The UK Government has announced plans to almost half the predicted MWh price for electricity and gas for businesses this winter, to £211/MWh and £75/MWh respectively.
The newly introduced Energy Bill Relief Scheme was first announced by newly appointed Prime Minister Liz Truss on 8 September as she addressed the House of Commons. It came alongside the Energy Price Guarantee, a support scheme that freezes the average domestic energy bill at £2,500, and is expected to cost upwards of £100 billion.
Alongside calls for support for domestic customers in recent months have been those from businesses, with many highlighting the struggles they face as energy bills continued to surge. For example, as much as 70% of pubs faced shuttering due to energy bill increases of over 300% according to research in early September.
Details of the new scheme have now been unveiled, showing how it will provide business, the voluntary sector such as charities and the public sector such as schools and hospitals with a discount on wholesale gas and electricity prices to ensure they are able to operate on a day-to-day basis amid rising costs of energy over the winter period.
As part of the move to freeze the price of energy, the scheme will remove green levies paid by non-domestic customers who receive support under the scheme – this mirrors the Energy Price Guarantee.
The Energy Bill Relief Scheme will run from 1 October 2022 until 31 March 2023, with a three-month review scheduled for the halfway point.
Businesses will not need to sign up to the scheme as the financial support, in the form of a p/kWh discount, will be added automatically to bills.
This scheme will provide similar support to that offered by the Energy Price Guarantee, which fixes variable tariffs at 34.0p/kWh for electricity and 10.3p/kWh for gas from 1 October for domestic customers. This is expected to save households around £1,000 in comparison to the £3,549 price cap previously announced by Ofgem which is supersedes.
“I understand the huge pressure businesses, charities and public sector organisations are facing with their energy bills, which is why we are taking immediate action to support them over the winter and protect jobs and livelihoods,” said Liz Truss, prime minister of the UK.
“As we are doing for consumers, our new scheme will keep their energy bills down from October, providing certainty and peace of mind. At the same time, we are boosting Britain’s homegrown energy supply, so we fix the root cause of the issues we are facing and ensure greater energy security for us all.”
Support for those under all tariffs
The Energy Bill Relief Scheme will provide a price reduction for each business depending on contract types and circumstances. This includes businesses on existing fix price contracts, new fixed price contracts, default, deemed or variable tariffs and flexible purchase contracts.
Non-domestic customers on existing fixed price contracts will be eligible for support as long as the contract has been agreed on or after 1 April 2022. Should the wholesale price be higher than the government supported price, the cost per unit energy will be reduced by the relevant p/kWh for the duration of the scheme. This is the same as customer entering new fixed price contracts after 1 October.
Businesses on default, deemed or variable tariffs will receive a per-unit discount of energy costs. This will be up to a maximum of the difference between the supported price set out by the government and the average expected wholesale price over the scheme period.
It is anticipated this maximum discount is likely to be around £405/MWh for electricity and £115/MWh for gas. This is subject to developments in the wholesale market in the future.
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.
For businesses currently on flexible purchase contacts, the level of reduction offered will be calculated by suppliers according to the specifics of the company’s individual contact. It will also be subject to the maximum discount.
“We have seen an unprecedented rise in energy prices following Putin’s illegal war in Ukraine, which has affected consumers up and down the country and businesses of all sizes,” said Jacob Rees-Mogg, business secretary for Business, Energy and Industrial Strategy (BEIS).
“The help we are already putting in place will save families money off their bills, and the Government’s plans for businesses, charities and public sector organisations will give them the equivalent level of support.
“This, alongside the measures we are taking to boost the amount of domestic energy we produce to improve both energy security and supply, will increase growth, protect jobs and support families with their cost of living this winter.”
Welcome support but with a £25 billion price tag
While the support announced by the UK Government earlier this month was widely welcomed, firms have been waiting to hear the details in order for them to prepare for the coming winter.
Martin McTague, national chair of the Federation of Small Businesses, believes the measures will provide support for small businesses that previously faced a bleak winter amid the energy crisis.
“Small businesses called for decisive action – now the government is delivering,” said McTague.
“With small firms the least able to avoid closure and 16 million employees relying on them, Ministers have listened to our community and got this big call right. Now it’s up to energy retailers to live up to the high bar set today and make sure this help reaches those on the ground.”
For pubs and breweries for example, the difference between the expected wholesale prices they faced if they’d signed a fixed contract in August versus under the government’s new support scheme is £380/MWh for electricity and £100/MWh for gas, meaning pubs receive a discount of £3,100 per month, reducing their bill by over 40%.
According to Cornwall Insight the new measures are set to cost up to £25 billion, continuing to add to the dramatic cost of the support. On Friday 23 September, Chancellor Kwasi Kwarteng is set to announce a mini-budget, setting out how this shall all be paid for.
“The new government scheme will bring significant relief to many businesses and public sector organisations as they try to navigate the unprecedented energy rises. Economically it was important that government took action,” said Robert Buckley, head of relationship development at Cornwall Insight, who is set to speak as part of a panel of experts discussing the Energy Price Guarantee in a special edition of Current± Briefings tomorrow (22 September).
“Structuring this as fixed discounts on wholesale energy costs caps the cost of the scheme for government at around £25 billion. There will also be a strong incentive for businesses to move from out of contract to negotiated contract terms, which acts to maintain the integrity of the market. This will be very important for what emerges after these six months have elapsed.”
Although the measures will provide relief for businesses, Buckley hopes this will lead to further developments in increasing energy reliance in the future and accelerate green energy generation.
“We hope that in the longer term, reform of the energy market is given priority to avoid prolonged reliance on emergency interventions and return to normal market dynamics can take place,” he said.