The 'energy bills relief scheme' and how it will affect your organisation
A new prime minister brings not only a new cabinet but new policies. And now, more than ever, these policies are needed to help navigate the cost-of-living crisis we find ourselves in.
While we all hope and pray for a mild winter, the truth is, both individuals and organisations are facing the possibility of simply not being able to pay the extortionate prices they are being charged for electricity and gas.
In this article, we outline the actions being taken by the government, how they might be implemented and most importantly, how they could help us navigate the tricky months ahead. On 8 September, Prime Minister Liz Truss announced the government will prepare a package of support to help tackle the energy crisis.
For the first time, a two-pronged approach will set price caps on both domestic and non-domestic energy bills, with the non-domestic price cap in place for six months. Truss announced that at least £40 billion had been put aside to help organisations get through the winter months.
Why does my organisation need an energy contract?
With the announcement of the Energy Bills Relief Scheme, we now have more information about how the government is going to help organisations through the energy crisis. From 1 October until 1st March 2023, the commodity cost of a unit of electricity will be capped at 21.1 pence or £211 per MWh (megawatt hour) and an equivalent unit of gas will be capped at 7.5 pence or £75 per MWh (megawatt hour).
This discount will apply to all tariffs and contracts commencing 1 October or onwards, which had been signed on or after 1 April 2022. This discount should automatically be applied to October bills which will normally be issued in November. Those on default, deemed or variable tariffs will find that their discounts are capped, meaning they will not save as much as those in contracts.
The gov.uk website states that "…the amount of this Maximum Discount is likely to be around £405/MWh for electricity and £115/MWh for gas, subject to wholesale market developments. Non-domestic customers on default or variable tariffs will therefore pay reduced bills, but these will still change over time and may still be subject to price increases."
Because of this, we are urging any organisations not in contract or with contracts ending in the next six months to talk to us to find out more. We can help guide you through the complex period ahead. This includes talking you through the various contract durations that might become available to you.
12 month contracts?
We want to stress the importance of getting into a contract as soon as possible, so as to help protect you from eye-watering 'out of contract' rates. At the moment, suppliers are typically offering only six to 12-month fully-fixed contracts. Now that the next six months have been capped, a 12-month contract might be the minimum you consider. This would then be a blend of the government-discounted six winter months together with what are normally lower summer prices of the following year.
36 month contracts?
A 12 month contract is one option, but you might also consider entering a longer-term contract. If at the time of pricing, what are known as 'the forward curve prices' are favourable, you might be able to take advantage of 'lower' forward rates. In simple terms, a three year contract looks at the price of the energy right now (ie high unit rates) and the price of energy two and three years into the future (where typically not a lot of demand equals lower costs). Suppliers will then give an average unit rate for the entire contract length (which will still be eligible for the discounts that the government are offering for the next six months).
Things to be wary of
While this announcement is reassuring to know, there are still some aspects of the announcement that organisations should be aware of. When discussing this discounted rate, many documents refer to ‘wholesale’ prices. These rates are NOT your final cost. The wholesale price per unit is what the supplier buys the energy at. The cap is NOT applied to any non-energy-related costs. Your final cost will be made up of a variety of different aspects depending on your supplier. Not only will you have wholesale cost, but you will also have the charge the supplier adds to that, any levies that are added, taxes, etc. So, you may find that even though the government have announced that electricity is capped at 21.1 pence per unit, you will be paying higher than that.
Organisations classed as credit risks
You may or may not know, certain organisations or sectors are defined as a credit risk with energy suppliers. As such, they are averse to offering them a new contract. We are hoping that with the above governmental support, suppliers will be encouraged to relax credit restrictions on these organisations/sectors.
How will my organisation get the discount once I am in contract?
Suppliers should automatically apply the discounts set out within the scheme to your bills. This means that you do not have to apply directly. If you require support or further explanation, please do not hesitate to get in touch with our team who are ready and waiting to assist you. We are aware that day to day this is going to be difficult for organisations to check and ensure that they are being billed correctly. But rest assured, this is our area of expertise and we have the software, staff and capacity to enable us to make these checks quickly and effectively, giving you peace of mind.
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