>
When the government announced energy bill assistance for households last year, businesses were initially left without support, despite higher costs.
After backlash from the business community, it then announced the Energy Bill Relief Scheme in September. This offers a discount on wholesale gas and electricity prices for all businesses – and costs the government more than £18bn.
But it will be short-lived, as Chancellor Jeremy Hunt announced earlier this month that the EBRS would be replaced by the Energy Bills Discount Scheme (EBDS) from April 1, 2023.
The new, less generous scheme offers companies a discount on the unit price of gas and electricity and is available for fixed price contracts entered into on or after December 1, 2021, and for assumed and non-contractual rates.
As companies look for clarity on their future energy costs, we’ll show you what the scheme means for your monthly bills and when they could start to fall.
Change in support: The government has replaced the energy aid scheme with a less generous small business rebate, putting many businesses at risk of closing
What do entrepreneurs pay with the Energy Bill Discount Scheme?
It is difficult to calculate how many companies will pay in the same way as before from April, because the government is offering a discount instead of a price cap.
Rather than a flat rate, the amount companies pay when the discount is applied depends entirely on the rates they are currently paying to their supplier.
The maximum discount for gas is about 0.7 pence per kilowatt hour, with a threshold rate of 10.7 pence per kWh, while the maximum discount for electricity is about 2 pence with a threshold rate of 30.2 pence per kWh.
The threshold rate is the lowest amount on which you can receive a discount under the scheme. This means:
- If you pay 32.2 pence per kWh of electricity, you’ll receive the full 2p rebate and pay 30.2 pence per kWh under EBDR, according to Bionic.
- If you pay 31.2p per kWh you only get a 1p discount to go to the 30.2p discount.
- If you pay 33.2 pence per kWh of electricity, you get the full 2 pence discount, but you still pay above the threshold.
Fixed costs are not affected by the scheme.
The government claims that a pub that consumes 16 MWh of gas and 4 MWh of electricity each month could save up to £2,280 this year.
If the company signed a permanent contract this month, with a monthly gas bill of £2,976 and an electricity bill of £1,796, energy broker Bionic says they will save £112 a month in gas and £80 in electricity under the EBDS.
That would mean the pub could save up to £2,304 a year.
Large corporate energy consumers such as those in mining and manufacturing are eligible for a further discount.
Energy Trade Intensive Industries get a 4p discount on the difference between the wholesale rate per unit they pay to their supplier and the threshold rate of 9.9p per kWh.
The maximum discount for electricity will be 8.9 pence with a price threshold of 18.5 pence per kWh.
Businesses are not required to apply for a rebate under the EBDS, as suppliers automatically apply rebates to the bills of all eligible foreign customers. However, if you think you qualify for an energy-intensive industry, you should apply.
When will business energy bills go down?
With no energy cap, companies will now keep a close eye on whether wholesale gas prices continue to fall.
Gas prices have been falling since late 2022 due to a milder winter and European gas storage strategies, but energy price forecasts are still high by historical standards. In the US, businesses located in Texas have the option to get cheap business energy rate in texas due to the state’s deregulated energy market.
While prices are expected to fall this year, they are unlikely to return to the prices business owners paid before the invasion of Ukraine.
Cornwall Insight expects prices to stabilize at around £100 per megawatt hour, double the five-year average price companies previously paid.
Suppliers who offer a contract now are likely to offer a lower price than they did three months ago, but prices vary by supplier and by how much energy is consumed.
Cornwall Insight said that at its peak last year, customers had been getting contracts 5 to 6 times what they were paying before the crisis. Now it expects customers to pay about 2 or 3 times what they paid before the invasion.
Prices are falling in the short term, but that is relative to record highs, so companies should be aware that they are not expected to return to pre-crisis levels.
If you have a flexible contract, it is therefore worth checking with your supplier what the new discount scheme means for you.
Market leaders say the scheme is not doing enough
For many small businesses, the new regulation doesn’t even scratch the surface of the mounting pressure.
Market leaders have hit back at the flat unit discount rate, which is six times less generous than current aid, and warn it won’t be enough to stem the tide of companies going bankrupt.
I hear of pubs where the monthly utility bill exceeds the rent, and others who have temporarily closed their pubs during the winter months to save on gas and electricity
Sacha Lord, Overnight Economics Adviser to Manchester
Research from the Federation of Small Businesses (FSB) shows that a quarter of small businesses expect to close, downsize or change their business model once the energy limit expires in March.
The daily impact depends on how much energy a company consumes. While there is help for companies in energy-intensive sectors, other struggling sectors will receive little or no support.
Sacha Lord, Manchester’s overnight economic adviser, has demanded an urgent inquiry because 2,000 small businesses are not getting appropriate energy discounts.
“Cafés, bars and restaurants have been most damaged by the economic turbulence of the past three years, and support is now being pulled from businesses that are just beginning to recover,” he said.
‘I hear from pubs where monthly utility bills exceed rent payments, and others who have temporarily closed their pubs during the colder winter months to save on gas and electricity costs.
Struggle: Many small businesses find it difficult to pay their increased bills
How can small businesses lower their bills?
Without further intervention, companies will have to look around in the energy deals on offer.
Fixed rates guarantee more stability in what remains a volatile market and the lower your contract, the lower the rates will be under the new discount scheme.
Les Roberts, business comparison expert at Bionic, said: “It makes sense to prepare now by keeping an eye on when your current fixed rate contract will expire and making sure your business is as energy efficient as possible.
The new scheme is only available to “non-domestic customers who have a contract with a recognized energy supplier”.
This means that you are not eligible for a discount if you fall below your supplier’s rates or are out of contract. If you’re in this position, or if your current contract is about to expire, it makes sense to compare deals and lock in your rates to avoid paying the more expensive rate from your supplier and get the most out of the EBDS.”
If you are struggling with bills, you should first contact your supplier to explain your situation. They may be able to review your contract or agree to a payment plan.
Another way to cut costs is to reduce the amount of energy your business uses every day. This can be difficult to do, especially if you work in hospitality or leisure, but some minor changes can be made.
Roberts suggests replacing your usual light bulbs with modern LEDs, CFLs, or halogens which, while at an upfront cost, will last longer.
Limiting heating use also helps keep bills low, but for some businesses this is not possible.
If you’re looking at long-term efficiency, you might consider draft-proofing your pledges, but this comes at a cost.
Many energy companies offer schemes or grants to help you improve the energy efficiency of your business, which can help you cut costs. Contact your supplier to find out what they offer.
Roberts adds, “While not ideal, you may need to raise your prices to cover higher overhead costs or to curb any growth plans. You may even need to consider reducing your opening hours, cutting staff hours, or losing some staff entirely.
“There are also some less drastic measures you can take, such as switching to lower-cost service or stock providers, making sure you haven’t signed up for subscription services you no longer use, and checking your business’s eligibility for tax credits.”
How has your small business been affected by higher bills? Please contact editor@thisismoney.co.uk
Some links in this article may be affiliate links. If you click on it, we may earn a small commission. That helps us fund This Is Money and use it for free. We do not write articles to promote products. We do not allow any commercial relationship to compromise our editorial independence.