Last week the UK Government provided a range of clarifications to the energy support being offered to households and businesses across the country this winter. Below we cover all the main headlines, including the announcement on support for businesses and domestic customers who get their energy supply off-grid.
Whilst support for domestic customers sees a cap put on the domestic unit price for energy, the support being provided for non-domestic customers is a wholesale discount price being applied to bulk energy bought by suppliers.
So, rather than the discount being applied to the individual unit price that customers pay, the discount is being applied to the overall price that suppliers pay before it reaches non-domestic customers.
What this means in practice is the supplier is receiving the initial discount to the large quantity of energy they buy, before selling it on to you. So, the discount is on the cost to them, rather than the cost to you. Suppliers should pass this discount on, but the saving isn’t as direct as it is for domestic customers.
Don’t forget, your energy bill is made up of much more than just the wholesale price. So even if suppliers pass on the discount, there will be additional costs applied (such as the standing charge) before you pay your energy bill.
What will support for businesses look like?
In her initial Energy Price Guarantee announcement, Prime Minister Liz Truss indicated that equivalent support would be offered for businesses, with details provided at a later date. We now have a better sense of what this support will look like, although some specifics remain unclear.
The energy support proposed for businesses (and other non-domestic customers, such as public sector organisations) has been called the Energy Bill Relief Scheme. It will provide a discount on wholesale gas and electricity prices that (just as with the domestic scheme) will be applied automatically to bills in the form of a per kWh discount. The scheme will apply for energy usage from 1 October 2022 to 31 March 2023, with the first savings seen in October bills (which are usually received in November).
To administer this discount to consumers, the Government has set a Supported Wholesale Price, which is currently expected to be £211 per MWh for electricity and £75 per MWh for gas. This is less than half the estimated price anticipated this coming winter. The Government have suggested this offers an equivalent amount of support to that received by domestic customers. Similarly, to the Energy Price Guarantee, the discount includes the removal of green levies.
How long will this support last?
Unlike the Energy Price Guarantee, which will provide an artificially lowered domestic price cap for two years, the Energy Bill Relief Scheme will run for an initial six months, with a review undertaken after the first three months to assess the support being offered. The Department for Business, Industry and Energy Strategy are currently suggesting that it’s likely some support will remain in place after this initial period, for particularly ‘vulnerable’ organisations. However, how they will assess a customer as vulnerable (for example, whether it will be based on industry or based on more business-specific criteria) has yet to be clarified.
Are all non-domestic customers eligible?
The Energy Bill Relief Scheme will apply to fixed contracts agreed after the 1 April 2022, in addition to deemed, variable and flexible tariffs and contracts. The reduction in price for each organisation will vary depending on the particular organisation’s contract type and circumstances. For example, non-domestic customers on fixed price contracts will be eligible for support so long as they signed the contract after the 1 April date mentioned above. If the wholesale element of the price is above the Government Supported Price (e.g. the discounted price), their costs will be reduced automatically by the price per kWh guaranteed by the scheme. If non-domestic customers enter a new fixed contract from 1 October, the reduction will also apply.
If an organisation is on a default, deemed or variable tariff, they will receive a per-unit discount on energy costs. This will apply up to a maximum of the difference between the Government Supported Price (e.g. the discounted price) and the average expected wholesale price throughout the duration of the scheme. The Government have suggested the amount of this discount is likely to be around £405 per MWh for electricity and £115 per MWh for gas, but this could change depending on the wholesale market.
In practice, what this means is that organisations on these variable tariffs will still see a discount to their bills, but that the price they pay will still be fluctuating. This means that the price will go down, but it’s also likely to go up and will vary month on month. The Government have emphasized that they are working with suppliers to make sure non-domestic customers are able to switch to a fixed tariff for the duration of the scheme, to avoid this fluctuation in prices. For businesses on flexible purchase contracts (which are often the largest energy users), the level of reduction they receive will be calculated based on the organisation’s contract type. These prices will also be subject to a maximum discount.
Is there any support for off-grid businesses?
As with the Energy Price Guarantee, equivalent support for businesses that don’t use on-grid gas or electricity is being promised, but the details are yet to be made clear.
What will wholesale discounts mean for my energy bill?
The figures currently being offered by the Government (and quoted by us above) focus on the discount being applied to the wholesale price, which is the price that suppliers pay for energy in bulk, before it’s distributed to consumers. These rates will be subject to further costs, such as the standing charge. At the moment we’re not sure exactly what unit prices this will translate to, so it’s difficult for some businesses to work out exact costs. Coupled with the six-month shelf-life of the support, many businesses may be left unable to plan beyond next March. The onus remains on businesses to reduce their energy use wherever possible, as using less energy is the only way to ensure you pay less.
What’s the latest with domestic energy support?
Alongside the announcement of the Energy Relief Support Bill, the Government have provided more information on the support offered to domestic customers with an off-grid energy supply. This will come in the form of a £100 payment, provided to any home that uses an off-grid source of energy, including park homes. The Department for Business, Industry and Energy Strategy are suggesting that this provides a level of support equivalent to the Energy Price Guarantee that on-grid customers will be receiving, but the analysis supporting this isn’t clear.
If you live in a park home or a building with a heat network and pay for your energy via third-party provider on a non-domestic energy contract, you should benefit second-hand from the Energy Relief Support Bill (the discounted wholesale price for businesses). This is because your non-domestic supplier will be receiving the discount on the wholesale price they’re paying, which should in turn mean you pay less. However, similarly to domestic customers who pay their bills as part of their rent and will be relying on their landlords to pass on the Energy Price Guarantee and other cost-of-living support, the Government is currently stating that they’re expecting third-party suppliers to pass on the discount, “in a reasonable and proportionate way.” There could however be legislation on the way to make sure that households benefit from the support being offered in any cases where landlords or suppliers are tempted to keep these discounts rather than pass them on.
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.
If you’re struggling to keep up with rising energy prices, we’re here to help.
Speak to one of our energy advisors for advice on a range of energy topics. There is often grant funding available to help you make your home more energy efficient, including installing boilers, insulation and central or low-carbon heating. If you live in Gloucestershire or South Gloucestershire, call us for free on 0800 500 3076. If you’re based in Herefordshire, our freephone number is 0800 677 1432.
If you’re struggling to manage or understand your bills – especially in the face of rising prices – and are worried what this year will hold, our Energy Advocates have your back. If you don’t know where to start and are battling with anxiety produced by your home energy, they will help you feel in control. If you live in Herefordshire, use this link to get in touch with the advocacy team in your area. If you’re based in Gloucestershire or South Gloucestershire, you can use this link to get in touch with the Energy Advocacy team.
