Posted: Fri 14th Oct 2022
Businesses facing soaring energy costs will have their bills reduced by around half for six months, the government has announced.
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Amid concerns that thousands of firms may collapse, business secretary Jacob Rees-Mogg announced the Energy Bill Relief Scheme through which the wholesale cost of energy for non-domestic customers is capped at £211 per MWh for electricity and £75 per MWh for gas.
The government says this is less than half the wholesale prices for this winter which are expected to be £600 per MWh for electricity and £180 per MWh for gas for businesses in England, Wales and Scotland.
The discounts are automatically added to bills and apply to fixed contracts agreed after 1 December 2021. The limit was originally 1 April 2022 but the government extended the scheme to cover businesses that signed up to fixed price contracts just as energy prices started to rise due to the war in Ukraine.
The scheme also applies to deemed, variable and flexible tariffs and contracts.
It covers energy usage from 1 October 2022 to 31 March 2023 for all non-domestic energy users.
As well as businesses, it includes:
voluntary sector organisations such as charities.
public sector organisations such as schools, hospitals and care homes.
The level of discount for each organisation varies depending on type and date of contract. The government provided the following business examples:
A pub uses 4 MWh of electricity and 16 MWh of gas a month. They signed a fixed contract in August 2022, giving them a current monthly energy bill of about £7,000. At the time they signed their contact, wholesale prices for the next six 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 £380/MWh for electricity and £100/MWh for gas, meaning they receive a discount of £3,100 per month, reducing their bill by over 40%.
A medium sized restaurant
A medium sized restaurant uses around 3.5 MWh of electricity and 4 MWh of gas each month. They are on a variable contract, giving them a current monthly energy bill of around £3,900 per month.
As they are on a variable contract they can receive support 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 half.
A small retail shop
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.
As they are on a variable contract they can receive support 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.
Business secretary Jacob Rees-Mogg said:
Businesses are the beating heart of the British economy.— Jacob Rees-Mogg (@Jacob_Rees_Mogg) September 21, 2022
Today we are announcing support for businesses, charities and public bodies, which will reduce the burden of rising energy bills, protect jobs and promote growth.https://t.co/qqqKFE4qbR pic.twitter.com/YEZxYaGIn5
Prime minister Liz Truss added:
"I understand the huge pressure businesses, charities and public sector organisations are facing with their energy bills, which is why we are taking immediate action to support them over the winter and protect jobs and livelihoods.
"As we are doing for consumers, our new scheme will keep their energy bills down from October, providing certainty and peace of mind.
"At the same time, we are boosting Britain’s homegrown energy supply so we fix the root cause of the issues we are facing and ensure greater energy security for us all."
Energy Bill Relief Scheme: After the six months of support
The government said it will publish a review into the operation of the scheme in January 2023 to work out future support for businesses.
The review will focus on “identifying the most vulnerable non-domestic customers and how the government will continue assisting them with energy costs”. It will consider:
how effective the scheme has been in giving support to vulnerable non-domestic customers.
which groups of non-domestic customers (by sector, size or geography) remain particularly vulnerable to energy price rises, taking into account the latest price position and forward curves, alongside other cost pressures.
how to continue supporting these customers – either by extending the existing scheme for some users, or replacing with a different scheme
Support to those deemed eligible would begin at the end of the initial six-month support scheme, without a gap.
The government urged businesses less vulnerable to energy price increases to use the six months of support “to identify measures they can take to protect themselves against high energy prices”.
Enterprise Nation's reaction to the Energy Bill Relief Scheme
Enterprise Nation founder Emma Jones said:
"We welcome this bold and unprecedented move by the government which we hope will help the small business community avoid a winter of discontent. Small businesses and early-stage firms are being squeezed from all sides, and so this is overall very positive news.
"Small businesses have never experienced a price cap before, so we are on completely new territory here, but this crucially will help deliver the certainty we need to keep businesses going and stop them from closing down in the short term.
"However, businesses also need visibility beyond six months in order to deliver clear growth plans, so having an understanding about what support will be available from March and who will qualify is also key."