Energy Bills Discount Scheme: How does the new Government support for businesses work?

When the government announced help with household energy bills last year, businesses were initially left without support, despite higher costs.

Following backlash from the business community, he then announced the Energy Bill Relief Scheme in September. This provides a discount on wholesale gas and electricity prices for all businesses – and costs the government more than £18billion.

But that should be short-lived, as earlier this month Chancellor Jeremy Hunt announced that the EBRS would be replaced by the Energy Bills Discount Scheme (EBDS) from April 1, 2023.

The new, less generous scheme offers companies a discount on the unit price of gas and electricity and is available to those with fixed price contracts entered into from 1 December 2021, as well as deemed and off-tariffs. contract.

As businesses seek to clarify their future energy costs, we walk you through what the program means for your monthly bills and when they might start to drop.

Change in support: the government has replaced the energy aid scheme with a less generous rebate for small businesses, putting many businesses at risk of closure

What will businesses pay under the energy bill reduction program?

It is difficult to determine how much companies will pay from April in the same way as before, because the government is offering a discount rather than a price cap.

Rather than a flat rate, the amount businesses will pay when the discount is applied will depend entirely on the rates they are currently paying their provider.

The maximum rebate for gas is around 0.7 pence per kilowatt hour, subject to a threshold rate of 10.7 pence per kWh, while the maximum rebate for electricity is around 2 pence with a threshold rate. threshold of 30.2 pence per kWh.

The threshold rate is the lowest amount at which you can benefit from a reduction under the program. This means:

• If you pay 32.2p per kWh for electricity, you’ll get the full 2p discount and pay 30.2p per kWh under EBDR, according to Bionic.

• If you pay 31.2p per kWh you will only get a 1p discount to bring you to the 30.2p discount.

• If you pay 33.2p per kWh of electricity you will get the full 2p discount, but you will still be paying above the threshold.

Permanent charges are not affected by the plan.

The government says a pub that uses 16MWh of gas and 4MWh of electricity each month could save up to £2,280 this year.

While the company signed a fixed contract this month, with a monthly gas bill of £2,976 and an electricity bill of £1,796, energy broker Bionic says that under the EBDS, she will save £112 a month on gas and £80 on electricity.

This would mean the pub could save up to £2,304 a year.

Large energy-using companies, such as those in the mining and manufacturing sectors, will be entitled to an additional reduction.

Energy Trade Intensive Industries will benefit from a reduction of 4 pence on the difference between the wholesale unit rate they pay to their supplier and the threshold rate of 9.9 pence per kWh.

The maximum rebate for electricity will be 8.9 pence with a price threshold of 18.5 pence per kWh.

Businesses do not need to apply for a discount under EBDS, as suppliers will automatically apply discounts to the invoices of all eligible non-domestic customers. However, if you think you might qualify as an energy-intensive industry, you will need to apply.

When will energy bills start coming down for businesses?

Without an energy cap, companies will now be watching closely whether wholesale gas prices continue to fall.

Gas prices have been falling since late 2022 due to a milder winter and European gas storage strategies, but energy price forecasts remain high by historical standards.

While prices are expected to fall this year, they are unlikely to return to the prices business owners were paying before the invasion of Ukraine.

Cornwall Insight expects prices to stabilize at around £100 per megawatt-hour, double the five-year average price companies were previously paying.

Suppliers offering a contract now are likely to offer a lower price than three months ago, but prices will vary depending on the supplier and the amount of energy used.

Cornwall Insight said that at last year’s high, customers were being offered contracts 5-6 times what they were paying before the crisis. Now he expects customers to pay about 2 or 3 times what they were paying before the invasion.

In the short term, prices are falling, but that’s relative to record highs. Companies should therefore be aware that they should not return to pre-crisis levels.

Therefore, if you have a flexible contract, it is worth checking with your supplier what the new discount system means for you.

Industry leaders say the system isn’t doing enough

For many small businesses, the new regime doesn’t even touch the surface of mounting pressures.

Industry leaders have hit back at the flat-rate rebate per unit, which is six times less generous than the aid in place today, warning that it will not be enough to stem the tide of failing businesses.

A study by the Federation of Small Businesses (FSB) reveals that a quarter of small businesses expect to have to close, reduce or change their business model once the energy cap ends in March.

The day-to-day impact will depend on how much energy a business uses. While there is help for businesses in energy-intensive sectors, other struggling industries will see little or no support.

Sacha Lord, Manchester’s night economy adviser, has called for an urgent inquiry because 2,000 small businesses are not getting the right energy rebates.

“Pubs, bars and restaurants have been most damaged by the economic turmoil of the past three years, and support is now being withdrawn from businesses that are just beginning to recover,” he said.

“I hear of pubs where monthly energy bills exceed rent payments, and others that have temporarily closed venues during the colder winter months to save on gas and electricity costs.

Struggles: Many small businesses are struggling to pay their increased bills

How can small businesses reduce their bills?

Without additional intervention, companies will have to look around at the energy offers on offer.

Fixing the rates will ensure more stability in what continues to be a volatile market and the lower your contract, the lower the rates will be under the new discount regime.

Les Roberts, business comparison expert at Bionic, said: “It makes sense to prepare now, keeping an eye on the end of your current fixed rate contract and ensuring your business is as energy efficient as possible. as possible.

“The new scheme is only available to ‘non-residential customers who have a contract with an approved energy supplier'”.

“This means you will not be eligible for a discount if you are on your supplier’s deemed or out-of-contract rates. If you’re in this situation, or if your current contract is ending soon, it makes sense to compare offers and lock in your rates to avoid paying your provider’s higher rate and get the most out of EBDS.

If you’re struggling with bills, the first port of call should be to contact your supplier to explain your situation. They might be able to review your contract or agree on a payment plan.

Another way to cut costs is to reduce the amount of energy your business uses on a daily basis. This can be difficult to do, especially if you work in hospitality or leisure, but there may be some small changes to make.

Roberts suggests replacing your usual light bulbs with modern LEDs, CFLs or halogens which, although they have an upfront cost, will last longer.

Limiting the use of heating will also help reduce bills, but for some businesses this is not possible.

If you’re looking for long-term effectiveness, you might want to consider draftproofing your promises, but that comes at a cost.

Many energy companies offer programs or grants to help you improve your business’ energy efficiency, which can help reduce costs. Contact your supplier to find out what they offer.

Roberts adds: “While not ideal, you may need to raise your prices to help cover higher overhead or scale back your growth plans. You may even need to consider reducing your hours of operation, reducing staff hours, or losing some staff altogether.

“There are also less drastic measures you can take, such as switching to cheaper service or stock providers, making sure you’re not signed up for subscription services you no longer use, and checking whether your business is eligible for tax relief. .’

How has your small business been affected by higher bills? Contact editor@thisismoney.co.uk