Energy Bill Relief Scheme: How Does It Affect Your Business?
The Energy Bill Relief Scheme has been introduced to provide businesses with a level of protection from rising energy costs this winter. You can find out how the scheme works, and whether you are eligible, by reading below.
The cost of energy dominated headlines in 2022 and looks set to continue doing so in 2023, with many companies fearing that soaring bills could put them out of business.
While there has been an energy price cap for domestic consumers in Great Britain for a few years now – with the aim of ensuring households are somewhat protected from movements in the wholesale market – the same has not been true for businesses and other non-domestic customers.
This changed on 21 September 2022, when the government revealed the Energy Bill Relief Scheme (EBRS) – a price cap for business energy in all but name. A replacement for the EBRS, called the Energy Bills Discount Scheme (EBDS), was then announced on 9 January 2023. This will see businesses receive a reduced level of support.
Read on to find out more about what the Energy Bill Relief Scheme is, when it will be replaced by the Energy Bills Discount Scheme, and how they both work.
Why was the Energy Bill Relief Scheme introduced?
According to independent energy research firm Cornwall Insight, the cost of new business energy contracts negotiated from 1 October 2022 onwards were set to increase five-fold when compared to two-year fixed contracts signed in the summer of 2020.
This sharp increase is tied to rising wholesale energy prices. Among other factors, this increase is linked to the crisis in Ukraine, rising demand following the end of Covid-19 lockdowns around the globe, and the long-lasting impact of the 2020/21 cold snap in Europe on energy stores.
The Energy Bill Relief Scheme has been introduced to protect businesses from the burden of these rising costs, at least for the winter months.
» MORE: UK energy crisis explained
How does the Energy Bill Relief Scheme work for businesses?
The Energy Bill Relief Scheme is essentially a price cap, similar to the consumer cap set by the Office of Gas and Electricity Markets (Ofgem), for non-domestic consumers in Great Britain. This means the scheme not only includes businesses, but other non-domestic organisations such as schools, charities and hospitals.
This cap is in effect for gas and electricity usage between 1 October 2022 to 31 March 2023, and any discounts will be automatically applied to non-domestic energy bills. These savings were first applied to October 2022’s energy bills.
Businesses and other non-domestic consumers receiving relief under the scheme will also no longer have to pay a green levy.
A similar, parallel scheme was introduced in Northern Ireland.
From 1 April 2023 to 31 March 2024, the Energy Bill Relief Scheme will be replaced by the Energy Bills Discount Scheme.
What is the Supported Wholesale Price?
The Supported Wholesale Price is the per megawatt hour (MWh) price cap for both business electricity and gas wholesale costs.
For electricity, that price is £211 per MWh. For business gas, it is £75 per MWh.
According to the government, this is less than half of the forecast wholesale gas and electricity prices this winter. It still, however, could leave businesses facing a significant increase on their bills when compared to this time last year.
How will the Energy Bill Relief Scheme affect my contract?
How the Energy Bill Relief Scheme directly affects your business is based on your energy contract.
In Great Britain, if you signed a fixed-rate business energy contract on or after 1 April 2022, including contracts signed after 1 October 2022, you will have your bills automatically capped at the Supported Wholesale Price until 31 March 2023. This is as long as the wholesale element of your business energy bill is above the Supported Wholesale Price. In Northern Ireland, this discount will apply to fixed rate contracts signed on or after 1 December 2021.
Deemed, default or variable contracts
The Energy Bill Relief Scheme works slightly differently if you are on a deemed, default or variable contract. Deemed and default rates are tariffs you have not chosen, whether that is because you have moved into a new business premises and are yet to source your own business energy contract, or because your previous contract has ended without you arranging a new one.
You will receive a per-unit discount on your energy costs, based on the difference between the Supported Wholesale Price and the average expected wholesale price over the six-month period the scheme covers.
That discount, which is dependent on wholesale market developments, is capped at a maximum of £345 per MWh for electricity, and £91 per MWh for gas.
While your overall bill will be reduced, the nature of your contract means that you will still be subject to price changes. This includes a potential increase in the cost of your energy.
Due to the fact you are still exposed to price increases on a deemed, default or variable contract, the government is trying to ensure every non-domestic customer in Great Britain is given the opportunity to switch to a fixed-rate tariff throughout the scheme’s six-month window.
Flexible purchase contracts
As businesses that are on flexible purchase contracts tend to be some of the largest energy users, the level of reduction they receive will be on a case-by-case basis. Suppliers will calculate the reduction according to the details of the existing contract, as well as the same maximum discount levels that apply to deemed, default and variable contracts.
If your business is not connected to the gas or electricity grid, equivalent support will be provided for those who use heating oil or alternative fuels in place of traditional gas supplies.
How much will my business save through the Energy Bill Relief Scheme?
Let’s say at the time you signed a fixed-rate business energy contract, in August 2022, wholesale electricity was expected to cost £591 per MWh for the next six months and wholesale gas was forecast at £175 per MWh.
Since this is higher than the Supported Wholesale Price of £211 per MWh for electricity and £75 per MWh for gas, you would be eligible to receive support under the Energy Bill Relief Scheme.
With a difference of £380 for electricity, your per MWh savings would be 64%. And with a difference of £100 for gas, your per MWh reduction would be around 57%. That’s just shy of a 40% saving on your overall energy bill.
So if you used 4MWh of electricity and 11MWh of gas a month, it would cost you £1,669 a month at the Supported Wholesale Price, compared to £4,289 at your contract’s original estimation. That is a saving of £2,620. It is important to note this is before standing charges and other fees are added on top.
Of course, exactly how much your business can save through the Energy Bill Relief Scheme will depend on your contract type, usage, and current energy costs, as well as the wholesale forecasts at the time you signed your contract.
How does the Energy Bills Discount Scheme work?
Due to the costs involved in maintaining the Energy Bill Relief Scheme, as well as the falling wholesale gas prices, the UK government announced on 9 January 2023 that the EBRS would be replaced by the Energy Bills Discount Scheme. This new scheme will run from 1 April 2023 to 31 March 2024.
Eligible non-domestic customers will receive a discount to the per-unit costs of their energy bills, subject to a maximum discount and as long as the unit rate of their megawatt per hour (MWh) is above a certain wholesale price threshold.
The discount will be applied when a contract’s wholesale price exceeds the threshold price, until the total discount reaches the maximum discount.
In Great Britain and Northern Ireland, the maximum discounts are as follows:
- Electricity: a maximum discount of £19.61 per MWh, with a wholesale price threshold of £302 per MWh.
- Gas: a maximum discount of £6.97 per MWh, with a wholesale price threshold of £107 per MWh.
Therefore, if your unit costs are below £302 per MWh for electricity, or £107 per MWh for gas, you will not receive support.
Any discounts you are eligible for will be automatically applied to your business energy bills by your supplier.
To be eligible for the Energy Bills Discount Scheme, most non-domestic customers will need to be a business, voluntary sector organisation (such as a charity), or public sector organisation (such as a school or hospital). Additionally, they must be:
- on an existing fixed price energy contract agreed on or after 1 December 2021
- signing a new fixed price energy contract
- on a deemed, out-of-contract or standard variable tariff
- on a flexible purchase, or similar, contract
- on a variable ‘Day Ahead Index’ (DAI) tariff (in Northern Ireland only)
What are Energy and Trade Intensive Industries (ETII)?
As part of its review of the original Energy Bill Relief Scheme, the UK government identified which non-domestic energy users are ‘particularly vulnerable’ to high energy prices.
These users have been labelled Energy and Trade Intensive Industries and will receive a higher level of support in the form of a greater per-unit cost discount and a lower price threshold.
- Electricity: a maximum discount of £89 per MWh, with a price threshold of £185 per MWh
- Gas: a maximum discount of £40 per MWh, with a price threshold of £99 per MWh
Unlike with the standard level of EBDS support, non-domestic customers will need to apply for the higher level of ETII support.
The full list of Energy and Trade Intensive Industries can be found here, and includes a range of manufacturers and miners, as well as libraries and museums, among others.
What else can I do to save money on business energy?
Your per megawatt (or kilowatt) hour unit cost is not the only element that makes up your business energy bill. Standing charges and other fees are all added on top. And these can differ from supplier to supplier.
This means, despite the implementation of the Energy Bill Relief Scheme, you may still be able to cut your costs by comparing business energy suppliers.
Usage is the other major factor in your contract that helps determine how much you are spending on business energy. So you may want to look at ways you can cut down on how much gas and electricity your business consumes, whether that’s through carrying out an energy audit to spot potential savings, or simply making sure you turn your appliances off when not in use.
» MORE: Business energy savings
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Connor is a writer and spokesperson for NerdWallet. Previously at Spreadex, his market commentary has been quoted in the likes of the BBC, The Guardian, Evening Standard, Reuters and The Independent. Read more