A guide to the Energy Bill Relief Scheme for businesses
Seeking to avert disaster for many UK businesses, the UK Government has reacted to the worsening energy price crunch with unprecedented measures. Unveiling a short-term package, which for 6 months of protection is estimated to cost $40 Billion, the scheme will see energy prices for non-domestic energy customers such as businesses, charities, and public sector organisations cut – protecting them from rising energy costs.
The full details of the Energy Bill Relief Scheme are still being synthesised. The government and Suppliers are working closely to reduce wholesale energy costs, seeking to limit damage from the unprecedented rises in energy bills.
What is the eligibility?
The scheme will be available to everyone on a non-domestic contract in Great Britain (A comparable rate will be set shortly for Northern Ireland): on existing fixed price contracts that were agreed on or after 1 April 2022 signing new fixed price contracts on deemed / out of contract or variable tariffs on a flexible purchase or similar contracts (subject to maximum)
How does it work?
To calculate the discount, the estimated wholesale portion of the unit price that would have been paid this winter will be compared to a baseline ‘government supported price’ as below:
£211 per megawatt hour (MWh) for electricity
£75 per MWh for gas
For comparison, wholesale costs in England, Scotland, and Wales for this winter is currently expected to be around:
£600 per MWh for electricity
£180 per MWh for gas
How will this impact TPI’s and Switching?
The full detail, and how this will impact competition, switching, and impacts on TPI’s is still to become clear, but the detail of the Government guidance offers some indications. To ensure consistency, the ‘supported price’ is based on the implied wholesale element of the Energy Price Guarantee for domestic customers. It won’t be the same as the final per unit price paid by non-domestic customers, “which will also reflect other costs such as network charges and operating costs, plus the impact of competition between suppliers”.
What is the Guidance?
How it will be administered:
Suppliers will apply reductions to the bills directly. The government will compensate suppliers for the reduction. The discount in pence per kilowatt hour (p/kWh) of government support for comparable contracts will be the same across suppliers. For fixed contracts, the discount will reflect the difference between the government supported price and the relevant wholesale price for the day the contract was agreed upon. The government will publish the wholesale prices to be used for calculating this for each day from 1 April 2022. Suppliers will be contacting customers directly.
Third party intermediaries (TPIs) / energy brokers have no influence over the per unit cost reductions that will be applied to energy costs under the scheme.
Customers will not need to take out a new contract or change contract for appropriate reductions to be applied to bills automatically but those not fixed may still see increases. Deemed, variable, and flexible contracts, will get a discount reflecting the difference between the ‘supported price’ and relevant wholesale price, but be subject to a ‘maximum discount’ to be determined when the scheme starts. Businesses on variable / flexible contracts will need to choose if they move to fixed contracts. Fixing may still suit those who don’t want to be exposed to price variation.
The savings for energy used in October will be seen in October bills, which would usually be received in November. Customers looking to sign a new fixed contract will see the relevant price reduction automatically applied bills by the supplier. Those on a variable tariff, and want to remain on it, will get the reduction, subject to the ‘maximum discount’ The maximum discount will be calculated by comparing the government supported price with the average of expected wholesale prices for delivery for the 6-month period (October 2022 to March2023). The Government will confirm the maximum discount on 30 September. it is likely to be around £405/MWh for electricity and £115/MWh for gas, subject to wholesale market developments. If wholesale prices rise above the combined government supported price and maximum discount, then prices will increase.
Flexible Contracts
Large energy users may buy energy using flexible contracts which enable them to hedge for portions of their supply throughout the term of the contract. The price reduction will depend on the difference between the monthly weighted average baseload price (determined by the
individual hedging strategy) and the ‘supported’ price. In this case the maximum support available per unit of energy will also be limited by the maximum discount.
Green Levies
Reductions in prices encompass reductions in green levies. Some non-domestic customers bills may still show green levies being charged, but in all cases this charge will be covered by the EBRS discount for eligible energy use.
