Energy Bill Relief Scheme – what do business owners need to know?

Energy Bill Relief Scheme

The Energy Bill Relief Scheme is a 6-month emergency support package for businesses to help reduce the price paid for energy over the coming winter.

The Energy Bill Relief Scheme will start on 1 October 2022 and end on 31 March 2023.

The government will provide a discount on unit prices for energy used by businesses for those on non-domestic contracts, including:

Energy Bill Relief Scheme

Who is eligible for the scheme:

To be eligible for the Energy Bill Relief Scheme, your business should be:

  • 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

Who may miss out?

The Energy Bill Relief Scheme is intended to be of broad application so few businesses will miss out, apart from the energy generators themselves including power stations.

Energy Bill Relief Scheme power station

However, some exclusions may apply if a business signed an energy contract before 1 April, when gas prices were already starting to rise above previous highs.

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.

If your fixed tariff is based on wholesale prices below the government-supported price, then you will not be eligible for support.

How much will your bills be reduced?

The government will provide a discount on your gas and electricity unit prices. To calculate your discount, 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 currently expected wholesale prices this winter.

For all non-domestic energy users in the UK, this government-supported price has been set at:

  • £211 per megawatt hour (MWh) for electricity
  • £75 per MWh for gas

The government estimates that energy costs this winter are expected to be around: 

  • £600 per MWh for electricity
  • £180 per MWh for gas

. The level of the discount received depends on the type of contract that your business is on.

Fixed Contracts

For fixed contracts, the discount will reflect the difference between the government-supported price and the relevant wholesale price for the day the contract was agreed. (The government is due to publish the wholesale prices they will use for calculating this for each day from 1 April 2022.)

Example:

A medium-sized manufacturing business uses 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.

Energy Bill Relief Scheme manufacturing

At the time they signed their contract, 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 the Energy Bill Relief 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, reducing their original bill by more than 35%.

Variable Contracts

For variable, deemed and all other contracts, the discount will reflect the difference between the government-supported price and relevant wholesale price, but be subject to a ‘maximum discount’ that will be determined at the beginning of the scheme.

example:

A small retail shop uses around 1 MWh of electricity and 2 MWh of gas each month. They are on a variable contract, giving them a current monthly energy bill of around £1,400 per month.

Energy Bill Relief Scheme small business

As they are on a variable contract they can receive support from the Energy Bill Relief Scheme up to the Maximum Discount (currently estimated to be £405/MWh for electricity and £115/MWh for gas).

Applying the Maximum Discount rates means that their monthly energy bill reduces by around 45%, leaving them with a bill of around £800 per month.

How you will get the discount?

The Energy Bill Relief Scheme support will be automatically applied to all eligible bills. You do not need to take action or apply to the scheme.

You should start seeing the discount from November 2022 when you receive your bill for energy used in October.

What will happen after March 2023?

The government is set to review the scheme in three months’ time.

This government review will focus on whether support should be more targeted to ensure that it has adequately supported the most vulnerable businesses.

Energy Bill Relief Scheme review

At this time the government will also consider whether an extension to this scheme will help those customers best, or whether it should be replaced with a new scheme.

You can read the full guidance on the Energy Bill Relief Scheme at Gov.UK.

How we can help?

The rise in energy bills is likely to have an impact on both households and businesses in the UK this year.

If you need any help or advice on Energy Bill Relief Scheme or managing and improving your cashflow, please get in touch with Blue Spire today.

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