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

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

When the Government announced energy bill help for households last year, businesses were initially left without support, despite facing higher costs.F

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When the Government announced energy bill help for households last year, businesses were initially left without support, despite facing higher costs.

Following backlash from the business world, it then announced the Energy Bill Relief Scheme in September. This provides a discount on wholesale gas and electricity prices for all businesses – and is costing the Government upwards of £18billion.

But it is set to be short-lived, as earlier this month, Chancellor Jeremy Hunt announced the EBRS would be replaced with the Energy Bills Discount Scheme (EBDS) from 1 April 2023.

The new, less generous scheme offers businesses a discount on the unit price of gas and electricity and is available to those on fixed-price contracts that were agreed on or after 1 December 2021, as well as deemed and out-of-contract rates.

As businesses look for clarity around their future energy costs, we guide you through what the scheme means for your monthly bills and when they might start to fall.

Change in support: The Government has replaced the energy relief scheme with a less generous discount for small businesses putting many companies at risk of closure

Change in support: The Government has replaced the energy relief scheme with a less generous discount for small businesses putting many companies at risk of closure

Change in support: The Government has replaced the energy relief scheme with a less generous discount for small businesses putting many companies at risk of closure

What will businesses pay under the Energy Bills Discount Scheme?

It’s difficult to work out how much businesses will be paying 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 completely depend on the rates they’re currently paying to their supplier.

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

The threshold rate is the lowest amount you can be discounted to under the scheme. This means:

  • If you’re paying 32.2p per kWh of electricity you’ll receive the full 2p discount and pay 30.2p per kWh under EBDR, according to Bionic.
  • If you pay 31.2p per kWh you’ll only get a 1p discount to take you to the 30.2p discount.
  • If you pay 33.2p per kWh of electricity you’ll get the full 2p discount but still be paying over the threshold.

Standing charges aren’t affected by the scheme.

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

If the business 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 they will save £112 a month on gas and £80 on electricity.

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

Large business energy users like those in mining and manufacturing will be eligible for a further discount.

‘Energy Trade Intensive Industries’ will get 4p off the difference between the wholesale unit rate they pay to their supplier, and the threshold rate of 9.9p per kWh.

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

There’s no need for businesses to apply for a discount under the EBDS as suppliers will automatically apply reductions to the bills of all eligible non-domestic customers. However, if you think you might qualify as an energy-intensive industry you will need to apply.

How small businesses are coping

Louise O’Leary, who runs Frolics cafe in St Mellons told This Is Money: ‘This time last year, there was money in the bank to pay the bills. Now there’s no money in the bank to pay them.’ 

She has been running the community cafe for 10 years but fears she may have to close without further government support given her bills have rocketed from £484 to £2,500 a month. 

She said the energy relief scheme was ‘useless’ and ‘not enough’.

‘During Covid, the government backed small business, gave them grants, and said they were important to society. Now, during this [crisis], the government have turned their back on us.’

When will energy bills start to go down for businesses?

Without an energy cap, businesses will now be closely watching whether wholesale gas prices keep going down.

Gas prices have been falling since the end of 2022 due to a milder winter and European gas storage strategies, but energy price forecasts are still high compared to historical norms.

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

Cornwall Insight expects to see prices level off around £100 per megawatt hour, double the five-year average price businesses were paying before.

Suppliers offering a contract now are likely to offer a lower price than three months ago, but prices will vary by supplier and how much energy is being used.

Cornwall Insight said, at the highest point last year, customers had been offered contracts 5 to 6 times what they were paying pre-crisis. Now it expects customers to be paying around 2 or 3 times what they were paying before the invasion.

In the short term, prices are coming down but that is relative to record highs so businesses should be mindful they will not be expected to come down to pre-crisis levels.

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

Industry leaders say scheme doesn’t do enough 

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

Industry leaders have hit back at the flat rate per unit discount, which is six times less generous than the help in place today, warning it won’t be enough to stem the tide of businesses going bust.

 I’m hearing from pubs where monthly energy bills are exceeding rent, and others who have temporarily shut sites during the winter months to save on gas and electricity
Sacha Lord, Manchester’s night time economy adviser 

Research by the Federation of Small Businesses (FSB) reveals a quarter of small businesses anticipate having to close, downsize 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 companies in energy-intensive sectors, other struggling industries will see little to no support.

Sacha Lord, Manchester’s night time economy adviser, has demanded an urgent inquiry as 2,000 small businesses fail to receive appropriate energy discounts.

‘Pubs, bars and restaurants have been most damaged by the economic turbulence of the past three years, and support is now being pulled from under businesses that are only just beginning to recover,’ he said. 

‘I’m hearing from pubs where monthly energy bills are exceeding rent payments, and others who have temporarily shut sites during the colder winter months to save on gas and electricity costs.

Struggles: Many small businesses are finding it hard to pay their increased bills

Struggles: Many small businesses are finding it hard to pay their increased bills

Struggles: Many small businesses are finding it hard to pay their increased bills

How can small businesses cut their bills?

Without further intervention, businesses will have to look around around at the energy deals on offer.

Fixing rates will guarantee more stability in what continues to be a volatile market and the lower your contract, the lower the rates will be under the new discounted scheme.

Les Roberts, business comparison expert at Bionic said: ‘It makes sense to prepare now, by keeping an eye on when your current fixed rate deal is ending and making sure your business is as energy efficient as possible.

‘The new scheme is only available to “non-domestic customers who have a contract with a licensed energy supplier”‘. 

‘This means that you won’t be eligible for a discount if you’re on your supplier’s deemed or out of contract rates. If you’re in this position, or if your current contract is ending soon, it makes sense to compare deals and lock in your rates to avoid paying your supplier’s more expensive rate and make the most of the EBDS.’

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

Another way to cut costs is reducing the amount of energy your business uses on a day-to-day basis. This can be difficult to do, especially if you’re working in hospitality or leisure, but there might be some small switches to be made.

Roberts suggests swapping your usual bulbs to modern LEDs, CFL or halogens which, although they have an upfront cost, will last longer.

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

If you’re looking at long-term efficiency you might want to consider draught-proofing your promises, but this comes at an expense.

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

Roberts adds: ‘Although not ideal, you might need to increase your prices to help cover the higher overheads or cut back on any growth plans. You might even need to consider reducing your opening hours, cutting staff hours, or losing some members of staff completely.

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

How has your small business been affected by higher bills? Get in touch [email protected] 

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