October 1, 2022

Liz Truss has announced a new support package to cover the huge jump in energy bills this winter – this time for businesses. Earlier this month, she unveiled an “energy price guarantee” which would freeze the average household’s annual bills at around £2,500. The aid to businesses is intended to offer equivalent assistance, freezing prices higher than they were last year, but far lower than they would have been without intervention. Businesses have warned they will have to cut jobs or be forced to close without government help. Here’s what the measures mean for businesses:

How does it work?

The government will provide a discount on unit prices of energy used by companies. This will be calculated by comparing the estimated wholesale price the company will pay over the winter with the “government supported price”, which is expected to be £211 per megawatt hour for electricity and £75 per megawatt hour for gas. The amount of the discount depends on the type of contract, but consultancy Cornwall Insight says it is around 45%.

Who has the right?

The scheme is deliberately broad, covering all ‘non-domestic’ contracts, including businesses, charities and public sector organizations such as schools. It includes those on fixed-price contracts agreed on or after 1 April 2022, those signing new fixed-price contracts in October, those on notional or non-contractual tariffs and firms with flexible purchase agreements.

Who could miss it?

In theory, few businesses should fail, except for the energy producers themselves, including power plants. However, some companies will miss out if they signed contracts before April 1 when gas prices were already above historic highs but before they jumped even more. The Federation of Small Businesses has called for those energy customers to be allowed to switch to new fixed contracts free of charge “if it makes a difference to the survival of small businesses”. It is also pointed out that those who had high bills since April will not receive support for those expenses retroactively. Those with fixed price contracts below the cap level are not eligible.

What happens if I have a fixed-term contract?

Energy suppliers will use government data to calculate costs for those on a fixed price contract. The discount offered will reflect the difference between the government supported price and the relevant wholesale price on the day the contract was agreed. Wholesale price prices are published by the Government every day from April 1.

What happens if I have a variable contract?

Businesses with variable contracts will receive a discount that is the difference between the supported price and the wholesale price. However, this will be subject to a “maximum discount” which will be set on 30 September, before the scheme starts. It will be calculated using the average expected wholesale price for delivery over the six months of the scheme. It is expected to be around £405 per megawatt hour for electricity and around £115 per megawatt hour for gas.

How long has this been in place?

The scheme will run for six months from 1 October, and certain businesses will be offered continued support immediately afterwards. The government is yet to confirm which industries it might cover. A review of the program will be published in three months to decide on the continuation of support.

What should I do?

Nothing. In theory, suppliers should now be able to automatically calculate the firm’s new invoice and apply the discount accordingly.

What is the cost to the government?

Estimates vary, partly due to unpredictable wholesale markets, but also because companies are on a wide range of contract types and lengths. However, Cornwall Insight put the cost at £25bn. Investec analyst Martin Young said the cost depended on the mix of contracts and how long the support lasted, but could be between £22bn and £48bn.

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