Support for business energy costs: what do we know?

When the Government announced the Energy Price Guarantee that will cap the price of domestic energy would be set at a subsidised £2,500 per year for a typical home, it confirmed that there would be an ‘equivalent’ support package for business. Right now we know very little about what it’ll look like but we should know more within the next week or so.

We have been told that the scheme will initially provide support for 6 months, with ‘ongoing focussed support for vulnerable industries’ thereafter. Measures will come into force on 1st October.

So what might it look like? The most obvious answer is a cap on the p/kWh rate, funded by Government borrowing. That should be easy enough to implement for consumers on fixed-price deals, but could be rather more complicated where flexible procurement is concerned. For instance, if there’s no longer an incentive to avoid red band, would you? What about Triads - the transmission charge tends to be spread across a whole year so how might that be managed?

Domestic customers who are on fixed prices higher than the cap will have their rates cut to a floor price, so perhaps a similar rule will apply to businesses. But at what level will the cap be set? Domestic electricity has been capped at 34p/kWh and gas at 10.3p/kWh. The phrase ‘equivalent support for businesses’ has been used, but does that mean the same unit rates? Given that wholesale base electricity for Winter 2022 is currently trading at around 60p/kWh and fixed-price contracts have been well over 40p/kWh for a while now, if the same cap is applied - and that’s a big if - it would be a massive saving for many.

Part of the discount on domestic electricity has come from the removal of green taxes - FiT, RO, CfD, etc. That typically accounts for about 4p/kWh on electricity so it’s a notable saving. If green taxes disappear from bills this could be challenging for those generating electricity and selling it via private wire, where the avoidance of green taxes has provided a margin over and above selling to the grid. If they’re removed from bills you might struggle to keep charging them to your customers.

Discretionary support may be offered for those buying heat and electricity privately, so it’ll be interesting to see where payments are directed and how prices will need to be evidenced.

But what if a business has CHP, using the heat produced but exporting the electricity to the grid? If the gas price is capped what will be done about the sale price of the electricity?

And who will the support be for? I’m not sure that the Government have said firmly that it’ll be for all businesses, and almost certainly not beyond the first six months. Some sectors are already recognised as being highly energy dependent via the Energy Intensive Industries scheme and Climate Change Agreements so maybe these present a readily defined group of sectors that could get something extra.

What about support for energy other than gas and electricity? Will those who’ve changed to burning kerosene or diesel suddenly be better of switching back?

A current implication of the impending measures is that many energy suppliers are simply not offering new contracts at the moment. If your contract is up for renewal, brace yourself for a rush towards the end of the month.

As for payments to generators, it seems unlikely that we’ll hear much on this soon and Government support should effectively support high commodity prices in the short term. Further ahead, there’s talk of aiming to decouple electricity prices from gas, and one way to do that might be to introduce a price cap for green energy, perhaps hitting generation on the RO and CfD schemes. We don’t think there’s much cause for concern for most embedded generation at the moment.

All we really know is: watch this space.