June 9, 2023

Lease Truss has announced a new support package to cover huge spikes in energy bills this winter – this time for businesses. Earlier this month, he unveiled the “Energy Price Guarantee” which would freeze annual bills for the average household by around £2,500. Aid to businesses is intended to be equivalent aid, freezing prices higher than last year but much lower than they would have been without the intervention. Businesses warned they would have to cut jobs or be forced to close without government help. Here’s what the measures mean for organizations:

How does it work?

The government will subsidize the unit price for energy used by businesses. It compares a business’s estimated wholesale price in winter with a “government supported price”, which would be expected to be £211 per MWh for electricity and £75 per MWh for gas. The level of the discount depends on the type of contract, but consultancy Cornwall Insight says it is around 45%.

Who is eligible?

The scheme is deliberately broad, covering all “non-domestic” contracts, including public sector organizations such as businesses, charities and schools. It covers fixed-price contracts agreed on or after 1 April 2022, those who sign new fixed-price contracts in October, those out of contract or on non-contract tariffs and firms on flexible purchase agreements.

Who could miss?

In theory, few businesses besides power generators including power stations should fall through the cracks. However, some firms will miss out if they sign the deal before April 1, when gas prices are already above historic highs, but before they rise further. The Federation of Small Businesses has called for energy customers to be allowed to switch to new fixed contracts at no charge “if it makes a difference to the survival of small businesses”. It highlights that those who have experienced higher bills since April will not get backdated support for those exits. Those on fixed-price contracts below the cap level are not eligible.

What if I am on a fixed contract?

Energy suppliers will use government data to calculate costs for people on a fixed-price contract. The discount offered will reflect the difference between the government-supported price and the relevant wholesale price on the day the contract was agreed. From April 1, the government will publish the wholesale prices every day.

What if I am on a variable contract?

Variable contract businesses will receive a rebate representing the difference between the supported price and the wholesale price. However, this will be subject to a “maximum discount” to be determined on September 30, before the scheme starts. This will be calculated using the average expected wholesale price for delivery within six months of the scheme This is expected to be around £405 per MWh for electricity and around £115 per MWh for gas.

How long has this been in place?

The scheme will run for six months from 1 October, with some businesses receiving immediate support. The government is yet to confirm which industries may be covered. A review of the project will be published within three months to inform a decision on continuation of support.

What should I do?

nothing In theory, suppliers should now be able to automatically calculate a firm’s new bill and apply discounts accordingly.

How much does the government cost?

Estimates vary, partly because of unpredictable wholesale markets but also because businesses have a wide range of contract types and lengths. However, Cornwall Insight spent £25bn. Investec analyst Martin Young said the cost depended on the mix of deals and how long the support lasted, but could range from £22bn to £48bn.

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