The cost of energy dominated headlines in 2022 and looks set to continue doing so in 2023. While wholesale prices have fallen from their 2022 peak, the end of the Energy Bill Relief Scheme (EBRS) means businesses are still facing a potentially ruinous increase in their bills.
In fact, the Federation of Small Businesses (FSB) revealed in March 2023 that close to a third (28%) of businesses that signed up to fixed energy contracts in 2022 will have to “downsize, rethink their business model, or even close” when the scheme ends.
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 – a price cap for business energy in all but name. However, that was replaced by the less generous Energy Bills Discount Scheme (EBDS) on 1 April 2023, putting some businesses at risk.
Read on to find out more about what the Energy Bill Relief Scheme was, and what changed when it was replaced by the Energy Bills Discount Scheme.
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 was tied to rising wholesale energy prices. Among other factors, this increase waslinked 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 was introduced to protect businesses from the burden of these rising costs, at least for the winter months.
» MORE: UK energy crisis explained
How did the Energy Bill Relief Scheme work for businesses?
The Energy Bill Relief Scheme was 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 included businesses, but other non-domestic organisations such as schools, charities and hospitals.
This cap – in the form of the Supported Wholesale Price – was in effect for gas and electricity usage between 1 October 2022 to 31 March 2023, and any discounts were 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 also no longer had to pay a green levy.
A similar, parallel scheme was introduced in Northern Ireland.
What was the Supported Wholesale Price?
The Supported Wholesale Price was the per megawatt hour (MWh) price cap for both business electricity and gas wholesale costs.
For electricity, that price was£211 per MWh. For business gas, it was£75 per MWh.
According to the government, this was less than half of the forecast wholesale gas and electricity prices for the 2022/23 winter period.
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 runs 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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