The Energy Bill Relief Scheme: the bigger picture for businesses

In September the Government announced a new Energy Bill Relief Scheme (EBRS) to support businesses with rising energy costs. The scheme aims to do this by discounting the cost of energy use for six months between 1 October 2022 and 31 March 2023. Eligible businesses with energy contracts that qualify for the discount will soon see the discount on their energy bills. However, the scheme is just one moving piece of a much larger landscape involving a still volatile energy market. Here’s a quick overview of how it all fits together and what the bigger picture means for businesses.

A summer of soaring energy prices

Energy prices were heading towards a crisis for more than a year before the situation came to a head over the summer. This was due to several factors including a strong rebound from the economy after Covid-19 and Russia’s war with Ukraine, which created gas supply restrictions to Europe.

Added pressure came when Russia restricted flows on the Nord Stream 1 pipeline, reducing gas supplies even further. And then again when Gazprom (an energy corporation owned largely by Russia) announced it was closing the Nord Stream pipeline for maintenance. As a result, gas prices for Winter 22 soared and by the end of August they had increased by 412% compared to the start of the year ^[1]. Eventually the Government was forced to act.

An intervention

With the situation looking bleak, the Government announced an Energy Price Guarantee for domestic customers and the EBRS for businesses. This – coupled with news that Europe's gas storage had reached 80% capacity ahead of schedule – was enough to bring the wholesale price of gas and electricity down at the end of August.

However, despite gas prices dropping by more than 20% on 30 August (18% for electricity) these prices were still higher than normal (200%+ higher when compared to the start of the year) ^[1]. And even though the EBRS scheme offers the promise of some respite for businesses this winter, it’s important to understand that the discount is limited to wholesale prices.

So, what exactly does the EBRS discount mean for your energy bill?

A bill breakdown

Businesses pay for their energy in two ways: the cost of wholesale electricity or gas (known as commodity costs) and third-party charges (known as non-commodity costs). The EBRS, while offering a welcome discount, only applies to the commodity cost part of your energy price. It means the other charges that make up your bill are not discounted under the scheme.

Representative business electricity bill breakdown ^[2]

However, it's worth noting that the ratio of commodity and non-commodity costs has changed significantly in the last couple of years. In Q2 2020, the commodity part of your bill (that is now discounted under the scheme) accounted for only 35% of your overall bill. Since then, it's steadily increased, and in the last quarter it accounted for 84% of your bill ^[3]. Good news for eligible businesses while the scheme lasts.

Winter and beyond

Despite the Government Scheme providing an important lifeline to businesses, this winter is likely to remain a challenging time for many. And with the outlook for energy prices still uncertain, what to expect when the scheme ends on the 31 March is still largely unknown. Until then, the best thing businesses can do is maximise energy efficiencies where possible. And if you're struggling and need help with paying your business energy bills, you can get support here.

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Sources

[1] Intercontinental Exchange (ICE) UK natural gas futures and UK base electricity future prices for Winter 22, Summer 23, Winter 23, Summer 24 and Winter 24

[2] Indicative Unit Rate and Standing Charge excluding Cost to Serve and Gross Margins but including TCR for a medium-sized business with a NHH meter

[3] Indicative commodity and non-commodity costs based on portfolio averages for a medium-sized business with a NNH meter