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The energy price cap explained
British businesses finally have an energy price cap lifeline ahead of an expected tricky winter. We spoke to Joshua Greaves, Managing Director at Acorn Energy, to understand what this means for businesses.
Businesses are affected badly by turbulent energy prices because their usage is not included in the regulator Ofgem’s price cap, which only covers homes.
After increasing pressure and introducing a domestic energy cap, ministers have agreed to cap business energy prices until March 2023. The Department for Business Energy and Industrial Strategy has issued guidance on how the Energy Bill Relief Scheme will support UK businesses during winter.
How do wholesale prices affect the price cap?
Initially introduced by Ofgem in 2019, the price cap sets the maximum price energy suppliers can charge households. A wholesale commodity cap, the “Supported Price”, is now available for businesses, capped at 21.1p/kWh for electricity and 7.5p/kWh for gas. However, this is not what you will pay. The cap doesn’t include all other charges; it is the cap on the wholesale element of the cost.
How will I be charged?
The total unit rate will include non-commodity and supplier costs. Expected rates are nearer to 32 – 36 p/kWh for electricity and 12p/kWh for gas. We are still waiting for suppliers to clarify how they will implement these changes.
Whom do these changes impact?
The cost cap will apply to businesses, charities and public sector organisations. In three months, there will be a review, which may include further relief granted to vulnerable companies and sectors. Discounts will apply to fixed contracts signed from April 1, 2022, and to deemed variable and flexible tariffs. Discounts will last for six months starting October 1, 2022.
When will I notice the benefits?
You will first notice any savings in October bills, typically received in November. As with the Energy Price Guarantee for households, businesses do not need to act or apply to the scheme.
What does this mean?
There are a few scenarios to consider.
Scenario 1
If you signed gas and electricity contracts before April 1, 2022, there would be no change. The wholesale element of the price agreed on fixed contracts before this date would be lower than the cap set by the government. Bills stay the same. You do not have to take any action.
Scenario 2
The wholesale element will be capped for contracts signed after April 1, 2022, or agreements in place until March 2023. You can expect a decrease in your bills for consumption between October and March. We are waiting to see how suppliers will implement and show this on their statements. Again, you do not need to take any action.
Scenario 3
The following applies to those businesses on deemed, variable or default prices during the supported period from October through to March 2023. You will receive a wholesale discount if you stay or move onto a ‘default’ rate. Instead of a specific price cap, you will receive a per-unit discount on energy costs, up to a maximum of the difference between the “Supported Price” and the average expected wholesale price over the scheme period.
This maximum discount is around 40.5p/kWh for electricity and 11.5p/kWh for gas, subject to wholesale market developments. If markets go up by more than the supported price, you will pay more than the price cap. As such, we advise all customers to lock into fixed-priced contracts, ensuring price certainty this winter and beyond and helping to mitigate any additional price risk.
If markets go up by more than the supported price, you will pay more than the price cap. As such, we advise all customers to lock into fixed-priced contracts, ensuring price certainty this winter and beyond and helping to mitigate any additional price risk.
Joshua Greaves, Managing Director, Acorn Energy Limited
The chart below shows how the support could look for electricity prices as a rough guide.
At Acorn Energy, we understand this can be overwhelming for business owners. Whether you have fixed your renewal this year, are out of contract and are wondering when it would be best to renew, we’re here to help. We are on hand to answer all questions and explain what the latest announcements mean for you and your business. Please get in touch today at 01789 777725 or visit acorn-energy.com so we can help you keep your energy costs low.
About the Author:
Joshua Greaves is the Managing Director at Acorn Energy, offering honest and credible advice to save you time, effort and money on your utilities. Connect with Joshua on LinkedIn.
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Grenfell James Technology Adoption Index
How does your business perform against others adopting financial tech? Find out with our interactive diagnostic:
1.
How does your business receive invoices?
A)
Invoices are mainly received in paper form
B)
Invoices are mainly received by email
C)
Invoices are emailed then automatically forwarded to a designated mailbox
2.
How are purchase invoices processed?
A)
Invoices are entered manually
B)
Invoices are attached to manually raised invoices
C)
Automated software (e.g. ReceiptBank, 1Tap, HubDoc etc) collates invoices
3.
How are accounts processed?
A)
Using Excel/paper-based
B)
Using Computer-based, offline software
C)
Using cloud-based accountancy software
4.
How often is business data revised?
A)
Data is updated annually
B)
Data is updated quarterly
C)
Data is updated monthly or more often
5.
How is banking updated for your business?
A)
Banking is updated manually
B)
Banking is updated by imports
C)
Banking is updated via a live feed
6.
How are bank payments made?
A)
Bank payments are manual
B)
Bank payments are made using bulk imports
C)
Bank payments are made directly via accounting software
7.
How are bank receipts reconciled?
A)
Receipts are chased and reconciled manually
B)
Receipts are chased and reconciled automatically
C)
A third-party platform is used to chase debts and collect fees
8.
How often are management reports produced?
A)
No reports are provided
B)
Reports are provided but often too late to be valuable
C)
Reports are automated with real-time information
Score 8-12:
Curious Exploration
Your financial technology phase is Curious Exploration
% of respondent businesses are in this phase too.
Switching accountancy systems may seem like an upheaval, but can be much more straightforward than most businesses imagine. From talking to our clients, they have found moving from paper invoicing and desktop-based accounting software to the cloud and apps quickly makes the transition process a worthwhile investment of time. Digital accounting solutions bring in streamlined processes, up-to-date business data and greater confidence in the accuracy of information when making financial decisions.
Grenfell James works with your team to fully assess the needs of your business and minimise the impact of any transitions for solutions we recommend.
Score 13-19:
Measured Discovery
Your financial technology phase is Measured Discovery
% of respondent businesses are in this phase too.
Once cloud accountancy software is in place, there’s still plenty of scope to improve your accountancy processes and make sure your business is maximising the benefits of adopting a digital accounting solution. Grenfell James assesses each business to understand how any implemented solutions are being used, identify areas for improvement and the needs of the business overall to support your business goals and achieve success.
Our team of experts can discuss a range of time-saving automation and get different apps and cloud-based solutions talking to create and manage a digital accountancy eco-system to help your business grow.
Score 20-24:
Bold Innovation
Your financial technology phase is Bold Innovation
% of respondent businesses are in this phase too.
You know the benefits of accounting technology and the impact it can have on your business goals. If you want to take it a step further, our team can conduct a systematic review of your processes, apps and business goals to ensure your digital accountancy ecosystem is keeping pace with the changing needs of a growing business.