Homes and businesses across Britain are facing a difficult winter. Russia has shut off its natural gas pipelines into Europe to punish the West for providing economic and military support to Ukraine.
Britain relies on natural gas to generate electricity at power stations and heat with traditional boilers. There simply isn’t enough gas supply to meet the demand, and energy prices have soared.
On 1 October 2022, the British government will intervene to protect businesses from soaring energy costs. The intervention is called the Energy Bill Relief Scheme.
Here we explain everything you need to know about this newly announced government support.
What is the Energy Relief Scheme?
The Energy Relief Scheme is a UK government intervention into the business energy market that protects non-households from the astronomical wholesale market energy costs expected during the coming winter of 2022/23.
Starting on 1 October 2022, for six months, discounts will be applied to business energy bills to cap the wholesale cost of electricity and gas.
The scheme will apply to the supply of electricity and gas of the vast majority of non-household properties (i.e. businesses, charities and all other organisations).
Who is eligible for the Energy Relief?
This winter, all properties will receive government support through artificially low energy bills.
The government has two support schemes; the one you’ll receive will depend on whether your property is a home or something else (non-household).
- Home energy relief: The energy bill people receive for their homes will be protected by the Energy Price Guarantee. The Energy Price Guarantee is an energy price cap that will limit energy rates so that the average annual dual-fuel bill will be £2,500 for the next two years.
- All other properties: Energy supplied to all other properties, including businesses, charities and all other organisations, are covered under the Energy Bill Relief Scheme.
How does the Energy Bill Relief Scheme work?
Here’s where it gets a little complicated. The Energy Bill Relief Scheme discounts the amount your business, charity or organisation pays per kWh (p/kWh) of electricity and gas.
However, the discount doesn’t apply to the overall charge per kWh but does so just to the wholesale element of your rates.
This is in contrast to the household energy cap, which is applied to the grand total amount, including network costs and supplier operating costs.
The unit charge you pay on your business energy bill includes several separate costs:
- Wholesale charges: The amount your business energy supplier pays for buying your electricity and gas from producers/importers.
- Network costs: The cost of moving electricity and gas to your property.
- Supplier operating costs: The cost of maintaining the customer services department, billing, providing and reading business energy meters and other corporate functions.
The energy bill relief discount will apply only to the wholesale element of your unit rates. The discount will reduce the wholesale element to:
- Electricity: 21.1 p/kWh
- Gas: 7.5 p/kWh
To try and demonstrate, below is a handy graph showing the make-up of a typical business electricity bill before the energy crisis and now.
The wholesale element of the bill (in blue) has increased exponentially during the crisis.
The Energy Bill Relief Scheme discount will reduce this element to a more manageable price of 21.1p/kWh, regardless of the actual wholesale rates in your energy tariff.
The relief is expected to be around 40% of your overall bill at current wholesale energy prices (see graph).
Which business energy tariffs receive the energy bill discount?
The energy bill relief scheme protects all businesses regardless of their energy tariff and contract status. All of the following tariffs are included within the scheme:
- Fixed term tariffs
- Fixed-rate tariffs
- Variable tariffs
- Default tariffs
- Out-of-contract tariff
- Flexible tariffs
The scheme excludes fixed rate tariffs agreed on before 1 April 2022.
However, this is a moot point because, before this date, the wholesale energy rates were below the scheme’s discounted wholesale unit rates.
Should I compare business energy suppliers?
The energy bill relief discount will be applied to your business energy bill regardless of which tariff and supplier you get your energy from.
Since the energy relief only impacts your bill’s wholesale element, energy suppliers continue to compete to offer the best prices.
Get energy quotes for your business today with our business energy comparison service.
Reactions to the Energy Bill Relief Scheme
Understandably, news outlets provide daily coverage of the ongoing energy crisis and its impact on people across the country.
The government’s intervention in household and non-household energy markets is widely considered inevitable to avoid mass hardship and commercial bankruptcies.
However, the support has come under some criticism from economists, including at the World Bank, for the following reasons:
- A lack of price signal: The root problem we’re facing in the Energy Crisis is that there isn’t enough natural gas to go around. Artificially reducing the wholesale price doesn’t encourage consumers to use less, which may further exacerbate the problem of rising wholesale prices.
- Increasing UK debt: The Institute of Fiscal Studies estimates that the subsidies in the energy markets could exceed £100 billion. Since the UK government is simultaneously announcing tax cuts, this will likely be paid through additional debt burdening future generations.
Energy Relief Scheme – Frequently asked questions (FAQs)
How do I get the Energy Relief Scheme?
The discounts from the Energy Relief Scheme are automatically applied. Your business energy supplier will automatically calculate and apply the energy relief to your October bill.
Which business types are excluded from the Energy Relief Scheme?
The Energy Bill Relief Scheme will cover most businesses. Although a specific exclusion list hasn’t yet been published, the government intends to exclude companies that produce electricity and gas for the national grid.
The government also broadly warns that businesses cannot directly profit from the Energy Bill Relief Scheme other than through its intended impact of reducing costs.
What will happen when the Energy Bill Relief Scheme ends?
The Energy Bill Relief Scheme will end on 31 March 2023. The government has announced that the universal support offered by the scheme will be replaced with targeted support for vulnerable industries.
The UK Department of Business, Energy and Industrial Strategy (BEIS) has started designing the targeted energy bill relief from April 2023 onwards. The government is expected to publish the details of this support over the next months.
When does the Energy Bill Relief Scheme start?
The Energy Bill Relief Scheme will commence on 1 October 2022. For most businesses, the first time you’ll see the Energy Bill Relief Discount is when you receive your October invoice in early November.
What’s the difference between the Energy Bill Relief Scheme and the Energy Price Guarantee?
The key difference is the type of properties the schemes apply to. Home energy bills will be protected by the Energy Price Guarantee, while all other properties, including businesses, will receive a discount under the Energy Bill Relief Scheme.
The schemes operate differently but cap unit energy costs to a similar figure. The biggest difference is that the Energy Bill Relief Schemes will only protect businesses for six months, while the price guarantee will protect homes for two years.
Should I agree on an energy contract?
If you’ve recently moved into a property or come to the end of your current contract, then the government recommends that you set up a contract as normal.
You’ll benefit from the energy bill relief scheme regardless of the tariff and supplier you choose, and you’ll benefit from fixed prices once the scheme ends.
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