Energy Update

Earlier this month, Liz Truss announced that the Government will cap energy bills for both consumers and businesses through a new Energy Price Guarantee. The Government has announced more details on how the scheme for businesses will work. 

Businesses 

The Government Energy Bill Relief Scheme will provide a discount on wholesale gas and electricity prices for all non-domestic customers. This support will be equivalent to the Energy Price Guarantee put in place for households. 

It will apply to fixed contracts agreed on or after 1 April 2022, as well as to deemed, variable and flexible tariffs and contracts, and apply to energy usage from 1 October 2022 to 31 March 2023. The savings will be first seen in October bills, which are typically received in November. As with the Energy Price Guarantee for households, customers do not need to take action or apply to the scheme to access the support. Support will come in the form of a p/kWh discount and will automatically be applied to bills. 

To administer support, the Government has set a Supported Wholesale Price – expected to be £211 per MWh for electricity and £75 per MWh for gas. This is equivalent to the wholesale element of the Energy Price Guarantee for households. The level of price reduction for each business will vary depending on their contract type and circumstances. 

Non-domestic customers on existing fixed price contracts will be eligible for support as long as the contract was agreed on or after 1 April 2022. Provided that the wholesale element of the price the customer is paying is above the Government Supported Price, their per unit energy costs will automatically be reduced by the relevant p/kWh for the duration of the Scheme. Customers entering new fixed price contracts after 1 October will receive support on the same basis. 

Those on default, deemed or variable tariffs will receive a per-unit discount on energy costs, up to a maximum of the difference between the Supported Price and the average expected wholesale price over the period of the Scheme. The amount of this Maximum Discount is likely to be around £405/MWh for electricity and £115/MWh for gas, subject to wholesale market developments. Non-domestic customers on default or variable tariffs will therefore pay reduced bills, but these will still change over time and may still be subject to price increases. To increase certainty, the Government is working with suppliers to ensure all their customers in England, Scotland and Wales are given the opportunity to switch to a fixed contract/tariff for the duration of the scheme if they wish, underpinned by the Government’s Energy Bill Relief Scheme support. 

For businesses on flexible purchase contracts, the level of reduction offered will be calculated by suppliers according to the specifics of that company’s contract and will also be subject to the Maximum Discount. 

The legislation required to enable the implementation of the scheme will be introduced in Parliament in October. As previously announced, the Government will publish a review into the operation of the scheme in three months to inform decisions on future support after March 2023. The review, led by officials in BEIS, will focus on identifying the most vulnerable non-domestic customers (which the PM noted may well include hospitality) and how the Government will continue assisting them with energy costs. The review 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 it with a different scheme 

This also comes within the context of longer-term Government work to boost Britain’s homegrown energy supply. 

Government guidance for the scheme is here. 

Households

On September 9, the Government announced that it will introduce an Energy Price Guarantee that will fix electricity and gas bills for a typical household at £2,500 per year for the next two winters. This figure accounts for the moratorium on the green levy, worth around £150. The Government will compensate energy firms for the difference between the wholesale price and the amount they can charge consumers. 

This Energy Price Guarantee therefore supersedes Ofgem’s energy price cap, which had been due to rise to £3,549 per year for a typical household from 1st October. As such, this will save the average household £1,000 a year based on current energy prices. In addition, the Government will maintain the existing universal £400 Energy Bill Support Scheme in addition to the £2,500 cap. Together, costs will remain close to where the energy price cap stands today.  

Net Zero 

The Government will also launch a review to ensure the UK meets net zero in an economically efficient way, given the altered economic landscaped. Chaired by the Chair of the Net Zero Support Group Chris Skidmore MP and reporting by the end of the year, this will ensure delivering the target is not placing undue burdens on businesses or consumers. 

Ros Morgan, Chief Executive of Heart of London Business Alliance, welcomed the Government Energy Bill Relief Scheme, saying: 

“We welcome this intervention, which will provide a lifeline to jobs and businesses in the West End. The Government recognises rightly that there are some sectors that are particularly vulnerable. Intervention will come as a huge relief to many. For others, however, it won’t be enough to avoid cuts as most businesses will be forecasting well beyond the six-month initial period. We look forward to working closely with the Government to make sure that nobody slips through the net, and that our businesses continue to receive the support that they need to get through these difficult times.” 

Kate Nicholls, Chief Executive of Hospitality UK, has also welcomed the scheme: 

“This intervention is unprecedented and it is extremely welcome that Government has listened to hospitality businesses facing an uncertain winter. We particularly welcome its inclusiveness – from the smallest companies to the largest – all of which combine to provide a huge number of jobs, which are now much more secure. The Government has recognised the vulnerability of hospitality as a sector, and we will continue to work with the Government, to ensure that there is no cliff edge when these measures fall away.”