April 1, 2023

Liz Truss has announced a new support package in response to a surge in energy bills this winter – this time for businesses. Earlier this month, she unveiled the Energy Price Guarantee, which freezes the average household’s annual bill at around £2,500. The help for businesses is designed to provide the same level of aid, with prices frozen higher than last year but well below the levels it would have been without intervention. Businesses have warned they will need to lay off staff or be forced to close without government help. Here’s what these measures mean for the company:

How does it work?

The government will offer a unit price discount for the energy used by businesses. This will be calculated by comparing the estimated wholesale price paid by businesses over the winter to the “government-supported price”, which is expected to be £211 per MWh for electricity and £75 per MWh for gas. The level of the discount depends on the type of contract, but consultancy Cornwall Insight says it is around 45%.

Who is eligible?

The scheme is intended to be broad, covering all “non-domestic” contracts, including public sector organisations such as businesses, charities and schools. It covers companies with fixed-price contracts agreed on or after April 1, 2022, companies with new fixed-price contracts signed in October, deemed or extra-contract tariffs, and companies with flexible procurement contracts.

Who can miss it?

In theory, few businesses would be in trouble other than the energy generators themselves, including power stations. But if some companies sign contracts before April 1, when gas prices are already above all-time highs, they’ll miss out before surging further. The Federation of Small Businesses is calling for these energy customers to be allowed to switch to new fixed contracts for free “if it makes a difference to the survival of small businesses”. It also highlighted that those who have experienced exorbitant bills since April will not receive retrospective support for those expenditures. Those on fixed-price contracts below the cap level are not eligible.

What if I have a fixed contract?

Energy providers will use government data to calculate the cost of fixed-price contracts. The discount offered will reflect the difference between the government-supported price and the relevant wholesale price on the day the contract is signed. The government will announce daily wholesale prices from April 1.

What happens if I sign a variable contract?

Variable contract businesses will receive a discount that represents the difference between the support price and the wholesale price. However, this will be subject to a “maximum discount” that will be determined on September 30 before the program begins. It will be calculated using the average expected wholesale price for deliveries within six months of the program. Electricity is expected to be around £405 per MWh and natural gas around £115 per MWh.

How long is this?

The program will run for six months from October 1, after which certain businesses will provide ongoing support immediately. The government has yet to confirm which industries can be covered. A review of the plan will be published within three months to inform decisions on continued support.

what do I need to do?

there is nothing. In theory, suppliers should now be able to automatically calculate new bills for companies and apply discounts accordingly.

What is the cost to the government?

Estimates vary, partly because wholesale markets are unpredictable, but also because businesses have a wide range of contract types and lengths. However, Cornwall Insight put the cost at £25bn. Investec analyst Martin Young said the cost would depend on the combination of contracts and the duration of the support, but could be between £22bn and £48bn.

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