The government has announced plans to help businesses through the next six months.
In welcome news to UK business owners, the government has announced its new Energy Bill Relief scheme, which aims to help overcome the energy crisis that has been forcing business closures across the country.
The scheme, announced on September 21st 2022 as part of the government’s mini-budget, will limit wholesale gas and electricity costs for business energy customers.
While the wholesale costs that energy suppliers can incorporate into the rates for businesses will be capped, it will not determine the final rate paid by business customers.
The details of the Energy Bill Relief Scheme were delayed because of challenges in devising it and the complexity of corporate tariffs. However, this move also allows for a degree of competition to remain in the market.
What does this mean for business energy rates?
Suppliers will be allowed to incorporate a capped wholesale price into their business energy rates:
Current expected cost:
Under the new scheme:
Important: wholesale charges are only part of what make up the final costs on an energy bill. The capped wholesale prices will not be the final rates your business will pay.
The measures will apply to all energy contracts signed with suppliers from 1 April 2022 and will apply to energy usage from 1 October 2022 to 31 March 2023.
After this six months, ministers will focus support on “vulnerable” businesses – but it is not yet clear how this will be defined.
What if my business is out of contract now?
If you are out of contract, government advice is to set up a contract now and the appropriate reductions will be automatically made to your energy price for the duration of the scheme.
With the scheme, those on out of contract rates will only 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 40.5p/kWh for electricity and 11.5p/kWh for gas, subject to wholesale market developments.
What should I do if my business is about to sign a new fixed-price contract?
You should still sign a fixed-term contract now as the relevant price reduction will be automatically applied to your bill by your supplier. If you are sitting on the out of contract rates you will still get support from the scheme but will likely be paying more than if you are in a contract.
What if I’m up for renewal after the scheme?
Energy rates for businesses are not forecast to change significantly in price until summer 2025. If you are up for renewal after the scheme ends, upload your energy bill to Swoop: we’ll assess the market and recommend the best time for forward-purchase your next energy contract.
What happens if my business signed before 1st April?
If you signed before 1 April 2022, you will have missed the cut off and not be eligible for the support scheme. This is because you would not have been exposed to the recent rises in wholesale prices, so you will not be eligible for support under the scheme.
Will I have to apply for the discount?
No, the discount will automatically be applied by the suppliers from November onwards. You will not need to do anything or contact your supplier to have this applied if you are eligible.
An example scenario
This is an illustrative example based on recent averages of forward wholesale prices and may differ from those experienced in practice, other examples can be found on the government website via the link below.
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%.
For further information, see the full policy paper at the government website.
Want to see how your business can benefit? Upload your energy bill to Swoop and our team will ensure your business is getting the best energy deal.