Support for businesses - Government announcement

An announcement has been made regarding the Government’s support package for business energy - read it here.

The headline: support will limit wholesale prices to £211/MWh for electricity and £75/MWh (220p/therm) for gas for six months from 1st October 2022 to 31st March 2023.

Digging in, the first thing to note is that the cap is on the wholesale price only, so non-commodities will be added on top. Businesses on a low-voltage connection will typically see unit rates in the region of 27p/kWh.

Next, those prices appply to businesses that signed up to fixed-price contracts from April 2022 onwards, perhaps assuming that you will be paying less than the cap if you agreed a price before then, but I’m not sure that’s entirely true.

If you’re on deemed, default, variable or flexible tariffs it’s slightly more complicated. You will receive a discount with a maximum level that’s yet to be set but will probably be about 40.5p/kWh for electricity and 11.5p/kWh (337p/therm) for gas, with a floor price as per the cap. So if the wholesale price for electricity is 50p/kWh you’ll pay 21.1p/kWh, but if it’s 70p/kWh you’ll pay 29.5p/kWh.

The announcement recognises the potential complication of flexible contracts but provides no clarity. It would seem logical that each tranche of gas/electricity fixed would be treated separately but we’ll have to wait and see.

What about export electricity? We don’t know yet. There may be some excited CHP owners wondering if their gas will be capped at 7.5p/kWh, about 220p/therm, while they’ve already sold electricity ahead at very high prices. The announcement does state that there may be very limited exclusions e.g. power stations and grid-level battery storage. It might seem logical that only gas used for electricity and heat used on site will be discounted, but that could be very cumbersome to manage.

Another question: what about private wire agreements? If you usually sell electricity to a neighbour at a price over about 27p/kWh, what are the implications of the support package? We don’t yet know. The scheme for domestic customers made reference to a discretionary pot to help people who buy electricity via private networks, so perhaps there’s a precedent there.

So still lots of questions, but some relief for most businesses. Let’s keep watching for more information.