British Industrial Competitiveness Scheme (BICS): Renewables Obligation - business regulatory impact assessment

Section 1: Background, aims and options

1.1 Background to policy issue

The Renewables Obligation (RO) schemes provide incentives for accredited renewable generators to produce renewable electricity, through providing additional income to what they receive for selling their electricity on the wholesale market.

The RO schemes were introduced at a time when renewable electricity was significantly more expensive, and when generators faced higher capital costs than those building new generating assets today. As such, the scheme leaves a substantial cost legacy that is ultimately borne by consumers through levies on electricity bills. This cost has been rising over time; the scheme’s value is forecast to total over £8.5bn a year across the UK in 2025/26. While the RO Schemes closed to new capacity in 2017, generators across the UK will continue to receive payments until they come off the scheme between 2027 and 2037

The cost of delivering the RO is ultimately borne by consumers through their energy bills. While 75% of the costs of the RO were moved from domestic electricity bills to exchequer funding in April 2026, non-domestic and business consumers continue to fund the entirety of their share of RO costs through their electricity bills. These costs can be significant –particularly for businesses operating in energy intensive industries such as certain types of manufacturing – and can impact on international competitiveness.

The Scottish Government is committed to maintaining a competitive and resilient industrial base, but persistently high electricity prices have increasingly undermined investment, productivity and employment, particularly in manufacturing. While the long-term solution to energy security and affordability lies in the transition to clean power, as set out in the Clean Power 2030 Action Plan, there is a clear need to address the immediate cost pressures facing industry and stifling growth.

In June 2025, the UK Government’s Modern Industrial Strategy announced the new British Industrial Competitiveness Scheme (BICS) designed to bring British electricity costs more in line with other economies in Europe. BICS will support eligible manufacturing frontier industries within ‘IS-8’ manufacturing sectors, and manufacturing foundational industries which provide key inputs to the frontier industries, who meet a certain threshold of electricity intensity. It will do this by exempting them from paying the indirect costs of three schemes:

• The Renewables Obligation (and Renewables Obligation Scotland) and Feed in Tariffs (which require electricity suppliers to make payments to support generation of electricity from renewable sources) from April 2027; and
• The Capacity Market (which requires electricity suppliers to make payments to ensure the UK has adequate electricity capacity) from October 2027.

In order to implement BICS, the Scottish and UK Governments are in the process of implementing legislative changes which will alter the methodology for calculating the annual RO obligation level to reflect the exemption that will be applied to eligible businesses.

1.2 Current Position – before proposed changes

At present, businesses in Scotland that are expected to be eligible for BICS continue to contribute towards the costs of the ROS through their electricity bills in the same way as other non-domestic consumers. These costs form part of wider electricity price pressures faced by energy-intensive industries, particularly manufacturing businesses.

The Scottish Government is committed to maintaining a competitive and resilient industrial base. However, persistently high electricity prices - exacerbated by the costs of legacy support schemes such as the Renewables Obligation – increasingly undermine investment, growth and employment particularly in energy intensive industries such as manufacturing.

High electricity costs also put businesses in Scotland and the rest of GB at a disadvantage internationally. Electricity prices in GB are high due to a combination of structural and policy factors. British wholesale electricity costs are relatively high for a number of reasons including a reliance on natural gas for electricity power generation, periods of higher carbon prices on electricity generation due to the Carbon Price Support and lower levels of interconnection than within mainland Europe.

They are broadly comparable to similar nations (apart from the USA whose domestic gas price is decoupled from world markets because of their self-sufficiency), and are expected to fall as the amount of renewable generation increases.

However, British policy costs on industrial electricity are significantly higher than most other major economies. For very large industrial users in the UK they are typically around £61 per MWh or approximately 27% of the overall electricity bill compared to around £2 per MWh for France and £10 per MWh for Germany^[4].

To address these challenges, the UK Government’s Modern Industrial Strategy announced the BICS. The scheme will support eligible manufacturing frontier industries within the Industrial Strategy’s growth sectors (IS-8), as well as manufacturing foundational industries which provide key inputs to those sectors. Eligible businesses will be exempt from the indirect costs of the RO, Feed-in Tariffs (FIT), and the Capacity Market (CM).

The Scottish Government is therefore taking forward legislative changes to exempt BICS-eligible businesses from paying up to 100% of their share of ROS costs. We consider this to be a necessary and proportionate measure to support the competitiveness and continued growth of eligible businesses in Scotland.

Without this change, eligible Scottish businesses would not be able to benefit from the reduction in ROS costs provided by BICS, placing them at a significant competitive disadvantage compared with equivalent businesses in England and Wales.

While the exemptions will result in ROS costs being redistributed to other consumers, BICS is designed so that costs can be fully covered by savings generated within the energy system – such as changing RO and FiT indexation from RPI to CPI, and removal of the Carbon Price Support from electricity bills – and exchequer funding. This ensures that the risk of the cost of the exemption falling on households and non-eligible businesses is minimised.

1.3 Types of Business, Economic Sector, Groups or Communities that could be affected by the issue and its proposed solution

Businesses operating within manufacturing frontier industries within IS-8 growth sectors defined in the UK Modern Industrial Strategy – and manufacturing foundational industries which provide key inputs to the frontier industries – are expected to see a reduction in their electricity costs of between £35 and £40 per megawatt hour^[5]. This is expected to have the effect of reducing their overall operating costs, thus improving profitability and maintaining competitiveness with their counterparts both elsewhere in the UK and internationally.

BIST estimate that there are approximately 825 businesses in Scotland that will be eligible to benefit from BICS.

As mentioned above, there is no anticipated impact on non-eligible businesses or domestic consumers owing to the wider UK Government energy policy measures.