With last week’s announcement that the Energy Bill Relief Scheme will end in March, business owners, charity leaders and public sector managers are increasingly worried about how their organisations will weather the continued energy storm. We break down what the changes look like and what they could mean for you.
What support did the Energy Bill Relief Scheme provide?
The Energy Bill Relief Scheme was announced back in September and took the form of a cap on wholesale energy prices. This is where it differed to the Energy Price Guarantee that provided domestic customers with a cap on the unit price of energy. Essentially, the business support was applied to the amount suppliers paid, which should then be passed on to the consumer, whereas the domestic support was applied directly to the price paid by the consumer.
The scheme ran from 1 October 2022 and will end on 31 March 2023, with a review of the scheme commencing after the first three months. It’s following that review that the UK Government have announced the current plans to change the scheme.
What will changes to the scheme look like?
There are big changes to the amount of support being offered and the way that this support will be applied to energy prices.
Rather than a fixed price (such as the cap currently in place), non-domestic consumers will be offered a discount on their energy bills. The scheme will now be referred to as the Energy Bills Discount Scheme to reflect this change. This approach is being billed as part of the Treasury’s attempt to provide support to non-domestic consumers while limiting the use of taxpayer money, with an overall cap set at £5.5 billion. The scheme will provide all UK businesses, charities, and public sector organisations (such as schools and hospitals) with a discount on their energy bills until March 2024.
The discount will apply to unit prices, with a discount of up to £6.97 per MWh applied to gas and £19.61 per MWh applied to electricity. This discount will be applied automatically to energy bills, with businesses identified as being in sectors with high energy use (manufacturing mostly) receiving a significantly higher level of discount, at £40 per MWh for gas and £89 per MWh for electricity respectively. This higher level of support reflects both greater energy use and the fact that the nature of these businesses makes it more difficult for them to pass on price rises to their customers.
Examples of how much money the scheme is likely to save businesses vary widely dependent on sector, with the Government suggesting that the average pub would likely save £2,300 through the scheme, whilst big manufacturers that receive the higher discount would save around £700,000 over twelve months.
Why not leave things how they were?
The Chancellor Jeremy Hunt has referred to the current Energy Bill Support Scheme as “unsustainably expensive,” with estimates suggesting it could cost around £18.4 billion to run the scheme for just six months. With much of this bill being footed by the taxpayer, the UK Government appear keen to reduce the total cost as much as possible, even if it means some businesses see a much-reduced amount of support coming their way. There had been some suggestion that the Government would take a more bespoke approach to support, providing varying degrees of support to different industries and dependent on levels of energy use. However, it became clear that the complexity of the commercial energy market in the UK made this plan unviable as suppliers don’t have the range of data required to tailor support this way. As a result, a return to a more ‘blanket’ approach has been necessary.
What will these changes mean in practice?
To put it simply, the changes will see businesses and other organisations receiving less support than they previously were. Although wholesale gas prices are falling, largely as a result of mild winter temperatures across Europe, it’s unlikely that consumer prices will fall as quickly. Experts have also pointed out that late winter cold snaps or an increase in demand from China would reverse this trend.
Many business groups, including the Federation for Small Businesses (FSB) and the British Chambers of Commerce have noted the likelihood of businesses closing over the coming months if energy prices remain high. The FSB has also pointed out that whilst smaller businesses might not use as much energy, they also have smaller margins which make them less able to deal with significant and sustained cost pressures. Falling profits, reduced output, job losses and business closures are all likely, particularly once the current support scheme comes to an end.
A silver lining in amongst the bad news is that although the level of support is reduced, many were concerned there would be no support in place at all, leaving non-domestic customers on a “cliff edge.” Businesses and other organisations now have some assurance that there will be ongoing support, even though it falls well short of the current level.
Severn Wye run the Target 2030 business energy efficiency scheme, which provides a free bespoke energy survey to businesses in Gloucestershire, Swindon and Wiltshire, to help them reduce their energy use. In some cases, 30% grant funding is also available for businesses to make energy efficiency improvements or install sustainable technologies to produce energy on-site. For more information (including eligibility criteria), head to the Target 2030 website. If you’re thinking of switching tariff (for example to a fixed rate contract), we also offer an energy brokering service. Get in touch with us at switch@severnwye.org.uk, or give us a call on 01452 645324.
