The government has sketched out plans to support firms with their energy costs, after the current scheme runs out at the end of March.
The new Energy Bills Discount Scheme is far less generous than that announced by Liz Truss. It is capped at £5.5 billion over 12 months rather than the £18 billion cost over six months of the Truss scheme. Rather than a price cap, the latest initiative is built on a discount on the unit rate beyond the wholesale price.
There is something for all non-domestic contracted energy users but “a substantially higher level of support” for those classed as being Energy and Trade Intensive Industries (ETII), although firms will have to apply for the additional support. There is a long list of very specific ETIIs, including manufacturing primary plastics, casting iron, steel and light metals, and manufacture of machinery for metallurgy.
Some details of this scheme are to follow. Eligibility is defined by SIC code. It is still be made clear, what approach will be taken where a firm has more than one SIC code and has codes that are both eligible and not eligible. Also, firms falling outside eligibility may wish to check that their SIC code is correctly allocated, as the business may have changed and the original allocation may no longer be correct.
Details of the scheme, which runs from 1 April to 31 March 2024, as set out by government:
- Eligible non-domestic customers who have a contract with a licensed energy supplier will see a unit discount of up to £6.97/MWh automatically applied to their gas bill and a unit discount of up to £19.61/MWh applied to their electricity bill.
- This will be subject to a wholesale price threshold, set with reference to the support provided for domestic consumers, of £107/MWh for gas and £302/MWh for electricity. This means that businesses experiencing energy costs below this level will not receive support.
For eligible ETII:
- A discount reflecting the difference between a price threshold and the relevant wholesale price.
- The price threshold for the scheme will be £99/MWh for gas and £185/MWh for electricity.
- This discount will only apply to 70% of energy volumes and will be subject to a ‘maximum discount’ of £40.0/MWh for gas and £89.1/MWh for electricity.
Chancellor Jeremy Hunt has written to Ofgem highlighting complaints about energy suppliers and stressing the importance of the regulator in addressing those and asking for an update on investigations.
The government has also highlighted that firms in England will have support with their business rates bills worth £13.6 billion over the next five years.
Comment: The “something for everyone” approach may reflect political need. EAMA had urged that priority support be given to firms with higher energy use and engaged in international trade, such as manufacturers, and that point seems to be reflected in the scheme to some extent. However, not all manufacturers benefit. While those making domestic electrical appliances are eligible, it seems that those making industrial appliances are not, presumably on the basis that they can more easily pass on costs. A firm making screws and fasteners does is not on the ETII, for example.
The announcement, made late on January 9th, will disappointed many, for example the pub, restaurant and hotel sectors, that will also get only the basic level.
The new scheme applies to public sector energy users and charities, as well as firms and has been designed on the assumption that energy prices will come down. Some commentators suggest that this optimism may be premature. Energy prices have fallen but remain far higher than they were and could easily spike again over the next 12 months, they suggest.
Energy policy will be a key issue in the chancellor’s Budget on March 15th. What level of support might be offered to firms to improve their energy efficiency in the short, medium and long-term? Much of the debate is likely to focus on capital investment incentives for green technology but there is also a strong need for support for improving efficiency through improved skills at all levels. A year ago, then-chancellor Rishi Sunak asked for ideas to incentivise training and there is a need to put that issue at the centre of the new chancellor’s considerations, alongside capital spending support.
The chancellor’s letter to Ofgem reflects many complaints about unreasonable practices by energy firms in terms of their pricing or even willingness to take companies on.
*In a related area, EAMA is highlighting concerns over the way certain assets are treated in calculating rateable value. It seems counter-intuitive to increase rates on firms that add solar roofing, as is currently the case. EAMA has joined with other organisations in pressing for reform and has suggested policy thinking needs to be reversed: solar roofing should, if anything, qualify a firm for lower rates. Some local councils are requiring solar roofing as a condition of planning consent and that should be considered as a national policy, EAMA has suggested.
The government unveils new “Energy Bills Discount Scheme” for businesses – GOV.UK (www.gov.uk)
CX_Letter_to_Jonathan_Brearley_0901.pdf (publishing.service.gov.uk)
How non-domestic (business) properties are valued – GOV.UK (www.gov.uk) (See section: “Assets included in valuation”.)