Business Energy Bills SupportDetails of the energy bills support package announced by the UK Government

Following the recent Government’s announcement on its energy support package we bring you the latest official announcements as they are released.

While the vast majority of business are either on fixed energy contracts or flexible energy contracts and have prices covered for the coming winter period some are not as fortunate.

European gas and power prices have rocketed this year as Russia cut fuel exports to retaliate for Western sanctions over its invasion of Ukraine, leaving many struggling to pay bills and utility suppliers grappling with a liquidity crunch.

These businesses have been caught in this current energy price shock and have been exposed to a market that is 10 times higher than in normal market conditions.

Unlike the domestic market, businesses do not benefit from the Ofgem price cap and as such thousands of businesses have found themselves at the mercy of a volatile and aggressive energy market as wholesale gas prices have spiralled out of control and this has helped push power prices to all new time highs.

Details so far are very limited, but the Government has announced a new 6-month scheme to support businesses, charities and public sector organisations like schools. After this initial 6-month scheme, the government will provide ongoing focused support for “vulnerable industries”.

There will be a review in 3 months’ time to consider where this should be targeted to make sure those most in need get support.

Downing Street have announced that businesses will receive support to help them with increases in their fuel bills from October.

Energy Bill Relief Scheme: help for businesses and other non-domestic customers

Through the new government Energy Bill Relief Scheme, the UK Government will provide a discount on wholesale gas and electricity prices for all business customers, which includes all UK businesses, the voluntary sector like charities and the public sector such as schools and hospitals.

It will apply to fixed energy contracts agreed on or after the 1st April 2022, as well as to deemed, variable and flexible tariffs and contracts.

It will apply to energy usage from the 1st October 2022 to the 31st March 2023 and will run for an initial 6 month period.

As with the Energy Price Guarantee for domestic customers, customers do not need to take action or apply to the scheme to access the support.

Support (in the form of a p/kWh discount) will automatically be applied to bills.

To administer the support mechanism, the Government will set a supported wholesale price only, which is expected to be £211 per MWh for electricity and £75 per MWh for gas.

Or 21.1 p/KWh for electricity and 7.5 p/KWh for gas on the wholesale element of the bill.

This doesn’t include the non-commodity element of the fully delivered contract.

It includes the removal of green levies paid by non-domestic customers who receive support under the scheme.

The level of price reduction for each business will vary depending on their contract type and circumstances.

> Business energy customers on existing fixed price contracts will be eligible for support as long as the contract was agreed on or after the 1st April 2022 and provided that the wholesale element of the price the customer is paying is above the Government Supported Price then their p/KWh 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

> Customers on default, deemed or variable tariffs will receive a p/kWh 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.

> Those business 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.  As such these customers will be encouraged to switch to a fixed contracts for the duration of the scheme if they wish, underpinned by the government’s Energy Bill Relief Scheme support.

> Businesses on flexible energy 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.

To ensure the scheme can work effectively for government, energy suppliers, businesses and other non-domestic organisations, with the minimum disruption to existing processes, emergency legislation is being introduced to underpin the scheme. This will be subject to the standard parliamentary process for emergency legislation.

What is the business energy price cap?

The Energy Bill Relief Scheme is not a substitute for a business energy price cap. The wholesale price that suppliers pay for energy will be discounted by the government.

This means that for the next six months, suppliers will pay no more than £211 per megawatt hour of electricity and no more than £75 per MWh for gas. But there’s a limit to how much of a discount the government will give.

This is currently set at £405 per MWh for electricity and £115 per MWh for gas.

This means that if you raise your rates, your bills will also go up, even with the discount taken into account.

Will the Energy Bill Relief Scheme have a negative or positive impact on your business?

The lower your contracted rates, the lower your discounted bills will be during the scheme. The Energy Bill Relief Scheme will give all businesses a discount on their energy bills for the next six months.

The size of the discount depends on the rates you are paying and the type of contract you are on.

Fixed Contract Example

*The Department for Business, Energy and Industrial Strategy is due to publish a table showing the discount that should be applied on the day the contract was signed.

Flexible Contract Example

Customers with flexible contracts who are eligible for the October discount will have the discount applied to their October consumption. Whether the discount also applies to October depends on when the government adopts the law.

If you are eligible for a discount, it will be paid on the wholesale energy element (only) of your contract price and eligibility will be determined monthly. The wholesale item will be a combined rate for energy consumed each month and will reflect any corrections and cancellations and associated volumes covering that period, calculating a weighted average price.

These corrections and imbalances could have been made before April 1, 2022, and any gains made in the imbalance volumes will be reflected in a lower weighted average price.

The Weighted Average price will not include any trading charges, volume tolerance charges, premiums for shape or imbalance charges. The weighted average price will be compared with the government backed price (currently 7.5 pence / kWh for gas and 21.1 pence / kWh for electricity), the difference between the two being the expected discount level. However, the discount level is limited to 9.1 pence / kWh for gas and 34.5 pence / kWh for electricity. We remind you that these figures will not be final until the legislation is approved.

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