This post was updated on 4th October 2022 to include detailed of the maximum discount, which has been set at £345/MWh for electricity and £91/MWh for gas.
The government has announced short-term financial support to help non-domestic energy users in Great Britain with soaring energy costs (a similar scheme will be established in Northern Ireland soon). We’ve put together a summary to help organisations understand the Energy Bill Relief Scheme.
What is the Energy Bill Relief Scheme?
From 1 October 2022, the government will provide a discount on wholesale gas and electricity prices for all non-domestic customers, including businesses, charities and the public sector. The scheme will initially run for six months.
It will apply to fixed contracts agreed on or after 1 April 2022, as well as to deemed, variable and flexible tariffs and contracts.
How much discount will my organisation receive?
The estimated wholesale portion of the unit price you would be paying this winter will be compared to a baseline ‘government supported price’ which is lower than (expected) wholesale prices this winter.
For all non-domestic energy users in Great Britain this government supported price has been set at:
• £211 per megawatt hour (MWh) for electricity
• £75 per MWh for gas
For comparison, wholesale costs in England, Scotland and Wales for this winter are currently expected to be around £600 per MWh for electricity and £180 per MWh for gas. So, this intervention will be viewed by many businesses as a lifeline.
Is my organisation eligible for the Energy Bill Relief Scheme?
All non-domestic customers are eligible, if you are:
• on existing fixed price contracts that were agreed on or after 1 April 2022
• signing new fixed price contracts
• on deemed / out of contract or variable tariffs
• on flexible purchase or similar contracts
If you had signed a fixed price contract before 1 April 2022, you are not eligible for the scheme as you would not have been exposed to recent wholesale price rises.
When will my business receive the discount?
The discount will apply to energy usage from 1 October 2022 to 31 March 2023, running for an initial 6-month period. The savings will be first seen in October bills, which are typically received in November.
How do I get the discount?
You do not need to take action or apply to the scheme to access the support. Support (in the form of a p/kWh discount) will automatically be applied to bills by suppliers.
There is a maximum discount.
The maximum discount has been set at £345/MWh for electricity and £91/MWh for gas.
This was calculated by comparing the government supported price with the average of expected wholesale prices over the 6 months of the scheme.
If wholesale prices rise above the combined government supported price and maximum discount then your prices will increase.
The discount is only for the wholesale element of your bill.
It’s important to note that your bills are not simply made up of the wholesale price of electricity and gas. It also includes costs such as network charges and operating costs, plus the impact of competition between suppliers. These are added onto the final per unit price you pay.
How the scheme works for different contract types
Organisations on fixed contracts:
If you agreed your fixed price contract / tariff on or after 1 April 2022 you will get support if the calculated wholesale element of the price you are paying is above the government supported price.
The discount will reflect the difference between the government supported price and the relevant wholesale price for the day the contract was agreed.
If your fixed tariff is based on wholesale prices below the government supported price, then you will not be eligible for support.
Your per unit energy costs will automatically be reduced by the relevant pence per Kilowatt Hour (p/kWh) for the duration of the scheme.
The government guidance gives the example of a medium-sized manufacturing business, using 200 MWh of electricity and 1,600 MWh of gas each month. They entered into a fixed contract in August 2022, giving them a current monthly energy bill of around £560,000. 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 £360/MWh for electricity and £90/MWh for gas, meaning they receive a discount of £215,000 per month.
If you are about to sign a new fixed price contract:
The relevant price reduction will be automatically applied to your bill by your supplier.
If you are on a variable, deemed or other contract:
The discount will reflect the difference between the government supported price and relevant wholesale price, but the support will not be limitless. There is a ‘maximum discount’, which has been confirmed as £345/MWh for electricity and £91/MWh for gas.
If you are on a flexible purchase contract:
Some large non-domestic energy users buy energy using flexible contracts which enable them to decide when to hedge for portions of their demand throughout the term of the contract.
If you’re on a flexible purchase contract, your price reduction will depend on the difference between your monthly weighted average baseload price (determined by your individual hedging approach) and the government supported price. In this case the maximum support available per unit of energy will also be limited by the maximum discount (£345/MWh for electricity and £91/MWh for gas).
If you signed your fixed contract before 1 April 2022:
If you signed your fixed rate contract before 1 April 2022, you would not have been exposed to the recent rises in wholesale prices, so you will not be eligible for support under the scheme.
If you are out of contract:
If you are out of contract and are waiting to see the details of government support, the government guidance says you should set up your contract as normal. Your supplier will automatically apply appropriate reductions to your energy price for the duration of the scheme.
After six months of support: What next?
A more targeted scheme for vulnerable organisations?
The government says it will publish a review into the operation of the scheme in 3 months’ time, to inform decisions on future support after March 2023. The review will focus in particular on identifying the non-domestic customers most vulnerable to energy price rises, and how the government should continue assisting them with energy costs. These are likely to be energy-intensive organisations who are least able to reduce their energy usage or increase energy efficiency.
So, if you are a large, non-energy intensive business, for example, it is unlikely that you will receive ongoing support after March 2023.
Take control of your energy use
In its scheme guidance, the government stresses the need for organisations to use the six-months support provided by the scheme to identify measures they can take to protect themselves against high energy prices. This could include demand reduction measures, energy efficiency and onsite generation.