A new scheme to support firms with their energy bills was announced in the House of Commons on Monday.
The current scheme which caps the unit cost of gas and electricity for all businesses, charities, and public sector organisations expires at the end of March. From April, the new scheme will offer a discount on wholesale prices, rather than costs being capped, as under the current scheme.
The 'Energy Bills Discount Scheme', which will run until March 2024, will see very heavy energy-using sectors, mainly manufacturers, receive larger discounts, and firms paying under a certain price for their energy wholesale will not get support.
Last week, Chancellor Jeremy Hunt told industry leaders that the current scheme to support businesses was "unsustainably expensive". The total level of government support is expected to fall from an estimated £18.4bn for the current six-month scheme, to £5.5bn for the next financial year.
European gas reserves have held up better than expected thanks to an unusually mild winter in northern Europe, and wholesale gas prices have fallen sharply in recent months and are now below the level they were before Russia's invasion of Ukraine, but still three to four times higher than their long-term average.
The Chancellor said, "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."
Energy Bill Discount Scheme summary
For eligible non-domestic customers who have a contract with a licensed energy supplier, the government is announcing the following support:
- From 1 April 2023 to 31 March 2024, all eligible non-domestic customers who have a contract with a licensed energy supplier will see a unit discount of up to £6.97/MWh automatically applied to their gas bill and a unit discount of up to £19.61/MWh applied to their electricity bill.
- This will be subject to a wholesale price threshold, set with reference to the support provided for domestic consumers, of £107/MWh for gas and £302/MWh for electricity. This means that businesses experiencing energy costs below this level will not receive support.
- Customers do not need to apply for their discount. As with the current scheme, suppliers will automatically apply reductions to the bills of all eligible non-domestic customers.
For eligible Energy and Trade Intensive Industries, the government is announcing:
- These businesses will receive a discount reflecting the difference between a price threshold and the relevant wholesale price.
- The price threshold for the scheme will be £99/MWh for gas and £185/MWh for electricity.
- This discount will only apply to 70% of energy volumes and will be subject to a ‘maximum discount’ of £40.0/MWh for gas and £89.1/MWh for electricity.
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