Government’s new Energy Bill Discount Scheme explained
11 January 2023
From April 2023 existing government relief on energy bills will be replaced with a significantly less generous discount scheme, although some manufacturers will be eligible for higher levels of support.
The Energy Bill Discount Scheme will provide businesses with a unit discount on their gas and electricity bills for a 12-month period from 1 April 2023 until 31 March 2024.
The new scheme will replace the current Energy Bill Relief Scheme, which runs until 31 March 2023 and is expected to cost the exchequer around £18 billion.
The government had previously planned to remove relief entirely from April 2023 for all but the most vulnerable businesses. However, despite wholesale energy prices now falling, they are still significantly higher than the long-term average and are not currently forecast to come back down to pre-2021 levels this decade. The government has therefore taken the decision to continue providing relief to businesses for an additional year, albeit at a lower level.
As with the Energy Bill Relief Scheme, the Energy Bill Discount Scheme will be applied to bills automatically by energy suppliers, so businesses do not need to apply for their discount.
Eligible businesses include those:
- on existing fixed price contracts with licensed energy suppliers agreed on or after 1 December 2021
- signing new fixed price contracts
- on deemed or out-of-contract or standard variable tariffs
- on flexible purchase of similar contracts.
The level of discount will be set at a maximum of 1.961p/kWh for electricity and 0.697p/kWh for gas. This will be subject to a wholesale price threshold of 30.2p/kWh for electricity and 10.7p/kWh for gas, meaning businesses paying energy costs below this level will not receive support.
The system differs slightly from the Energy Bill Relief Scheme, where the discount is calculated based on the difference between the wholesale price and a baseline government-supported price.
As an illustrative example, a small manufacturer using 20MWh (20,000kWh) of electricity and the same amount of gas each month could receive a maximum discount of £6,379 over the course of 2023-24 under the new scheme. This is significantly less than the discount currently being provided through the Energy Bill Relief Scheme.
Higher support for some manufacturers
A small number of ‘Energy and Trade Intensive Industries’ (ETII) considered particularly vulnerable to high energy prices will receive a higher level of support of up to 8.9p/kWh for electricity and up to 4p/kWh for gas. These discounts will be set against wholesale price thresholds of 18.5p/kWh and 9.9p/kWh respectively, with the total discount reflecting the difference between the thresholds and the relevant wholesale price.
A full list of eligible sectors is available online. Businesses will need to apply for this higher level of support and further details on how this will work will be published before the end of March 2023.
Commenting on the details of the new scheme, Gareth Miller, CEO at energy consultancy Cornwall Insight, said:
“The government have been managing expectations on reducing support levels for business energy costs for several months and remain under pressure over control of public finances and inflation.
“Businesses will now at least be able to plan with visibility of the level of support that they will receive on energy bills. [However] it is evident that the Energy Bill Discount Scheme will leave corporate energy bills much higher than before June 2021…we could now see some real impacts on business earnings and cash flows.”
Advice and support
SME manufacturers in Greater Manchester can access expert advice and guidance from the Growth Hub to help manage their energy costs, including:
- One-to-one advice from energy efficiency specialists through our Sustainability and Net Zero Service, who are experts in their field when it comes to identifying and implementing opportunities to cut energy waste from buildings and processes – often at low or not cost
- Our expert Manufacturing Service can also provide tailored one-to-one support to take costs out of your business through lean measures to improve your productivity and profitability
- A set of introductory energy saving guides and recorded webinars are also available via our #HereForBusiness campaign.
For more information on the support available, contact one of our Manufacturing Advisors today.