The extent of the global energy crisis and its potential impact on the private, public, and charitable sectors has become so severe that on 21 September the UK government announced its Energy Bill Relief Scheme (EBRS).
Implemented to provide discounts on wholesale gas and electricity prices for all non-domestic customers, the EBRS will be available for six months from 1 October 2022. Essentially, it is the corporate equivalent of the Energy Price Guarantee put in place for domestic premises.
In this blog, we’ll walk you through the EBRS from who is eligible and how it works, to the way it applies to various contract types.
Who does the EBRS apply to?
The EBRS applies to organisations in England, Scotland, and Wales with fixed contracts agreed on or after 1 December 2021 and to organisations on deemed, variable, or flexible tariffs.
Discounts will apply to all energy used from 1 October 2022 to 31 March 2023 with providers implementing the changes automatically, meaning organisations do not have to enrol to the scheme.
Exclusions: As the scheme is intended for relief rather than profit, organisations that use gas or electricity for generating power to sell back into the grid may be excluded. An excluded organisation that contravenes these rules may have to pay back any monies and/or be subject to penalties.
What will the savings amount to?
The discounts apply to gas and electricity unit prices and include the removal of green levies paid by organisations that receive support under the scheme.
To calculate your discount, the government will refer to a baseline Government Supported Price (GSP) of £211 per MWh for electricity and £75 per MWh for gas – anticipated to be around half of what would have been charged this winter without the scheme.
Current government estimates put energy costs this winter at around £600 per MWh for electricity and £180 per MWh for gas.
With the EBRS discount applied to these costs, the new price would be £389 per MWh for electricity and £105 per MWh for gas.
How will the EBRS apply to different contract types?
Fixed price contracts
Providing the contract was agreed on or after 1 December 2021 and is billed at a higher wholesale unit price than the GSP, organisations on fixed price terms will automatically receive support for the duration of the scheme.
Organisations entering new fixed price contracts after 1 October 2022 will receive the same support.
Default, deemed, or variable tariffs
Here, organisations will receive a per-unit discount on energy price. The discount will be calculated by working out the difference between the GSP and the average expected wholesale price for the duration of the scheme. Whatever the maximum difference is, is what will be applied.
To give some idea of what this ‘maximum’ will look like, organisations on default, deemed, or variable tariffs will be charged at £345/MWh for electricity and £91/MWh for gas. However, it should be noted that if wholesale prices rise above the combined GSP and maximum discount then prices will increase accordingly.
Effectively, EBRS-eligible organisations on default or variable tariffs will pay reduced bills but these will fluctuate depending on how the market moves.
Flexible purchase contracts
Typically, flexible purchase contracts are used by high consumption organisations. As such, the level of discount provided will be calculated by suppliers themselves in line with the particulars of the contract. They will also be subject to the maximum discount rule.
Organisations with bill cycles that end at the start of a new month may find that their October bill does not include the EBRS discount. This is because the bill will have been generated prior to the scheme’s introduction.
This should not therefore be cause for alarm. The discount will instead be retrospectively applied to the subsequent bill with no action needed from the organisation. In other words, they won’t lose out.
Fixed contracts signed before 1 December 2021
As fixed rate contracts signed before 1 December 2021 were not exposed to the most recent rises in wholesale prices they are not eligible for the EBRS.
Organisations out of contract
Organisations out of contract should continue to set up a new contract as they normally would. Suppliers will automatically apply EBRS discounts to the tariff for the scheme’s duration.
What happens after March 2023?
As yet, nothing is decided. However, the government has committed to reviewing the scheme three months from the 1 October start date after which new decisions and announcements will likely follow.
The review will focus on how well the scheme is being targeted and whether the most vulnerable organisations are receiving adequate support. The findings of this review may result in an extension to the EBRS or the implementation of a replacement scheme. Otherwise, it could result in support being withdrawn.
If you would like Red Hawk’s advice on this on any other energy related matter, please get in touch.
