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Energy Bill Relief Scheme: Answers to questions on the support for businesses

Money Matters

Energy Bill Relief Scheme: Answers to questions on the support for businesses

The government has announced details of the help it is offering to businesses to reduce their energy bills.

The Energy Bill Relief Scheme was announced on 21 September 2022 and is effective for business energy use as of 1 October 2022.

It’s broadly similar to the home (domestic) energy bill scheme, known as the Energy Price Guarantee, in that it applies a discount to bills.

In this article, we dig into some of the specifics of the Energy Bill Relief Scheme, in as much as is known right now.

We end with some advice about proactive measures you might also take.

Here’s what we cover:

What is the Energy Bill Relief Scheme?

The Energy Bill Relief Scheme is intended to reduce energy bills for businesses at a time when world events have sent them skyrocketing. It’s similar to the scheme for domestic energy, known as the Energy Price Guarantee, although an independent piece of government legislation.

In brief, the key points of the Energy Bill Relief Scheme are as follows.

  • All non-domestic energy bills have a discount applied. This discount is based on the Government Supported Price, and is calculated using the wholesale prices of energy (that is, the price energy suppliers pay on the wholesale market). The discount is then applied to bills as a price per kilowatt hour (kWh) unit deduction by energy suppliers.
  • The scheme covers energy usage from 1 October 2022 to 31 March 2023, so effectively applies to monthly bills received from November 2022 to April 2023.
  • The scheme applies to all non-domestic energy customers such as businesses, charities and public sector organisations in Great Britain (England, Wales and Scotland). Northern Ireland will get its own version of the scheme, which is yet to be announced.
  • Eligible businesses don’t need to do anything to get the benefit. The scheme is administered by energy suppliers and will be automatically applied to bills.

How much discount will the Energy Bill Relief Scheme give my bills?

Attempting to plan ahead and work out the specific discount you’re going to get is unfortunately difficult.

It’s misleading to talk of bills being capped. Instead, and broadly speaking, a discount is applied to business energy bills.

This discount is calculated using what the government calls the Government Supported Price, which is £211 per megawatt-hour (MWh) for electricity and £75 per MWh for gas.

However, the Government Supported Prices are wholesale prices. Wholesale prices are what energy suppliers pay to purchase the energy. They are not retail prices, which is what end-users pay.

This is why it’s difficult working out what discount you’re going to get ahead of time.

Furthermore, how the discount is calculated will depend on whether businesses have fixed energy supply contracts, or variable, deemed or other kinds of contracts.

(A deemed contract is one that’s applied when a contract hasn’t been specifically agreed by the customer.)

Calculating bills for fixed contracts

The discount is calculated by taking the wholesale cost of each MWh, as listed at the beginning of your energy contract, and then deducting the Government Supported Price.

This deduction is then applied to the final bill.

To use a hypothetical example, let’s say the wholesale cost of electricity rises to £600 per MWh (as per the government’s projections).

The energy supplier adds a profit margin to this, meaning the retail cost per MWh of electricity is £900.

Your business uses 2 MWh of electricity in a month, so without the discount, you would face a bill of £1,800.

The discount you receive is calculated by taking the aforementioned wholesale cost—£600 per MWh—and then deducting the Government Supported Price (£211 per MWh for electricity).

The total discount is therefore £778 (2x £389).

Therefore, the electricity bill you receive will be £1,022 (the original non-discounted bill of £1,800 minus the £778 discount).

MWh figures are used here but the discount is applied to final bills as a pence per kilowatt hour (kWh) figure.

Calculating bills or variable, deemed or other types of contracts

The same calculations as above define the discount that’s applied to non-fixed-contract bills.

However, for non-fixed contracts, the discount you’ll receive is subject to a Maximum Discount.

Because of this Maximum Discount, it’s still possible for non-fixed-contract bills to rise substantially if the wholesale prices exceed government projections.

Let’s take the same 2 MWh hypothetical example of electricity usage in a business, as used above.

However, in this case, let’s assume world events have caused the wholesale MWh cost of electricity to rise to £700. The retail cost of this, with the energy supplier’s profit added, is £1,050.

Therefore, your bill before the discount would be £2,100 (2x £1,050).

We once again attempt to calculate the discount by taking the wholesale price of £700 and deducting the Government Supported Price of £211 per MWh (for electricity).

This means the discount that should be applied to the bill is £978 (2x £489).

However, there’s a problem.

This exceeds what the government refers to as the Maximum Discount.

The Maximum Discount has yet to be confirmed but is expected to be £405 per MWh for electricity (and £115 per MWh for gas).

This means the discount applied to the bill is limited to £810 (2x the maximum discount of £405).

Therefore, the bill you receive will be £1,290 (the non-discounted bill of £2,100 minus the discount of £810).

It’s because of the Maximum Discount that that the government is encouraging businesses to safeguard their bills with the use of fixed contracts, and is encouraging suppliers to contact businesses about switching.

Are my business energy bills capped under the Energy Bill Relief Scheme?

It’s inaccurate to say that bills are capped under the scheme.

Instead, and as detailed above, it’s more accurate to say that bills are discounted, and that this discount is calculated according to a cap on wholesale energy prices (subject to the Maximum Discount).

What is the ‘Maximum Discount’ for the Energy Bill Relief Scheme?

If you’re using a variable, deemed or another kind of energy contract, a Maximum Discount applies.

This maximum discount is yet to be confirmed, but the government will calculate it based on the average expected wholesale prices across the six months of the Energy Bill Relief Scheme.

At the time we published this article, the government said it anticipates the Maximum Discount to be as follows:

  • £405 per MWh for electricity
  • £115 per MWh for gas.

To see how the Maximum Discount is applied, see “How much discount will the Energy Bill Relief Scheme give my bills?”, above.

Effectively, the Maximum Discount is insurance for the government against the price of energy exceeding even its own estimates.

It’s tempting fate to say the Maximum Discount will never apply, but it’s perhaps less than likely it will significantly affect bills.

When do I get the Energy Bill Relief Scheme?

The scheme applies to energy usage between 1 October 2022 and 31 March 2023.

The government says it will review the scheme three months in, and decide then if it will continue into April 2023 and beyond for what it calls “vulnerable businesses”.

The Prime Minister referenced the hospitality sector as a vulnerable business sector and singled out pubs as a specific example.

But until the review has been completed, we won’t know for sure.

Who can access the Energy Bill Relief Scheme?

The government says the scheme applies to “everyone on a non-domestic [energy supply] contract”.

This includes businesses of all sizes, as well as voluntary sector organisations such as charities or non-profits, and public sector organisations such as schools and hospitals.

The scheme only applies to energy contracts agreed with suppliers after 1 April 2022, those on out-of-contract variable tariffs (so-called deemed contracts), flexible contracts, or fixed price contracts that are started after 1 October 2022.

This limitation is because ongoing contracts agreed earlier than April 2022 are almost certainly going to be at a tariff priced lower than the threshold for the relief offered by the scheme.

The government notes that the scheme is intended to provide “relief on necessary energy bills”.

This means there are some exceptions, albeit very unlikely to be commonly encountered. They include businesses that generate power to sell back to the grid.

How do I access the Energy Bill Relief Scheme?

The discount is applied automatically to bills by energy suppliers. There’s no need to apply or do anything to take part in the scheme.

If you’re in leased premises for which energy bills are included in rent payments, the government says it will expect your landlord to “pass on the benefits under this scheme through to the end user in a reasonable and proportionate way”.

Similarly, if your business is part of a heat network or uses an energy service company, the government expects the benefits of the scheme to be passed on to you.

Does the Energy Bill Relief Scheme apply to flexible (hedged) energy supply contracts?

Yes.

The price reduction will be calculated based on the difference between your monthly weighted average baseload price (determined by your hedging approach), and the Government Supported Price.

As with variable and deemed contracts, the Maximum Discount will also limit how much of a discount can be applied to bills.

Is there any reason my business wouldn’t get the Energy Bill Relief Scheme?

There’s a handful of reasons why the Energy Bill Relief Scheme might not apply to your business:

  • You’re still on a fixed rate contract signed before 1 April 2022.
  • For whatever reason, the wholesale cost of each unit of gas or electricity used to calculate your bill is already lower than the Government Supported Price.
  • The nature of your business means you intend to use the scheme to directly create a profit (e.g. you operate a hydroelectric or grid-level battery storage operation that sells electricity back into the National Grid).
  • You use regular, domestic energy contracts (e.g. you’re a home worker, or operate a business from a domestic environment).

Do I have to pay back savings provided by the Energy Bill Relief Scheme?

The scheme is provided by the government at no direct cost to businesses.

The scheme is paid for by government borrowing.

Effectively, the government pays energy suppliers the difference between the Government Supported Price, and the actual wholesale cost of the energy. The government also pays green tariffs that apply, further reducing bills.

Does the Energy Bill Relief Scheme apply if I sign a new energy supply contract?

Yes. It will be automatically applied by the energy supplier.

Does the Energy Bill Relief Scheme apply if my business uses heating oil or other alternative fuels?

Don’t worry, you also get help from the Energy Bill Relief Scheme.

The government says as-yet-unannounced “equivalent support” will be available for non-gas and non-electricity alternative fuels.

Can I opt out of the Energy Bill Relief Scheme?

The savings are applied automatically by energy suppliers to all eligible bills, which implies the government clearly didn’t envision any businesses opting out.

There’s no discussion of opting out in the notes provided by the government. The suggestion is that, if you wish to discuss opting out, you should contact your energy supplier.

Final thoughts on the Energy Bill Relief Scheme

The Energy Bill Relief Scheme is one of those rare pieces of government assistance for which nothing needs be done. It will apply automatically.

That said, this doesn’t mean you can’t be proactive.

The scheme favours fixed energy contracts in that the Maximum Discount doesn’t apply to these, so as a first step, you should head over to your favourite price comparison site and see which deals best suit your business.

Also, speak to your existing supplier and see what fixed deals they currently have.

Remember, if you’re classed as a micro business, the contract length of this can’t be longer than 12 months.

This provides very useful flexibility.

Don’t forget to consider energy-saving measures, too.

Yes, the Energy Bill Relief Scheme reduces bills—but they remain much, much higher than they were this time in 2021, and are still at unsustainable levels for many small businesses.

Our previous article looking at the cost of living crisis lists some vital considerations: Cost of living energy bills plan: What support is available for businesses?

If it feels like the Energy Bill Relief Scheme has arrived too late, and you’re already struggling to pay bills, speak to your energy supplier immediately and let them know.

Needless to say, with all the attention on energy prices and energy suppliers right now, they’re taking more of a sympathetic approach than you might be used to.

You may be able to arrange a repayment plan until you’re able to get your business back on its feet.

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