The Energy Bill Relief Scheme has been announced by the government, intended to offer protections for businesses facing rising energy prices
The government has revealed new support intending to act as a business energy price cap for households, businesses and public sector organisations facing rising energy bills in Great Britain and Northern Ireland through a new scheme offering discounts on gas and electricity prices.
The Energy Bill Relief Scheme will act as an equivalent to the Energy Price Guarantee put in place for households.
The measures will provide a discount on wholesale gas and electricity prices for all non-domestic customers (including the voluntary sector and the public sector-such as schools, hospitals and charities) whose current gas and electricity prices have been significantly inflated in light of global energy prices.
How will the Energy Bill Relief scheme work?
Similarly to the Energy Price Guarantee for households, customers will not have to actively seek out or apply to the scheme. Support (in the form of a p/kWh discount) will automatically be applied to bills.
Upon Parliament’s return from recess in October, emergency legislation will be introduced to speed up the implementation of the scheme, pending parliamentary scheduling.
Discounts awarded by the scheme 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 6 month period for all non-domestic energy users. The savings will be first seen in October bills, which are typically received in November.
The government has set up a framework using a Supported Wholesale Price – expected to be £211 per MWh for electricity and £75 per MWh for gas– 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.
Who will be covered by the business energy price cap?
The level of price reduction for each business will vary depending on their contract type and circumstances:
- Non-domestic customers on existing fixed price contracts(agreed on or before 1 April 2022) will be eligible for support. 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 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
- 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 is working with suppliers 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
- A parallel scheme, based on the same criteria and offering comparable support, but recognising the different market fundamentals, will be established in Northern Ireland
Equivalent support will also be provided for non-domestic consumers who are not connected to the gas or electricity grid and instead use heating oil or alternative fuels instead of gas. Further detail on this will be announced at a later date.
The government will conduct a review of the Government Energy Bill Relief Scheme, to be published in 3 months’ time, to assess:
- 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 after March 2023, or alternatively replaced with other targeted support
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.
The supported wholesale prices for gas and electricity under the scheme will be confirmed on 30 September.
Prime Minister Liz Truss said:
“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.
“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.”
Industry voices are concerned about the long-term effectiveness of the business energy price cap measures
Jonathan Geldart, director general of the Institute of Directors, said:
“This is an important intervention by the government and provides much needed short-term reassurance for the numerous firms that are facing soaring energy bills. We look forward to working with the government in the coming months to ensure that further relief is targeted at those industries and sectors whose survival is most threatened by current economic conditions.
“Ultimately, however, business and government will need to work hand in hand to develop domestic energy sources and reduce consumption and dependency on expensive fossil fuels.”
Stephen Phipson CEO of Make UK, the manufacturers’ organisation said:
“Industry will warmly welcome the timely announcement of an energy price cap for an initial 6 months for all business users. Government has delivered a scheme which is simple to understand, giving reassurance to the business sector.
“However as appear prices will likely remain high for many months to come, industry will need support for a longer period to protect jobs and remain competitive, so the further announcement of a review on future support at the 3 month stage is reassuring.
“We hope that this support can be made tangible as quickly as possible and not applied retrospectively at the end of the next quarter.”
Gregory Dewerpe, founder and chief investment officer of A/O PropTech, which invests in scale-ups aiming to make real estate more sustainable, said:
“If energy bills continue to rise as expected beyond today’s six-month announcement, one in seven businesses may either close down or have to downsize. The economic damage this would cause includes insolvencies, wreaking further havoc on supply chains, SMEs, and sectors with thin profit margins such as retail and hospitality. Businesses cannot hope to invest and grow as they – and the Government – want in the face of such uncertainty.
“Action is needed by the Government to avoid further hollowing out of high streets, which would have a detrimental effect on the quality of life in our towns and cities. We must face facts: short-term measures merely kick the can down the road.
“We need the Government to commit to long-term incentives for retrofit in Friday’s mini-budget for both homes and businesses, who, given rampant inflation, need all the support they can get right now.”
