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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