In terms of payment, LGE agrees with the idea to compensate EIIs on a quarterly arrears basis as any ‘truing up’ of consumption figures will have been completed by this point so accurate data on which to calculate the compensation will be available. LGE also supports and agrees with the rationale of the levy to be raised on suppliers. The volumetric approach to calculating a supplier’s levy could, however, be problematic as since the introduction of larger fixed standing charges as part of the Targeted Charging Review, a significant portion of network costs are now part of fixed standing charges within TNUoS and DUoS.  These costs cannot be mitigated by a decrease in consumption and subsequently a reduction on the fixed charges could more effectively help EII’s reduce costs.

How LGE can help

As proud partner of the CMF, LGE has responded to this consultation in support of its members and will be closely monitoring how these changes impact EIIs and the manufacturing industry as a whole. LGE has expertise in energy procurement and management for a number of energy intensive clients, for more information on how LGE can help and the services we provide speak to your account manager or contact us at