The EII exemption scheme, explained.

What the scheme does

The UK funds several low-carbon and security-of-supply programmes through levies or obligations on electricity suppliers, and those costs are passed through to consumers. Government accepts that loading them onto electricity-intensive manufacturers puts them at a disadvantage against international rivals who do not pay them, so it created the exemption schemes, which strip those cost lines out of the electricity used to make eligible products.

• Contracts for Difference (CFD), which supports low-carbon generation
• Renewables Obligation (RO), the legacy renewables support scheme
• Small-scale Feed-in Tariff (FIT), which supports small renewable installations
• GB Capacity Market (CM), which pays for security of supply

A fifth element sits alongside them. The Network Charging Compensation Scheme has refunded a share of transmission and distribution network charges since April 2024, and anyone holding a valid EII certificate is eligible for it without a separate test.

The catch is that this is administered relief, not automatic relief. You apply, prove eligibility with audited numbers, get a supplier to implement it, declare quarterly that you are still trading, re-apply before the certificate expires, and report changes. Miss any of those and the relief stops, or is clawed back.

What it is worth

The published government estimate when the British Industry Supercharger rolled out in April 2024 was £24 to £31 per MWh on average across eligible sectors, worth £320 to £410 million a year in total to around 370 businesses employing 400,000 people.

For a site pulling 40 GWh a year at a 100% certified proportion, that is roughly £1 million to £1.25 million annually on policy costs alone, before network compensation. Since 1 April 2026 the compensation scheme adds 90% of eligible network charges on the same proportion.

Those are scheme-wide averages rather than a quote. What the exemption is worth to a particular business depends on its certified proportion per meter, its consumption profile, and the levy rates in the period concerned.

The four eligibility gates

There are four, and you need all of them. Throughout the guidance, business or applicant means the legal entity manufacturing the product in the UK, typically a company registered at Companies House.

1. 01You manufacture a product in an eligible sector
   Defined by a 4-digit NACE code, the sector level test. The list runs to 71 specified activities and there is no discretion in it. See the deep dive below for the full list and where to check it.
2. 02You pass the 20% electricity intensity test
   The business level test: electricity costs must be 20% or more of gross value added over a defined reference period. This is the gate most of the work goes into, and the next chapter is about it.
3. 03You have at least one quarter of financial data
   Fewer than one financial quarter and you are ineligible, full stop.
4. 04You can evidence the proportion used for the eligible product
   For a period of at least three months. This is what sets the percentage that ends up on the certificate, meter by meter.

Group structures are a decision, not a formality

A business with subsidiaries can apply at any level, provided the applicant is a legal entity. Because the test compares electricity cost against gross value added, applying at the level of an electricity-intensive manufacturing subsidiary will usually produce a much higher intensity ratio than applying at the level of a diversified parent whose value added includes non-manufacturing earnings and a much larger staff cost base. Model both. Whichever entity applies must have the annual accounts at Companies House to support it.

If an agent or consultant applies for you, they must submit a Letter of Authority with the application, signed by a director or a senior manager.

The 20% business level test

You need to show that electricity costs are 20% or more of gross value added over the relevant period. Gross value added here means EBITDA excluding extraordinary items, plus all staff costs, which includes employer pension and National Insurance contributions, director salaries and bonuses, and agency or casual staff.

The distinction people get wrong

Electricity counts differently at the two stages, and conflating them is the single most common misreading of the scheme.

So a business where eligible production is a minority of output can comfortably pass the test on total consumption and then receive a modest percentage on each meter. Passing the test and receiving 100% relief are two different things.

Which years count

You cannot apply with fewer periods of data than actually exist. Excluding a bad year to look eligible is not permitted. The one exception is that you may exclude your 2020 and 2021 financial years for the effect of the pandemic. If you have no annual accounts yet, you must supply your first set to DBT within 30 days of them being finalised.

A loss-making year usually helps

Because value added is floored at £1, a heavily loss-making year contributes almost nothing to the denominator while its electricity consumption still counts in full at the top of the fraction. The published worked example runs a business with two loss-making years out of three to an intensity of 51%, comfortably over the threshold.

Representative electricity cost, three complete years

£29,555,000

Value added in 2012 prices, three years

£58,270,000

Electricity cost impact

51%

Threshold

20%

In our reading, businesses assume poor trading years disqualify them and do not apply. On this arithmetic the opposite is often true, though every case turns on its own numbers.

Certified meter proportions

Passing the tests gets you a certificate. The certificate then specifies, for each individual meter, what proportion of the electricity through it is exempt. That proportion is the electricity used to produce eligible products divided by the total electricity through the meter, rounded to the nearest hundredth.

Where a meter is both shared with another business and used for mixed production, the two proportions multiply. This is where people expect the meter share to be the answer and it is not.

Meters that are never eligible

• Domestic meters, which some businesses have in their offices
• Export meters, used to export non-grid power such as CHP to the grid
• Non half-hourly meters

Proportions move, and you have to tell them

Proportions are re-baselined annually from the data in your re-application. They can also be updated mid-term by a continuing change, which means specifically that the business begins or ceases to share a meter with a third party, or begins or ceases to use electricity through that meter to make an ineligible product, and the change has lasted at least three months and is still continuing.

It runs both ways. Stopping an ineligible product raises your proportion; taking on a co-located tenant behind your meter lowers it. Either way you are obliged to report it, and an updated certificate is issued.

Applying, and what a certificate lasts

Applications use the forms published on GOV.UK, Part 1 for general eligibility and Part 2 for the calculation spreadsheet, emailed to DBT. There is no fixed deadline. One useful simplification: the criteria and assessment are the same across CFD, RO, FIT and CM, so this is one application rather than four, and eligibility for the exemption carries eligibility for network compensation with it.

1. Before you applyAssemble the evidence

   May and November electricity bills for every year of the relevant period, EBITDA and staff costs matching Companies House, and meter details including MSID.

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2. On issueA first certificate is short

   It runs from the day after issue to 30 June of the following year. Apply in November and you are re-applying almost immediately.

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3. Each 1 JulyRenewals run the full year

   A certificate issued to an existing holder runs 1 July to 30 June. Apply before the current one expires and there is no gap.

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4. At the sixthFull re-assessment

   With three or more years of accounts, eligibility is only reviewed again at your sixth certificate. With fewer, it is reviewed every time.

The fixed 30 June year end is the part that surprises people. Expiry is pegged to a date rather than to a twelve-month term, so the later in the year you first apply, the shorter your first certificate. Apply late in the renewal cycle and there is a gap, during which you pay full policy costs and cannot claim network compensation for any month you did not hold a certificate for the whole month.

Businesses trading for four consecutive financial quarters or less follow a different rule: the certificate lasts 16 months from the first day of the relevant period used in the application, less whatever has elapsed by the date of issue.

Getting your supplier to apply it

Holding a certificate is not the same as receiving the benefit, and this is the step where relief most often goes missing. You must pass the certificate to your electricity supplier, and the supplier must put the relevant arrangements in place before the exemption can be applied at all, in line with guidance issued by the Low Carbon Contracts Company.

If you change supplier, the new supplier must notify LCCC and set the arrangements up again. A switch that looks purely commercial can suspend an exemption for months if the new supplier onboarding does not include the notification.

The documents to name when a supplier says it is not set up

Asking an account manager to please apply the exemption is a weak request. Asking them about the LCCC relevant arrangements document by name is a much stronger one.

If a certificate says 85.3% and the bill exempts 100%, or 0%, that is not a rounding artefact. It is either an under-exemption you are losing money on or an over-exemption you will have to repay.

Quarterly declarations

This is the obligation businesses forget, and it is the one that gets certificates revoked. In each of the three-month periods ending 31 March, 30 June, 30 September and 31 December you must notify DBT that you are still trading and still carrying out the specified activity, and report any other activity the metered electricity is used for.

The timing is more flexible than people assume: a declaration can be submitted on any day in the quarter rather than by a fixed date. That is helpful, and it is also precisely why they get missed. There is no natural prompt.

Some quarters need more than a confirmation. Where the certified proportion is based on less than twelve months of data, or there is an open continuing change, the report must include the most recent evidence of the proportion, which is what allows DBT to update the certificate. Where the change is that you have begun sharing a meter, it must identify the third party and evidence the arrangement.

Failing to comply with the notification obligations in regulation 12 is grounds for revocation, and DBT will recover the value of any exemption received but not entitled to.

Network Charging Compensation

The compensation scheme is the second half of the package and, since April 2026, materially more valuable than it was. It is administered by Elexon on behalf of DBT. Anyone with a valid certificate can claim, with no separate sector or intensity test, at 90% of eligible network charges on the same proportion shown on the certificate. Claims submitted before 1 April 2026 remain at the original 60%.

You can only claim on network charges that have been incurred and paid. Claiming on charges that were not is a breach of the scheme regulations and voids the claim.

The deadline that cannot be reopened

Claims go to Elexon quarterly, in application windows published on the Elexon website. From the Q2 2026 window the window runs for two months rather than one. The regulations limit each window to the previous quarter, so a missed quarter cannot be submitted later. That compensation is gone permanently, and there is no catch-up mechanism. It is the highest-consequence deadline in the scheme.

Evidencing a claim

Acceptable evidence is an electricity bill or invoice of costs from a supplier, or a letter signed by a director assuring the claim accurately represents the network costs incurred. Bill structures vary, and DBT is explicit that making sure a bill details its network charging costs is the responsibility of the applicant, not of Elexon or DBT.

If your bills bundle network charges into an opaque non-commodity line, regulation 26 of the Energy-Intensive Industry Electricity Support Payments and Levy Regulations 2024 lets you request the detail from your supplier in writing, and requires them to provide it as soon as reasonably practicable or explain why they cannot. Compensation can be denied where evidence is insufficient or incorrect.

Deep dives and edge cases

The main path above covers the ordinary case. These are the situations that need their own answer, and every one of them is a reason DBT may look at an application more closely.

Questions