Energy Bill Relief Scheme – how it works

Government bows to pressure and backdates energy bill relief scheme to December 1 last year before the war in Ukraine broke out

UPDATED: The Government has extended the energy bill relief scheme for British businesses to contracts that were signed in December last year before the invasion of Ukraine.

Previously, the energy bill relief scheme for businesses only applied to any company which has signed an energy contract from April 1.

Unlike the two-year household cap, the business version of the scheme is only scheduled to last for six months until the end of March 2023.

Martin McTague, chair of the Federation of Small Businesses, told the Financial Times the move would help “those small firms who locked themselves into contracts just as energy prices originally rose.

“We have been talking to [Government] about a number of our members who were inadvertently penalised for doing the right thing, and trying to protect themselves from even higher hikes.”

How the energy bill relief scheme works

Under the scheme wholesale energy prices for businesses and other non-domestic settings will be discounted to £211 per megawatt hour [21.1p/kWh] for electricity and £75 per MWh [7.5p/kWh] for gas. The UK’s benchmark wholesale gas contract for delivery in December is currently trading at around £152 per MWh.

The Government will pay providers to make up the difference.

>See also: Business energy plan what it means for you

The Energy Bill Relief Scheme only applies to the wholesale costs. Businesses pay other charges on top but these are relatively small.

The Government stepped in to cap household energy bills at £2,500 per year for two years from October. By comparison, the household energy price cap was set at 34p/kWh for electricity and 10.3p/kWh for gas.

The measures, which will be applied directly to bills, are meant to start this month – when most small businesses renew fixed-term contracts – and will last March 2023.

>See also: Business energy help backdated to October

Schools, charities, hospitals and other non-domestic organisations will also be covered by the Energy Bill Relief Scheme.

A parallel scheme will be established in Northern Ireland, while the Government said it will provide equivalent support to non-domestic consumers who use heating oil or alternative fuels instead of gas.

Businesses typically have bespoke contracts with their energy suppliers and agreements can vary greatly by industry.

It is thought about 70 per cent of businesses are on fixed contracts and 25 per cent on variable. How that breaks down by volume is not clear. 

Many businesses on fixed term deals have to renegotiate their agreements in time for October 1: traditionally a key anniversary for contracts in the corporate market.

Prime Minister Liz Truss said: “I understand the huge pressure businesses … are facing with their energy bills, which is why we are taking immediate action to support them over the winter and protect jobs and livelihoods. As we are doing for consumers, our new scheme will keep their energy bills down from October, providing certainty and peace of mind.”

Investec analyst Martin Young told the Daily Telegraph that the Energy Bill Relief Scheme could could range from £22bn to £48bn over the six months.

More on the Energy Bill Relief Scheme

Just one supplier has fixed business energy deal from October

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Tim Adler

Tim Adler is group editor of Small Business, Growth Business and Information Age. He is a former commissioning editor at the Daily Telegraph, who has written for the Financial Times, The Times and the...