The UK Government has announced a new energy support scheme for UK businesses, charities and the public sector that will take effect from 1 April 2023 and last until 31 March 2024.

The Energy Bills Discount Scheme aims to help companies cope with higher than usual energy prices through discounted bills, but it has come in for criticism for not offering the same level of support as the existing scheme. We look at what it means for small to medium sized businesses.

What is new ‘Energy Bills Discount Scheme’?

As the name suggests, the new scheme will apply a discount to energy bills, rather than a cap that’s in place under the existing support scheme.

The scheme has two support avenues, one for non-domestic customers and another for Energy and Trade Intensive Industries, which are set to receive higher levels of support.

Non-domestic customers:

• From 1 April 2023 to 31 March 2024 non-domestic users that are eligible will have an energy bill discount of up to £6.97/MWh applied to their gas total and up to £19.61/MWh applied to their electricity bill
• The support is subject to an energy price wholesale threshold. If a business has costs below the domestic consumer reference (£107/MWh for gas and £302/MWh for electricity), they won’t receive the discounted support
• The discount is automatically applied to the energy bill

Energy and Trade Intensive Industries:

• Those eligible for this support will receive a discount that reflects the difference between a price threshold and wholesale price
• The threshold will be £99/MWh for gas and £185/MWh for electricity
• The reduction will apply to 70% of energy volumes and is subject to a ‘maximum discount’ of £40.0/MWh for gas and £89.1/MWh for electricity

What is the new scheme replacing?

In the Autumn statement last year, a support package for non-domestic energy users was announced to help businesses cope with high energy price inflation – the Energy Bill Relief Scheme.

The Government advised the £18 billion scheme was ‘unprecedented in its nature and huge scale were time-limited and intended as a bridge to allow businesses to adapt’.

It worked by capping the cost of a unit of energy for businesses because there's no cap to the amount suppliers can charge on non-domestic contracts.

There is no cap under the new scheme, so if wholesale prices start to rise, so will companies’ energy bills.

What has happened to wholesale energy prices?

Energy prices soared following Russia’s invasion of Ukraine. Although wholesale gas prices are now below the level they were before the invasion, they are still nearly four times higher the long-term average.

Why has the Government made this change?

The aim of this scheme is to reduce the £18 billion cost, with the new scheme capped at £5.5 billion. Chancellor Jeremy Hunt said: “Wholesale energy prices are falling and have now gone back to levels just before Putin’s invasion of Ukraine. But to provide reassurance against the risk of prices rising again we are launching the new Energy Bills Discount Scheme, giving businesses the certainty they need to plan ahead.

“Even though prices are falling, I am concerned this is not being passed on to businesses, so I’ve written to Ofgem asking for an update on whether further action is action is needed to make sure the market is working for businesses.”

What about companies on fixed contracts?

For fixed contracts the discount will reflect the difference between the Government supported price and the relevant wholesale reference price for the day the contract was agreed. Customers that signed their fixed rate contract before 1 December 2021 will not have been exposed to volatile wholesale prices, so will not be eligible for support under the scheme.

Will my business be eligible?

As with the existing scheme, the new scheme will be available to everyone on a non-domestic contract including:

• businesses
• voluntary sector organisations, such as charities
• public sector organisations such as schools, hospitals and care homes

who are:

• on existing fixed price contracts that were agreed on or after 1 December 2021
• signing new fixed price contracts
• on deemed / out of contract or standard variable tariffs
• on flexible purchase or similar contracts
• on variable ‘Day Ahead Index’ (DAI) tariffs (Northern Ireland scheme only)

Exclusions apply, such as where energy is not supplied be a licenced supplier or where energy is used to generate electricity that will be sold to the grid.

Does my firm need to apply for the discount?

No, suppliers will automatically apply reductions to the bills of all eligible customers.

Has the Government provided any examples of how this may work in practice?

Yes, it has provided examples on its website, one of which is the below example of a medium-sized manufacturing business which uses 200 MWh of electricity and 1,600 MWh of gas each month.

They entered into a fixed contract in August 2022, giving them a current monthly energy bill of around £560,000. At the time they signed their contact, wholesale prices for the next six months were expected to be higher than the Government supported price of £211/MWh for electricity, and £75/MWh for gas, meaning they can receive support under this scheme.

The difference between expected wholesale prices when they signed their contract and the Government supported price is worth £360/MWh for electricity and £90/MWh for gas, meaning they receive a discount of £215,000 per month, reducing their original bill by more than 35%.

What are the responses to this recent announcement?

Most responses to the Government’s new scheme have been negative, highlighting that many businesses have already struggled in recent months financially and support has now been stripped back further.

Martin McTague, National Chair of the Federation of Small Businesses said: “This is so out of touch. Two pence off a kWh of electricity and half a pence off gas is totally insignificant for small businesses, despite costing billions to the taxpayer. The Government will inevitably have to come back.

“The current EBRS scheme provides certainty for a small business owner over their rates, and has made a material difference to the survival of many small businesses. The replacement scheme will do neither.

Director General of British Chambers of Commerce, Shevaun Haviland, commented: “Despite Government efforts, an 85% drop in the financial envelope of support will fall short for thousands of UK businesses who are seriously struggling.”

Tom Thackray, CBI Director for Decarbonisation Policy, added: “The extension to the scheme will provide respite for many firms at the start of the year and help them plan ahead for the next 12 months with more certainty.

“It’s unrealistic to think the scheme could stay affordable in its current form, but some firms will undoubtedly still find the going hard. The Government has done much to protect businesses through the energy crisis. It must remain open, flexible and pragmatic in its approach to volatile wholesale energy markets as the year unfolds.”

For more information on the new ‘Energy bills discount scheme’ please visit gov.uk