Energy bills will begin to land next month with the government’s discount applied, but what is it and how will it affect you?
Last month, the government announced details of its Energy Bill Relief Scheme to help businesses with spiralling energy costs by discounting wholesale energy prices.
The government supported rate has now been set at 21.1p/kWh for electricity and 7.5p/kWh for gas. Just to make it clear, this is a discount against the wholesale element of a business’s supply, not a discount against the full unit rate (the wholesale cost element of a bill is around 29% of an electricity bill and 41% of a gas bill).
The scheme will apply to businesses that are:
•
on existing fixed price contracts that were agreed on or after 1st April 2022
•
signing new fixed price contracts
•
on deemed/out of contract or variable tariffs
•
on flexible purchase or similar contracts.
The support will automatically be applied to all eligible bills so you do not need to take any action. The savings will be applied to bills from October through to March 2023.
Fixed contracts
For fixed contracts the discount will reflect the difference between the government supported price and the relevant wholesale price for the day the contract was agreed. The government is due to publish the wholesale prices it will use for calculating this for each day from 1st April 2022.
Example 1: A takeaway that is on a fixed rate contract, paying 25p/kWh for gas and whose wholesale price for the day their contract was agreed was 18p/kWh will now be paying a new rate of 14.5p/kWh*.
18p (wholesale price) – 7.5p (government discount) = 10.5p
25p (contract price) – 10.5p = 14.5p/kWh
If you’re about to sign a new fixed price contract, the reduction will be automatically applied to your bill by your supplier.
Variable, deemed and all other contracts
For variable, deemed and all other contracts, the discount will reflect the difference between the government supported price and relevant wholesale price, but is subject to a ‘maximum discount’ of 34.5p/kWh for electricity and 9.1p/kWh for gas. This is because prices for these contracts are still subject to wholesale market developments. The discount has been calculated by comparing the government supported price with the average of expected wholesale prices for delivery across the six months of the scheme.
Example 2: A takeaway on a variable rate, paying 25p/kWh for gas and whose wholesale price for the day their contract was agreed was also 18p/kWh will now be paying a new rate of 15.9p/kWh*.
25p (variable price) – 9.1p (maximum discount allowed under the new scheme)
= 15.9p/kWh
Businesses on variable/flexible contracts will need to choose if they move to fixed contracts. This is likely to suit you if you don’t want to be exposed to price variation. You will be contacted by your supplier.
Signed before 1st April?
If you signed a fixed contract before 1st April 2022, you would not have been exposed to the recent rises in wholesale prices, so you will not be eligible for support under the scheme.
More advice is available at: www.gov.uk/guidance/energy-bill-relief-scheme-help-for-businesses-and-other-non-domestic-customers
*Source: Thames Utility Brokers. Examples are based on what is known so far and could change when the government publishes the wholesale prices.
