What is the Energy Bill Relief Scheme?
The government has introduced the Energy Bill Relief Scheme to help businesses with the cost of soaring energy bills. The scheme will offer a discount on business energy rates for six months from October 1, 2022.
This will work in tandem with the Energy Price Guarantee, that will cap household energy rates for two years, also from October 1, 2022. This will replace the current energy price cap and will do away with the quarterly review proposed by Ofgem, the energy regulator.
Here’s more information on how both schemes will work, along with a look at why energy prices are currently so volatile.
How will the Energy Bill Relief Scheme work?
Instead of capping the rates that energy suppliers can charge for gas and electricity, the Energy Bill Relief Scheme discounts the rates that suppliers pay for wholesale energy. These discounts are then passed onto customers via cheaper rates.
The government has set the following baseline energy prices, known as the 'government supported price':
- £211 per megawatt-hour (MWh) for electricity
- £75 per MWh for gas
Customers on cheaper fixed rate deals will benefit more than those on more expensive out of contract rates. This is why the government has confirmed that Businesses on variable or flexible contracts will need to choose whether to switch to a fixed contract. This is likely to suit businesses that don’t want to be exposed to price variation.
These discounts will automatically be applied by suppliers and will be available to voluntary sector oganisations, public sector organisations, and any businesses that are on non-domestic contracts.
There are some exemptions, including power stations and any businesses that use gas or electricity to generate energy that is sold back to the grid.
The amount of discount each business gets will depend on the rates they’re paying and whether they’re on a fixed or variable contract. A good rule of thumb is that the lower the rates you’re paying, the lower your discounted rates will be.
- Fixed price contracts will be eligible for support as long as the contract was agreed on or after April 1, 2022. The discount will reflect the difference between the government-supported price and the relevant wholesale price for the day the contract was agreed upon.
- Variable, deemed, and all other contracts (such as flexible contracts) will be discounted according to the difference between the government-supported price and relevant wholesale price. Rates will also be subject to a ‘maximum discount’ that will be determined at the beginning of the scheme.
How does the Energy Bill Relief Scheme differ from the Energy Price Guarantee?
The way in which households use energy – largely for heating, lighting, and running appliances – makes it relatively straightforward to cap all domestic rates.
But because businesses use energy in such diverse ways, this means that a blanket rate for all would not have been a practical option. For instance, while a café and a glass manufacturer might both need gas to function, the amount they use and the way in which they use it are completely different. This is reflected in the rates each business pays.
Offering a discount on the relevant fixed or variable rates instead of capping them means the Energy Bill Relief Scheme has the flexibility to adapt to the complexities of business energy deals.
Will the Energy Bill Relief Scheme save your business money?
The scheme will discount the rates paid by all businesses for six months. But the impact of that discount will depend on how much each business is paying for energy.
If you’re on a fixed rate deal for the duration of the scheme, you’ll get a consistent discount and some bill stability.
But if you’re on variable rate deal or out of contract rates, if wholesale prices rise then your bills could still go up, even after the discount has been applied.
This is why the government is recommending that all businesses switch to a fixed contract while the scheme is running.
Why are energy prices so high?
The main reason that energy prices are currently so high is that wholesale energy prices have been increasing all year.
Wholesale prices determine how much your energy provider pays for the gas and electricity it supplies to your premises. When wholesale prices go up, energy bills also go up.
There are a number of reason why energy prices have been on the rise throughout 2022, such as:
- Supply and demand – The demand for energy increased as global lockdowns ended. This has coincided with a drop in supply, thanks to factors ranging from the closure of NordStream (the pipeline that took gas from Russia to Europe) and fire damage at Freeport LNG’s Texas plant. This increased demand and limited supply has helped to push up prices.
- A shortage of storage space – Back in 2017, the UK closed its largest gas storage facility. This means storage capacity is down to just 1% of Europe’s total available storage - enough to meet the demand of about five winter days . A lack of storage means we’re more reliant on LNG imports. An increased demand for LNG, particularly from Asia, is pushing up prices.
- War in Ukraine – Energy prices are affected by global events. Russia’s invasion of Ukraine has created huge instability in an area that provides much of Europe’s imported gas.
How to cut your business energy bills
For the next six months, the price you pay for energy will be cut by the Energy Bill Relief Scheme. If you’re on your suppliers out of contract rates, the government is recommending you switch to a fixed rate deal to protect against future price rises.
Remember, since August 2021, spikes in wholesale costs have caused out of contract gas rates to go up by 180%, while out of contract electricity rates have increased by 130%.
It also helps to use less energy. Even with a bill discount in place, the more energy you use, the higher your bills will be. Although being more energy efficient won’t impact your bills as much as it used to, we could all do with using less energy. This also means your business is doing its bit for the environment.
Find out more at our guide to business energy efficiency.