The Government have this morning set out their plans to help cut energy bills for businesses in the form of the Energy Bill Relief Scheme.
The support will extend to businesses, charities and public sector organisations, alongside the previously announced Energy Price Guarantee for households, with the intention of supporting growth, preventing unnecessary insolvencies and protecting jobs.
Through the new Scheme, the Government will provide a discount on wholesale gas and electricity prices for all non-domestic customers (including all UK businesses, charities and the public sector such as schools and hospitals) whose current gas and electricity prices have been significantly inflated in light of global energy prices. This support will be equivalent to the Energy Price Guarantee put in place for households.
Over what period of time does the discount apply?
It will apply to non-domestic consumer’s fixed contracts agreed on or after 1 April 2022, as well as to deemed, variable and flexible tariffs and contracts. It will apply to energy usage from 1 October 2022 to 31 March 2023, running for an initial six-month period for all non-domestic energy users. The savings will be first seen in October bills, which are typically received in November.
Do we need to do anything?
No. Non-domestic consumers do not need to take action or make any application to the scheme, as the support (in the form of a p/kWh discount) will automatically be applied to bills.
What is the discount?
The Government has set a Supported Wholesale Price – expected to be £211 per MWh for electricity and £75 per MWh for gas, which is expected to be less than half the wholesale prices previously predicted this winter – which is a discounted price per unit of gas and electricity. This is equivalent to the wholesale element of the Energy Price Guarantee for households. It includes the removal of green levies paid by non-domestic customers who receive support under the scheme. The supported wholesale prices for gas and electricity under the scheme will be confirmed on 30 September.
Are there varying levels of discount?
Yes. The level of price reduction for each business will vary depending on their contract type and circumstances:
1. Non-domestic customers on existing fixed price contracts will be eligible for support as long as the contract was agreed on or after 1 April 2022. Provided that the wholesale element of the price the customer is paying is above the Government Supported Price, their per unit energy costs will automatically be reduced by the relevant p/kWh for the duration of the Scheme. Customers entering new fixed price contracts after 1 October will receive support on the same basis.
2. Those on default, deemed or variable tariffs will receive a per-unit discount on energy costs, up to a maximum of the difference between the Supported Price and the average expected wholesale price over the period of the Scheme. The amount of this Maximum Discount is likely to be around £405/MWh for electricity and £115/MWh for gas, subject to wholesale market developments. Non-domestic customers on default or variable tariffs will therefore pay reduced bills, but these will still change over time and may still be subject to price increases. The Government say they are continuing to work with suppliers to try to ensure all their customers in England, Scotland and Wales are given the opportunity to switch to a fixed contract/tariff for the duration of the scheme if they wish, underpinned by the Government’s Energy Bill Relief Scheme support.
3. For businesses on flexible purchase contracts, typically some of the largest energy-using businesses, the level of reduction offered will be calculated by suppliers according to the specifics of that company’s contract and will also be subject to the Maximum Discount.
4. Non-domestic energy users who are not connected to either the gas or electricity grid (i.e. those who use heating oil or alternative fuels instead of gas), will see equivalent support – further details on this are expected soon.
A parallel scheme, based on the same criteria and offering comparable support, but recognising the different market fundamentals, will be established in Northern Ireland.
What happens after the 6 months are up?
The government will be reviewing the effectiveness of the scheme, and will publish their findings in three months’ time, the results of which will inform future support after March 2023. The review will have a particular focus on:
• How effective the scheme has been in giving support to vulnerable non-domestic customers;
• Which groups of non-domestic customers (by sector, size or geography) remain particularly vulnerable to energy price rises, taking into account the latest price position and forward curves, alongside other cost pressures
• The extent to which the scheme could be extended and further targeted, or alternatively replaced with other targeted support for these most vulnerable users.
Are there any exclusions to the Energy Bill Relief Scheme?
The scheme is intended to have a broad application but there may be very limited exclusions, for example businesses that use gas or electricity to generate or store power they are selling back into the grid, such as power stations, pumped hydro or grid-level battery storage.
Examples of how the Energy Bill Relief Scheme will work in practice:
The government have provided illustrative examples of how the support will apply in practice:
• A pub uses 4 MWh of electricity and 16 MWh of gas a month. They signed a fixed contract in August 2022, giving them a current monthly energy bill of about £7,000. At the time they signed their contact, wholesale prices for the next 6 months were expected to be higher than the Government Supported Price of £211/MWh for electricity, and £75/MWh for gas, meaning they can receive support under this scheme.
• The difference between expected wholesale prices when they signed their contract and the Government Supported Price is worth £380/MWh for electricity and £100/MWh for gas, meaning they receive a discount of £3,100 per month, reducing their bill by over 40%.
• A school uses 10 MWh of electricity and 22 MWh of gas a month. They signed a fixed contract in July 2022, giving them a current monthly energy bill of about £10,000. At the time they signed their contact, wholesale prices for the next 6 months were expected to be higher than the Government Supported Price of £211/MWh for electricity, and £75/MWh for gas, meaning they can receive support under this scheme.
• The difference between expected wholesale prices when they signed their contract and the Government Supported Price is worth £240/MWh for electricity and £70/MWh for gas, meaning they receive a discount of £4,000 per month, reducing their original bill by 40%.
A reminder about support for households
• The support for non-domestic energy users will run alongside the Energy Price Guarantee (EPG) for households in Great Britain, under which a typical household will pay on average £2,500 a year on their energy bill for the next two years from 1 October.
• It has been confirmed today that equivalent support will also extend to households in Northern Ireland in the form of The Northern Ireland Energy Price Guarantee.
• Further information can be found on the .gov website here: Government outlines plans to help cut energy bills for businesses – GOV.UK (www.gov.uk)
Emergency legislation will shortly be introduced to underpin the scheme at the earliest opportunity when Parliament resumes in October.