The Energy Bill Relief Scheme explained

The Energy Bill Relief Scheme explained

Today’s business Energy Bill Relief Scheme represents an unprecedented intervention in the modern business energy market by Prime Minster Liz Truss’ fledgling government.

Business Secretary Jacob Rees-Mogg has announced a price cap on the wholesale cost of gas and electricity, which will ultimately reduce the price businesses will pay until April 2023.

The details of how this multi-billion pound package will be administered and delivered via such a complex marketplace are expected in coming days.

In this blog we outline the situation and what businesses can expect from the changes.

The Energy Bill Relief Scheme will affect the wholesale price

The starting point for explaining the changes has to be the point at which the price is to be capped.

It is the wholesale price which will be fixed at a limit of 21.1p/kWh for electricity and 7.5p/kWh for gas.  The government has estimated that this will be less than half of the predicted wholesale price this winter.

Unfortunately for businesses, this is not the point at which they purchase their energy.  This is the price at which suppliers purchase from the wholesale market, before setting their own pricing structures for customers.

The good news is that the government is passing new legislation to ensure suppliers are bound by law to pass on savings through their own pricing processes to their business customers.

So, whilst businesses will not receive prices as low as 21.1p kWh, they will certainly see an improvement in comparison to the prices currently being quoted, which regularly exceed 70p/kWh.

Energy Bill Relief Scheme Graphs before and after

How long the Energy Bill Relief Scheme will last

The initial period has been set as 1st October 2022 to 31st March 2023.

This will be reviewed after three months to decide its effectiveness and any potential extensions that may be required for vulnerable businesses.  The outcome of this review will determine what happens to businesses whose contracts run beyond the end of the 31st March 2023 support period.

“Vulnerable businesses” is an intentionally woolly phrase, allowing the monitoring of the scheme to dictate where it should later be extended, but it is likely to include the country’s highest consumers and energy intensive sectors.

The scheme will apply to any fixed business contract agreed on or after 1st December 2021 and also to variable, deemed and flexible contracts.  Support and price reductions will begin from 1st October 2022, although it will not be delivered through billing until November.  This delay is due to Parliament creating the law change to pass this cost through to customers.

How businesses ensure they benefit from the Energy Bill Relief Scheme

Thankfully, there is no administrative burden on businesses to receive this help.

It will automatically be applied to all contracts within the qualifying period.  Its itemisation on energy bills and documentation will change depending on how suppliers’ pricing systems work.

The scheme will apply to businesses, voluntary sector organisations, charities, public sector organisations, hospitals and care homes.

How the scheme differs from the domestic energy price cap

As the business energy market includes a greater degree of complexity than the consumer equivalent, there is one key difference.

In the consumer market, entering energy contracts has been advised against for some time, in order to benefit from the price cap, which was applied to variable (out of contract) tariffs and was lower than most available contract prices.

In the business market, this will not be the case.  Suppliers will still offer differing prices and compete with each other for business, retaining the competitive nature of the market.  They will simply receive a portion of the wholesale costs from the government and pass that reduction on to their customers.

An important point to note is that the government has applied a “maximum discount” to the scheme.  The official guidance confirms that this maximum will be announced on 30 September 2022 and suggests that businesses on default or variable tariffs are at risk of exceeding this amount, whereby support from the scheme ceases.

The guidance also specifies that those waiting for support on out of contract rates should now “enter a contract as normal”.

What happens next

Detail will be released over coming weeks on how and where businesses can see their new prices.  For an early estimate, businesses can check the “commodity” elements of their current bill and apply the new 21.1p/kWh and 7.5p/kWh caps to that element of their price to get an idea of where they will see reductions.

The government news release on the Energy Bill Relief Scheme contains some useful working examples of how this will be applied in businesses of differing sizes, which can be accessed here.

If your business requires advice on how to proceed with your energy contracts in light of the current situation, Great Annual Savings Group offers no-obligation quoting and consultancy.

Find out more about our Business Energy Procurement service, and how we can assist your business through these confusing times, by clicking here.

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