The Government has updated the maximum discount levels available to businesses through the Energy Bill Relief Scheme this winter. When the scheme was initially announced on 21 September, the expected maximum discount values were £405 /MWh for electricity and £115 /MWh for gas, and since then although wholesale gas have fallen slightly, electricity prices have risen substantially, so it was a surprise when over the weekend the discount levels for both fuels were finalised at the lower amounts of £345 /MWh for electricity and £91 /MWh for gas.
The average reduction in gas prices for the five remaining winter futures contracts is 19% while the reduction in the maximum discount is 21% – this is not particularly unreasonable. However electricity base futures contracts have risen on average by 12% so a reduction in the discount level of 15% seems much harder to justify. This will be disappointing for businesses, and may well create headaches for suppliers who will have been working with their customers on the basis of the higher numbers in the original announcement.
“Businesses on variable / flexible contracts will need to choose if they move to fixed contracts. This is likely to suit you if you don’t want to be exposed to price variation,” – Department for Business, Energy & Industrial Strategy
It appears that the Government is keen for businesses to move on to fixed rate tariffs for the winter, as this will provide up-front certainty on costs, however the Government has yet to announce the daily wholesale prices that will be used in the support determination for fixed price deals. This was due to be announced on 30 September, but so far there is no sign of it, and industry colleagues who have been taking part in workshops with BEIS have suggested that the levels will not be at the daily level but will have lower granularity such as weekly or monthly. Some suppliers have also indicated that they will not offer six-month fixed price deals since normal buying patterns are expected to be upheld.
As expected, this is a complex scheme to design, particularly in the short amount of time available, however businesses are likely to be disappointed that the scheme appears less generous than initially indicated.