Energy Bill Relief for Businesses
With energy bills skyrocketing across the country, can this bill make the difference your startup needs?
As winter approaches, the newly rolled out energy bill relief should start to kick in. But is it too good to be true?
As with anything, the truth is in the fine print.
So let’s break down the government’s new energy bill relief plan for businesses and see if you’ll be making savings this winter, or if you’ll just be putting another jacket on for those plummeting office temperatures.
What is the Energy Bill Relief Scheme?
The idea behind this new rollout is that the government is attempting to reduce the energy bills of businesses. This comes at a much needed time as energy bills soar through the roof, and the approaching months bring plummeting temperatures.
The new bill was announced on the 21st of September 2022 and began reducing business energy bills from the 1st of October 2022.
But let’s take a brief look at the main features of the energy bill relief scheme before we take into account how it will affect your business personally.
Discounted non domestic energy bills
All energy bills of a non-domestic origin will have a discount applied to them. It will be based on the Government Supported Price and the calculations performed using the wholesale market prices that energy suppliers use.
This discount will be applied automatically to bills as a price per kilowatt unit hour (kwh) unit deduction by the energy suppliers themselves.
Winter 2022-23 only
This energy bill relief scheme will only apply for the months between 1st October 2022 until the 31st March 2023.
All non domestic energy customers
Any non-domestic energy customer will be covered by the scheme. This can cover businesses, public sector organisations and charities across the entirety of Britain itself. The energy bill relief scheme covers England, Wales and Scotland, however, Northern Ireland will receive its own version of the scheme.
No concrete news on their version of this energy bill relief as of yet.
There’s nothing to do on your end. Every single eligible business will automatically receive the discounted energy bills with the calculations already factoring in the energy bill relief.
Alongside other relief
As far as the government has currently announced, the new energy bill relief will work alongside existing relief.
Energy supports for the winter that will work alongside the new scheme include:
£400 energy support for households
£650 for those on means tested benefits
£300 winter fuel payment top up
£100 payment for those households that do not use mains gas supplies
How much will I save with the Energy Bill Relief Scheme?
This is the tricky bit, let’s explain why.
The energy bill relief scheme works on the Government Supported Price for electricity. Officially, that amount is £211 per megawatt hour (Mwh) for electricity and £75 per megawatt hour for gas.
Unfortunately for you and your business, you pay retail prices on all your energy bills. As an end user, you pay what the energy suppliers charge for the energy, not what they purchase it for.
So when you translate the discounted price of the energy bill relief scheme from the Government Supported Price (retail) to the consumer price, it doesn’t really work in a straightforward manner.
Not only that, but the scheme itself will work differently depending on your type of business setup. It will calculate slightly differently depending on if you have a fixed energy supply contract, variable contract or deemed contract.
As we said, it’s a little tricky. But let’s explore it!
Calculating relief for fixed energy supply contracts
This is perhaps the simplest way to calculate the new government energy bill relief scheme. In short, you have to take the wholesale cost of a megawatt hour, deduct the Government Support Price, and then apply that deduction to your final bill.
Is that clear? Let’s perform an example, just in case.
According to government projections, the wholesale price of electricity could rise up to approximately £600 per megawatt hour which gives us a nice starting point. Obviously, the supplier adds on a sizeable profit margin onto this in order to please its investors, putting the retail price of electricity at £900.
If you use 3 megawatt hours of electricity in a month, your normal bill would come to £2700.
Now, with the energy bill relief scheme, you recalculate that wholesale amount of £600 by subtracting the government supported price. £600 - £211 = £389.
So £389 per megawatt hour is the new wholesale price thanks to the energy bill scheme, and you’ve used 3 hours worth. £389 x 3 = £1167
Finally, all you have to do is apply that discount to your original bill to find your energy bill after the scheme comes into play. £2700 - £1167 = £1533.
Thanks to the energy bill relief scheme, your new energy bill is £1533 rather than the full £2700. The only difference is that when you receive your energy bills, the prices will be listed in kilowatt hours (kwh) rather than megawatt hours (mwh). But for that, you’ll simply need to move the decimal place a few places.
Calculate energy bill relief for non fixed contracts
For any non fixed contract, ie. deemed, variable etc, you’ll follow essentially the same guidelines as above to calculate your savings on the new energy bill relief scheme.
However, your calculations will be subject to something called Maximum Discount.
The Maximum Discount
Maximum Discount is exactly what it says on the tin. The UK government will only offer relief up to a certain limit. Now, the UK government has recently stated that the maximum discount is set at £345 per megawatt hour for electricity and £91 per megawatt hour for gas.
Using the same figures as the calculations for fixed contracts would give you;
£389x3=£1167 in savings
However, thanks to maximum discount, you could only save up to £345 per hour, so your calculation would look like this:
£345 x 3 = £1035
This would then mean that the total energy bill would be £1665 rather than the previous £1533. It’s not a great deal of difference, but every little matters when you’re a Startup focused on your bottom line.
This means that under the energy bill relief scheme, businesses may well be more prudent to switch to fixed contracts for their energy bills in order to make maximum use of the savings on offer.
Do I qualify for the energy bill relief scheme?
In the government’s own words, “anyone on a non domestic contract” can make use of the savings scheme. This includes:
Businesses and Startups of ALL sizes
However, it is important to note one important thing when it comes to this scheme.
The energy bill relief scheme only applies to energy contracts agreed with suppliers after 1st April 2022 and those on deemed contracts (variable tariffs), flexible contracts or fixed price contracts that begin after 1st October 2022.
If your ongoing contract was agreed upon prior to the 1st of April 2022, then your bill will almost definitely be at a tariff placed lower than the relief threshold offered by the scheme.
The energy bill relief scheme isn’t supposed to be a freebie for all businesses, but rather a “relief on necessary energy bills” as the government puts it.
There are also a few exceptions to this rule, but you are unlikely to fall into these exceptions unless you are, for example, generating power to sell back directly to the grid.
Why don’t I qualify for the Energy Bill Relief Scheme?
There will be one of four reasons why you don’t qualify for the new energy bill relief scheme:
Your fixed rate contract was signed before 1st April 2022.
Somehow the wholesale price of each unit of electricity or gas that you purchase is already lower than the government supported price.
- The nature of your business is designed to make a profit from the energy bill relief scheme.
For example you own a hydroelectric or grid level battery operation that will sell electricity back into the National Grid.
- Your “business” is on a domestic energy contract.
Your business is run in a domestic environment.
You are a home worker.
In the case of the latter reasons, you will be able to save money by claiming tax relief on your Self Assessment, but that’s a conversation for another time!
How to access the Energy Bill Relief Scheme
Perhaps the most surprising thing of all about a government plan is this:
You don’t have to do anything to access the energy bill relief scheme.
Don’t worry, we’re shocked too.
Thankfully, the powers that be make sure that energy suppliers automatically discount your energy bills with zero hassle on your behalf. The discount is then covered by the government.
However, you should make sure that you are receiving the benefits of this scheme.
Businesses that work in leased premises where energy bills are contained within the rent payments should double check that landlords know about the scheme. The government has stated directly that they “pass on the benefits under this scheme through to the end user in a reasonable and proportionate way”.
What happens when the scheme ends?
Expect the worst and hope for the best.
There’s no true way of knowing what energy prices will look like once the energy bill relief scheme ends. Will they go back to pre-October 2022 levels? Or should you expect a price hike?
Well certain analysts are pointing out factors that could indicate a price hike approaching once the 1st April 2023 comes in.
With that said, it’s up to businesses to make the most of the time available during this energy bill relief scheme in order to:
Become more energy efficient
Manage cash flow to prepare for a price hike
For now, think of this scheme as more of a bit of breathing room, rather than a bonus. It is going to keep your energy bills down during the Winter, so that employees aren’t shivering in frigid offices run by miserly managers. However, once the 1st April 2023 comes around it’s business as usual.
But potentially with higher energy bills than ever before.
There are several steps that businesses can take to make the most of the Energy Bill Relief Scheme and to prepare for next year when it ends.
Check fixed energy rates
DUe to the maximum discount available to fixed and variable contracts, fixed energy rates will inherit the largest benefits from this scheme. If you aren’t on one already, check out a price comparison site to see. Or better yet, contact your energy supplier and see if they have potential options that you could explore without the hassle of switching companies.
For Startups who are classed as microbusinesses, you have the potential for flexibility. These contracts can't last longer than 12 months for you!
Employ energy saving measures
Laugh all you want, but those light bulbs that aren’t energy saving could cost you once the energy bill tax relief comes to an end.
In fact, up to 40% of your energy usage can go towards lighting up your offices. So swap them out, rearrange your office to maximise insulation, and make sure to reduce your energy waste.
Get a CFO to optimise your cash flow
Cash flow management does make your business more profitable, but it also prepares your business for any eventuality: including a hike in energy prices.
With outsourced CFO services you can have the capabilities of an experienced CFO without the costs of maintaining one in house. Our CFOs will also help you pinpoint your annual budgeting so you’ll be ready for those energy bills.
Our scalable services match your needs, when you’re ready. So if you’re a new startup looking to gain spending insights and cash flow breakdowns, we’ll provide a digital CFO at zero cost. Once you’re ready for more complex financing, we’ll provide you with full CFO services at a price that suits you.