Energy bills for UK businesses will be cut by around half their predicted level this winter under a huge government support package, the “Energy Bill Relief Scheme”. 

This is welcome news as many businesses were seeing colossal price rises and fearing what lay ahead. There are some gaps to be filled though.  The announcement is primarily concerning the wholesale market and doesn’t directly set rates for the end user, so is very different to the energy cap arrangement announced on the 8th September which directly set end user rates.

The actual rates we pay as businesses consuming the energy is yet to be confirmed by our specific energy providers and will be dependent on the type of contract held.

The statement confirms:

“It will apply to 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.”

What does this mean?

This means that energy providers are buying in the electricity and gas at a lower price.  It does not mean that end user businesses will be charged 21.1p per KWh.

It would seem that the purpose of this is to try and prevent any more of the energy providers going bust, by securing their supply side costs.

The announcement does say that there are criteria for providers to pass this saving on stating “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.” Note this is a “maximum” not a “minimum” so the exact values are undetermined.

The BBC has announced that they think this will mean energy bills will be half of what they could have been without the intervention.  Data from Ofgem shows the forward prices on energy from back in July were £413 per MWh.  The capped price of £211 per MWh therefore could be where this suggestion of cutting costs in half comes from.

It will likely take some time for details to filter out from the energy providers, but this certainly sets an expectation that this support will take us back to the level of energy prices that were due in May 2022 (again looking at data from Ofgem for electricity).

Other Fuels

The announcement also said that off-grip gas and other fuels will also receive some subsidy, but the details are not yet available for announcement.

Cliff Edge & Demand

The announcement does not deal with any issues from a demand side.  This assumes that supplies will just get expensive rather than limited in availability.  Some commentators are concerned that there could be supply issues with possible outages if the government don’t tackle demand like many countries in Europe have done.

Now that this announcement has been made, we would hope that the energy companies pass this on generously to businesses.  The issue and discussions will then turn to what happens after 31 March 2022.

New oil reserves in the north sea and resumption of fracking, while possibly controversial, are significant engineering projects and will not be underway and solving the shortage as early as the end March next year.  They would be unlikely to even be online for next winter (although we are not experts in such massive engineering projects).  With relations with Russia as they are, it also seems very unlikely that supplies from there will resume any time in the near future. We therefore continue to look towards the horizon for what is coming our way next.

Summary of energy support

  • Intended to be the non-domestic equivalent of the Energy Price Guarantee for individuals
  • Government will provide a discount on wholesale energy costs for non-domestic customers, expected to be at £211 per MWh for electric and £75 per MWh for gas, which is less than half the wholesale prices anticipated this winter
  • This includes the removal of green levies, a policy for taxing energy firms relating to their eco-credentials, which is often passed onto customer, so the removal should benefit customers
  • The wholesale price will be discounted with the intention that the margin will not be affected and the price of energy for end consumer business customers can be reduced
  • Applies to fixed contracts agreed on or after 1 April 2022 as well as all variable and flexible tariffs and contracts
  • Applies to energy usage from 1 October 22 to 31 March 23
  • The energy suppliers will pass this on to the end customer in the way they see fit, depending on the type of contract held
  • Customers don’t need to apply for this, the support in the form of a p/kWh will be automatically applied to bills
  • Emergency Legislation to be introduced at the earliest opportunity when parliament is back from recess in October 2022

More information on the Energy Bill Relief Scheme 

  • Payable in monthly instalments over a 6 month period from October 2022 irrespective of your chosen payment method (£66 to be paid in October and November and £67 from December onwards)
  • It will be administered by the energy companies so no need to apply for eligibility, but note that prepayment meter customers will be issued with energy bill discount vouchers by SMS text, email or post, which they will need to redeem at the usual top up point
  • No household should be asked for bank details at any point, so look out for scams!
  • An extra £1,100 is available for the most vulnerable
    • £650 one off Cost Of Living Payment where on means tested benefits
    • £300 one off Pensioner Cost of Living Payment in addition to the Winter Fuel Payment
    • £150 one off Disability Cost of Living Payment if receiving certain disability benefits
  • Additional funding will be given to ensure park home residents and tenants whose landlords pay for the energy through a commercial contract are included
  • Legislation will be introduced to ensure landlords pass this discount to the tenants

The “Energy Price Guarantee” will take effect from 1 October 2022 to replace the price cap, ensuring the average annual energy bill will typically be £2,500 for the next 2 years.

  • For those on a standard variable tariff the average unit price will be limited to 34.0p per kWh for electric and 10.3p per kWh for gas
  • This should save an average of £1000 annually
  • Being funded by the government and not passed onto energy companies or customers
  • No customer action needed, the energy suppliers will adjust tariffs automatically
  • £100 to be paid to households not eligible for the Energy Price Guarantee, for example if they are in an area not served by the gas grid and using oil instead
There will be more announcements in the ‘mini budget’ which will announced on Friday 23rd September to help businesses through the cost of living and energy crisis. We will be sifting through the announcements and getting to the heart of what it means for you as a business owner.
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