Energy bills help for businesses unveiled

Vital financial help for businesses in paying their energy bills has been unveiled by the government covering the period 1 October 2022 to 31 March 2023, which should ensure firms see their bills halved.

This help is on top of Energy Price Guarantee for households.

Building on the previous energy statement and in advance of this Friday's Emergency mini-Budget, the Business Secretary, Jacob Rees-Mogg, has announced details of how struggling businesses will be helped this winter.

Energy Bill Relief Scheme

The Energy Bill Relief Scheme will see the Government provide a discount on wholesale gas and electricity prices for all non-domestic customers, similar to the Energy Price Guarantee for households.

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

This 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.

No action is needed to access the support as the discount will automatically be applied to bills.

Supported Wholesale Price

A Supported Wholesale Price has been set (expected to be £211 per MWh for electricity and £75 per MWh for gas) that is less than half the wholesale prices anticipated this winter.

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

Contract types

The discount level will vary depending on their contract type and circumstances:

• Non-domestic customers on existing fixed price contracts will be eligible for support as long as the contract was agreed on or after 1 April 2022. 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.


• 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 says it is working with suppliers to ensure all their customers 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.


• 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.

There will be a similar arrangement in Northern Ireland.

Businesses not connected to either the gas or electricity grid who use heating oil or an alternative will be provided with equivalent support. Further details are to be published shortly.

Review of the scheme

The Government will publish a review of the scheme in three months to inform decisions on future support after March 2023.

Clearly, for some businesses a scheme that only last six months may not provide enough support or indeed sufficient clarity with financial projections. It is to be hoped that those businesses which are most vulnerable to energy costs rising will continue to receive a measure of support.

Examples of targeted support

Pubs

• A pub uses 4 MWh of electricity and 16 MWh of gas a month. They signed a fixed contract in August 2022, giving them a current monthly energy bill of about £7,000. At the time they signed their contact, wholesale prices for the next 6 months were expected to be higher than the Government Supported Price of £211/MWh for electricity, and £75/MWh for gas, meaning they can receive support under this scheme.
• The difference between expected wholesale prices when they signed their contract and the Government Supported Price is worth £380/MWh for electricity and £100/MWh for gas, meaning they receive a discount of £3,100 per month, reducing their bill by over 40%.

Schools

• A school uses 10 MWh of electricity and 22 MWh of gas a month. They signed a fixed contract in July 2022, giving them a current monthly energy bill of about £10,000. At the time they signed their contact, wholesale prices for the next 6 months were expected to be higher than the Government Supported Price of £211/MWh for electricity, and £75/MWh for gas, meaning they can receive support under this scheme.

• The difference between expected wholesale prices when they signed their contract and the Government Supported Price is worth £240/MWh for electricity and £70/MWh for gas, meaning they receive a discount of £4,000 per month, reducing their original bill by 40%.

Further help and information

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.

The Government will push through the necessary legislation when Parliament returns in October from recess due to party conferences.

If you would like to discuss how these measures will affect you and your business, please contact your usual Bishop Fleming advisor.