- One Stop for all Business Utilities
- (0800) 999-1160
- 0333 772 9569
- [email protected]
Energy Price Caps For Businesses
Time Required to Switch Business Energy?
September 26, 2022
Energy Crises in UK
October 28, 2022
Do energy price caps apply to businesses?
The cap means electricity bills for business customers will be nearly double what they were in October 2021 when they were £117 per MWh, but more than half of the projected winter bill of around £540. will be This regulation limits the prices of gas and electric units that suppliers can charge their customers. The government’s Energy Bill Relief Scheme provides business owners with financial support for energy bills for six months from 1 October,2022 but it is not a price cap.
Here’s how this works and how it affects your business.
What is the Energy Bill Relief Scheme and how it will help Businesses?
The Energy Bill Relief Scheme is a business energy bill rebate effective from October 1, 2022 for six months. This reduces the burden of wholesale costs on all commercial energy contracts signed after April 1, 2022, and on all off-contract and approved prices.
Businesses have been given an emergency package of government support to get them through the winter, including caps that will drastically reduce the price paid for energy from October 1st.
The UK government has stepped in to reduce wholesale electricity prices for public sector organisations, including businesses, charities and schools.
This plan will be supported for 6 months to protect against bill increases. Further support will then be provided to companies in vulnerable sectors.
Liz Truss, Prime Minister of UK, said earlier this month that the home energy assistance package was announced, and that the government would “also introduce a new program for all non-home customers.”
The UK energy regulator Ofgem’s typical home bill price cap does not apply to businesses. That means businesses face costs that should be even higher than residential customers.
This scheme works differently than price caps. Instead of capping tariffs, governments cap the wholesale price suppliers pay producers for energy.
Over the next six months, suppliers will pay no more than £211 per megawatt-hour (MWh – equivalent to 1,000 kWh) of electricity and £75 per MWh for gas (or 21.1 pence per kWh of electricity or 7.5 pence per kWh).This is known as the standard wholesale price.
If you have a fixed price contract, your discount will be the difference between this base wholesale price and the rate you agreed to when you signed your energy contract.
If you have a non-contractual, notional, or other variable rate agreement, the discount will be the difference between the government’s base wholesale rate and the corresponding wholesale rate charged by your supplier. However, there is still a “maximum discount” of 34.5 pence per kWh for electricity and 9.1 pence per kWh for gas. The system also removes environmental charges from tariffs, but his VAT on energy bills remains the same.
Before explaining how this works, we first need to briefly review the costs that make up an energy bill.
- Wholesale Price – This is the amount the supplier will pay you for the energy they sell to you. This is the discounted part.
- Other costs – These include supplier margins, network costs, environmental taxes, etc. Environmental taxes will be abolished under the scheme, but other costs will remain unchanged.
How does the Energy Bill Relief Scheme work on fixed contracts?
Here is how the rebate works for a company with a fixed electricity contract with an agreed price of 60p per kWh.
| Fixed contract unit rate (per kWh) | 60.0p | This is the rate you pay for each kWh of power consumed. |
| Wholesale price | 40.0p | This is a flat rate amount that consists of the wholesale cost of electricity. |
| Other costs | 20.0p | This is a flat fee amount that is made up of other costs (supplier margins, distribution costs, etc.). |
| Government baseline wholesale price (per kWh) | 21.1p | This is the maximum amount a supplier can charge under the wholesale power scheme. |
| Energy Bill Relief Scheme discount | 18.9p | This is the amount of rebate you will receive under the program. This is the wholesale cost (40.0p) minus the base price (21.1p). |
| Discounted unit rate (per kWh) | 41.1p | This is the discount you pay per unit of electricity under the program. This is the agreed unit price (60.0p) minus the rebate (18.9p). |
*Please note, all figures are just illustrations of how the Energy Bill Relief Scheme could work, and not examples of the final legislation.
How does the Energy Bill Relief Scheme work for non-contractual charges?
Here’s how the discount could work for a business on out-of-contract electricity rates of 130p per kWh.
| Out-of-contract rates (per kWh) | 130.0p | This is the price you pay for each kWh unit of electricity you use |
| Wholesale price | 80.0p | This is a flat rate amount that consists of the wholesale cost of electricity. |
| Other costs | 50.0p | This is a flat fee that is made up of other fees (supplier’s margin, distribution costs, etc.). |
| Government baseline wholesale price (per kWh) | 21.1p | This is the maximum amount a supplier can charge under the wholesale power scheme. |
| Maximum Energy Bill Relief Scheme discount* | 34.5p | This is the maximum amount of discount that can be applied. |
| Discounted unit rate (per kWh) | 95.5p | This is the discount you pay per unit of electricity under the program. This is the off-contract unit price (130.0p) minus the maximum discount (34.5p). |
Please note that all figures are only examples of how the Energy Bill Relief Scheme will work and not final legislative examples.
In this example, the discount rate is 58.9p (wholesale 80.0p minus the government standard wholesale price of 21.1p). However, this is higher than the maximum discount allowed by the system, so a discount of 34.5p is applied.
This means that the higher the rate, the higher the bill, even after the discount is applied. He said the scheme will run for six months from Oct. 1 and will be reviewed after three months to see if specific sectors need more targeted support.
How will the Energy Bill Relief Scheme have an effect on your business?
The lower the contract fee, the lower the discounted fee during the program period.
The Energy Bill Relief Scheme limits the price paid by suppliers for wholesale electricity to 21 pence per kWh and 7.5 pence for gas. Electricity is then reduced to that amount and a ‘Maximum Rebate’ of 34.5 pence per kWh for gas and 9.1 pence per kWh for gas applies.
- High non-contract price – If your electricity bill is 130p/kWh and your wholesale cost is 80p/kWh, your bill can be reduced to 90p/kWh. As in the example above, the maximum discount is applied here. Also, remember that the higher the wholesale price, the more it will cost you. However, a lower wholesale price does not necessarily mean that you will pay less.
- Medium fixed contract price – if your electricity bill is 90p/kWh and your wholesale cost is 60p/kWh, your bill could be reduced to 51p/kWh in the next 6 months.
- Low fixed contract price – If your electricity bill is 60p/kWh and your wholesale cost is 40p/kWh, your bill for the next 6 months could be reduced to 41p/kWh.
If the contract has expired, the supplier can always increase the rates. This leaves your business vulnerable to price increases, even while the program is running.
To this end, the Government is working with energy suppliers to ensure that all business customers in England, Scotland and Wales have the option to switch to perpetual contracts for the life of the scheme.
Call BED today on 0800-999-1160 to compare fixed rate energy contracts.
| Fixed contract unit rate (per kWh) | 38.0p | 13.5p | This is the price the manufacturing business pays for each kWh unit of energy it uses |
| Wholesale price | 28.7p | 10.2p | This is the amount of the unit rate that’s made up by the cost of wholesale energy |
| Government baseline wholesale price (per kWh) | 21.1p | 7.5p | This is the maximum amount suppliers can charge for wholesale energy under the scheme |
| Energy Bill Relief Scheme discount | 7.6p | 2.7p | This is the amount of discount applied by the scheme. It’s the wholesale cost minus the baseline price |
| Discounted unit rate (per kWh) | 30.4p | 10.8p | This is the discount amount for each energy unit under the program. It is the amount after deducting the discount amount from the fixed contract unit price. |
Who are eligible for the Energy Bill Relief Scheme?
The Energy Bill Relief Scheme applies to all non-domestic contracts. This means it will be open to all businesses, including volunteer organizations and public sector organizations.
There are some exceptions such as B. A company that uses power plants, grid-level batteries, or gas or electricity to generate electricity and sell it to the grid.
The only other requirement is that all eligible companies must have one of the following agreements:
- Existing fixed rate contracts entered into after April 1, 2022. Or enter into a new fixed price contract.
- Fixed fee, non-contract fee, variable fee
- Flexible purchase or similar agreement
See our guide for more information on the types of business energy contracts available.
What is the price cap for commercial energy?
There is no cap on business energy bills. Instead, the government has introduced an energy price reduction scheme. This means that the company start reducing its energy bills for six months from this October 1, 2022.
The complexity of commercial energy contracts and the differences in usage between companies means that capping commercial energy rates is difficult to enforce in practice.
The difference in when and how businesses use energy can be enormous. A fish and chip shop and a car factory both need electricity, but they use it in very different ways. For this reason, there are no off-the-shelf options for businesses, and contracts must be tailored to the needs of individual businesses.
And that complexity makes it difficult to apply one-size-fits-all pricing to all businesses.
The Energy Bill Relief Scheme is designed to reflect the complexities of commercial energy contracts and provide financial support to businesses of all sizes.
Need to set energy prices for your business?
We can’t predict what energy prices will be, so we have to amend the contract. The only way to ensure bill stability is to have a permanent contract.
This is where the tech-savvy experts at Beta Energy Direct ( BED ) can help. Compare rates from a group of trusted UK providers to get the best fixed price for your business. Call us today at 0800-999-1160 to secure the best prices for your business energy.
