What do the business energy cuts mean for you

In October 2022, the government released a support scheme to help UK businesses with rising energy costs. The scheme, which is due to run until the end of March, caps the unit cost of gas and electricity in order for bills to be more manageable.

However, Chancellor Jeremy Hunt, told industry leaders that the current scheme is “unsustainably expensive” and will not be extended post-March.

As energy costs remain high, the UK government is set to announce a replacement scheme — businesses now fear that the new initiative will see the support drop dramatically and leave them uncertain about the future.

The current support scheme cap means that if prices rise above a certain level, it is the government that covers the costs. The way the replacement support will work is by discounts being applied to the wholesale prices of energy — businesses that are more energy-intensive will be provided with larger discounts.

The new scheme, set to follow in April, does not have a cap meaning it will be the business that bears the brunt if wholesale prices rise.

What does this mean for your business?

From April 1 2023 to March 31 2024, 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 £19.61/MWh applied to their electricity bill, except for those benefitting from lower energy prices.

More energy-intensive 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 will only apply to 70% of energy volumes and will be subject to a ‘maximum discount’ of £40/MWh for gas and £89.1/MWh for electricity.

At present, the current scheme is estimated to have cost £18.4bn by the time it comes to an end — the following support is expected to be less than half of that. While the replacement scheme is set to continue helping businesses stay operational, the steep decline in what is offered is where business owners’ fears lie.

Wholesale prices are still around four times higher than average, despite falling in recent months. Some businesses have seen their bills already rise by more than double what they usually pay, even with the current support.

The lack of a cap on the new scheme is the main cause for concern — if energy prices spike again, the flat-rate per unit discount does not give businesses protection from the surge in costs. Those who have entered fixed costs contracts, they will not be seeing any change at all as it would have been signed for when the wholesale price was higher.

With business owners now faced with another situation they will have to adapt to, there are calls for OFGEM to step in.

The energy regulators are already clamping down on brokers in the industry who have been found to be engaging in poor practices — they are pushing to ensure businesses are given the best deal for their industry sector.

A report conducted by OFGEM found a minority of brokers were not transparent in their commission fees when setting a business owner up with a provider. In one case submitted by OFGEM, 50% of the total contract cost (around £24,000) comprised broker commission fees that the consumer was not made aware of pre-contract.

Barings Law is now helping many businesses who have used an energy broker or third-party intermediary across the UK to claim compensation for being overcharged.

If you own a business and think you are overpaying due to hidden commissions and would like to speak to one of our customer service agents to find out how Barings Law can help your business, give us a call on 0161 200 9960 or click the icon at the bottom right of this page to start a webchat.