The UK Government has decided to use the existing Contracts for Difference supplier obligation framework to help finance electricity bill relief for eligible manufacturers under the British Industrial Competitiveness Scheme (BICS). The decision follows a consultation on changes to the 2014 supplier obligation regulations and is intended to prevent the planned industrial exemptions from increasing electricity charges for households and other businesses that do not qualify.
BICS is scheduled to begin in April 2027. Eligible manufacturers will receive exemptions from the indirect costs of the Renewables Obligation and Feed-in Tariffs from that date, with the Capacity Market exemption scheduled to begin in October 2027. Government guidance estimates that the full relief could reduce eligible electricity costs by up to £40 per megawatt hour, although the saving for an individual site will depend on its qualifying electricity consumption and the charges otherwise payable. The scheme is due to end in 2035.
The exemptions will remove the indirect costs of three specified programmes from qualifying industrial electricity bills. The charges ordinarily reach customers through licensed suppliers, which recover the cost of renewable generation support and contracted generating capacity. If the amount recovered from qualifying businesses falls, the remaining funding requirement could shift to other customers. The Government intends to counter that effect through a combination of electricity system savings and Exchequer funding; the new CfD accounting arrangement is the route for recognising the public contribution.
Under the planned changes, the Low Carbon Contracts Company (LCCC) will include Exchequer payments when calculating the interim levy rate charged to electricity suppliers through Contracts for Difference. A lower amount must then be collected from suppliers to meet the same CfD settlement requirement. Existing CfD generator contracts continue to settle the difference between an agreed strike price and a reference electricity price, and the Government says those generator payment obligations will remain unaffected.
Although the offset travels through the CfD levy, BICS beneficiaries will not be exempted from CfD charges. Their direct exemptions concern the Renewables Obligation, Feed-in Tariffs and Capacity Market. Exchequer payments made through LCCC are intended to reduce the wider cost impact on households and non-exempt business customers. The distinction separates the assistance credited to an eligible industrial site from the mechanism used to manage costs across electricity suppliers.
The consultation received 13 responses, mainly from electricity suppliers, alongside developers and other stakeholders. Most supported the established settlement route while requesting earlier information on Exchequer payment amounts, timing and forecasting. Respondents also raised the practical question of how a supplier can reflect lower charges in tariffs agreed before final funding levels are known. The Government has confirmed that payments to LCCC will be non-repayable, while subsequent forecasting adjustments will be handled through future funding decisions and levy reconciliation.
BICS funding calculations will be updated as estimates of eligible electricity consumption and associated policy costs improve. Changes in the number of qualifying sites or their demand can alter the overall amount that must be offset, and quarterly forecasts will be reconciled against subsequent information. LCCC’s established levy processes will account for such differences, rather than requiring a separate settlement platform. The Government intends to make the first Exchequer payment by 27 November 2026 so it can be reflected in the levy rate set for April to June 2027.
The eligibility rules require a manufacturer to be registered at Companies House, operate within eligible industry classifications, produce goods covered by the specified product codes and meet the minimum electricity usage threshold. Applications for the opening year began on 1 October 2026 and close on 30 November, with first-year decisions expected in early 2027. Businesses with substantial electricity consumption outside the designated sectors and products will not automatically qualify for relief.
Electricity expenditure at a factory includes wholesale energy prices, distribution and transmission charges, supplier terms and applicable policy costs. BICS reduces only defined policy components, so an eligible company’s eventual saving will also depend on its contract and electricity consumption. The CfD adjustment may flow through supplier pricing on a different timetable, particularly where customers have fixed-price contracts. Manufacturers assessing a 2027 budget will therefore need to distinguish their direct exemption from any change in the levy charged across the wider market.
Ofgem opened a separate consultation on 2 November concerning how the domestic electricity price cap should account for the CfD levy adjustment. Its proposal would recognise the Government’s funding within the allowance used for the April–June 2027 cap period, if adopted. The Government expects LCCC to provide the relevant levy information in February 2027. The consultation does not determine which manufacturers qualify for BICS; it concerns how the public funding affects regulated household tariff calculations.
The amendments to the 2014 supplier obligation regulations must still be finalised and laid before Parliament. Work with LCCC, Ofgem and the Department for Innovation, Science and Trade will continue on the funding methodology and monitoring arrangements. The immediate deadline for manufacturers is 30 November 2026, when the first application window closes. Eligibility decisions are expected in early 2027, before the first Renewables Obligation and Feed-in Tariffs exemptions are scheduled to take effect in April.
