Energy Bills Discount Scheme explained for businesses

The Government’s Energy Bill Relief Scheme (EBRS) is due to end on 31st March 2023 and the UK’s businesses have now been provided with some detail on what support they can expect from April onwards.

  • The Energy Bill Relief Scheme ends in April 2023, when it will be replaced by the Energy Bills Discount Scheme
  • Support will be switched from a cap on wholesale prices to a discount applied to wholesale prices above a threshold
  • There is a maximum discount that can be applied
  • Energy and Trade Intensive Industries (ETIIs) will receive a greater level of discount for targeted support

The £18 billion EBRS was announced in September, in response to the energy price crisis which has struck all sectors and sent monthly business costs through the roof.

The six-month package worked by capping the wholesale (or “non-commodity”) element of the bill, which was the part experiencing volatility and which suppliers have no ability to control.

Prices were capped at 21.1p KWh for electricity and 7.5p KWh for gas, limiting the wholesale impact on business supply contracts agreed from December 2021.

The figure below visualises the way this change impacted business bills.

Energy Bill Relief Scheme Graphs before and after

The government has indicated for some time that this would be reduced to protect the taxpayer, however the extent and details of which have just been revealed.

Introducing the Energy Bills Discount Scheme

The headline change will see a discount applied to unit rates, instead of a cap.  The maximum discount totals £0.01961 (1.9p) KWh for electricity and £0.00697 (0.69p) KWh for gas.

These discounts are only applied when the wholesale price exceeds £0.302 (30.2p) KWh for electricity and £0.107 (10.7p) KWh for gas.  That means the scheme will essentially discount 6.5% of prices once they reach this level.

The scheme will run for 12 months from April 2023.

For Energy and Trade Intensive Industries (ETIIs), the discount is greater and applied faster.  Electricity will receive a maximum discount of £0.089 (8.9p) KWh and gas £0.04 (4p) KWh.

The electricity threshold for ETIIs is lower, at £0.185 (18.5p) KWh and the gas is £0.099 (9.9p) KWh.  These include firms who manufacture using steel, paper, glass, ceramics and cement and other specified materials.

Want to know if you count as an ETII?  The list of eligible sectors can be found here.

The level of support will not differ per energy supplier and will automatically be applied to bills of eligible businesses.  ETII businesses will need to apply for the extra support via a process yet to be detailed.

It applies to fixed price contracts agreed on or after 1st December 2021; new fixed price contracts; deemed or out of contract rates; flexible purchasing and equivalent contracts; and variable “day Ahead Index” tariffs  for Northern Ireland.

It is important to note that this is a maximum discount and not all of it will be applied automatically if the wholesale price does not exceed the threshold by the full discount amount.  For example, if the price only exceeds the standard electricity threshold by £0.015p, that is the amount of discount applied.

What this means for your business.

On the whole, this is not good news for businesses.  It means bills will rise in April and the deals available for new procurement contracts will be considerably higher than businesses have seen since September.

As with most business energy matters, details will be unique to each company.  You should be able to tell the elements of your energy price from your bill, which usually breaks down each element of your price.  Many suppliers have outlined the amount of government support that has been included in the bill as part of the EBRS.  This is the part that has now reduced, exposing your business to that sum moving forward.

Every cloud does have a silver lining, however.  In this instance, it is that wholesale prices have dropped significantly in January 2023 and the mild winter we have experienced in Europe is protecting storage capacities.

Supplier prices do not always follow suit, but we are seeing some reductions starting to appear during our tendering processes.  Depending on your business’ circumstances, this could make it a beneficial time to procure energy in advance of a contract ending, to maximise certainty and minimise impact from the EBRS changes.

This change is a blow for UK businesses, which should bring the necessity to be pro-active in energy procurement into sharp focus.

Energy Bills Discount Scheme – A working example

This example is based on the maximum amount of discount being applied.

A convenience store uses 24,000 KWh of electricity per year.

If the wholesale price exceeds the threshold at the time of contract agreement, they would be eligible for £456 discount, applied through their bill.

If, for example, their unit rate was £0.30 per KWh, that would be a total commodity cost of £7,200, equalling just under 6.5% discount and a final commodity price of £6,744.

It is important to note that this only applies to the commodity element of the price, and non-commodity costs would be additional to this amount shown.

If you would like to discuss the best route forward for your business following the EBDS, Great Annual Savings Group (GAS) offers free, no-obligation advice and quoting.

Read more: Energy Bills Discount Scheme explained for businesses – Great Annual Savings