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Government’s business energy price cap scheme backdated

Author: ICAEW Insights

Published: 12 Oct 2022

The government says that business energy contracts signed since 1 December will now be eligible under the scheme.

The government has bowed to pressure and backdated the energy price subsidy scheme to business energy contracts that were agreed prior to the war in Ukraine, as the Energy Prices Bill introduced in Parliament yesterday puts into law support measures to help with spiralling energy costs. 

Unlike the two-year domestic energy cap, the Energy Bill Relief Scheme (EBRS) for businesses is only scheduled to last for six months until the end of March. It originally applied to any company that had signed an energy-supply contract from 1 April. The government now says that contracts signed since 1 December will be eligible under the scheme.

Non-domestic energy bills in Great Britain and Northern Ireland will be automatically discounted from 1 October 2022 to something in line with the government-supported price for electricity and gas for the next six months. 

Originally the government said that businesses on a variable or default tariff, a flexible purchase tariff, signing new fixed contracts or those who have existing fixed contracts signed on or after 1 April 2022 would be eligible for the discount.

Under the EBRS, wholesale energy prices for businesses and other non-domestic settings will be discounted to £211 per megawatt hour [21.1p/kWh] for electricity and £75 per MWh [7.5p/kWh] for gas. Without the launch of the schemes, the government says businesses and consumers had been left facing increasing financial turmoil, with energy bills estimated to increase to as high as £6,500 before the Government stepped in. 

The EBRS will run until the end of March, after which the government has said it would extend it on a more limited basis for “vulnerable” businesses, such as those in hospitality, and potentially other sectors such as charities and schools.

A government spokesperson said: “By expanding the eligibility criteria to include all fixed contracts signed from 1 December 2021, we are ensuring that the support offered through the Energy Bill Relief Scheme to businesses and other non-domestic energy users covers all recent energy price increases, and will help those businesses who have seen increased bills for a sustained period.”

The government’s Energy Bill Relief Scheme will reduce wholesale gas and electricity prices for all eligible UK businesses, meaning they will pay wholesale energy costs below half of expected prices for this winter. Details of the wholesale prices used by the government to calculate the discount are available here

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. For variable, deemed and all other contracts, the discount will reflect the difference between the government-supported price and relevant wholesale price, but be subject to a maximum discount (£345/MWh for electricity and £91/MWh for gas).

Businesses on variable/flexible contracts will need to choose if they move to fixed contracts to avoid exposure to price variation. They will be contacted by their suppliers.

Iain Wright, ICAEW’s Managing Director, Reputation and Influence, said: “This proposed piece of legislation will, subject to Parliament’s approval, put into law the announcement made by the Government a month ago. As we said at the time, this is a welcome and common-sense step that will help those firms who have contracted earlier and would have faced eye-wateringly higher bills this winter. The extension to companies who signed contracts before April 2022 will undoubtedly help and provide reassurance.

“However, looking to the future, rather than the past, is the concern. We remain worried at the lack of certainty after the pledge to business comes to an end. All businesses will need to know soon what happens when the support offered to them by the government ends in April. Otherwise, they face a cliff edge, which can only mean price increases and real threats of company failures – feeding inflation, harming the economy and hurting consumers.”

Meanwhile, renewable energy generators and nuclear power plants could from next year face caps to their revenues as a result of new powers introduced in yesterday’s Energy Prices Bill to ensure they don’t exploit high energy prices. 

The new cost-plus-revenue limit will ensure consumers are not paying significantly more for electricity generated from renewables and nuclear, with the potential to save billions of pounds for British bill payers, the government says. The precise mechanics of the announcement remain unclear. A consultation is due to launch shortly.

Business and Energy Secretary, Jacob Rees-Mogg, said: “Businesses and consumers across the UK should pay a fair price for energy. We have been working with low-carbon generators to find a solution that will ensure consumers are not paying significantly more for electricity generated from renewables and nuclear.

“That is why wehave stepped in today with exceptional powers that will not only ensure vital support reaches households and businesses this winter but will transform the United Kingdom into a nation that offers secure, affordable and fairly-priced home-grown energy for all.”

Survey on the Energy Bills Relief Scheme

The Government launched the Energy Bills Relief Scheme to provide support with energy costs to eligible organisations until 31st March. It is now conducting a three month review to identify businesses and organisations most at risk from higher energy costs and that will still require support after 31st March 2023. As part of this review, BEIS have created a survey to gather the views of members of ICAEW and other business organisations.

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