Over the next few weeks you will be hearing lots of references to a wholesale price cap within the scheme. This cap limits the wholesale costs that suppliers can include in their rates; it does not reflect the final rate you are going to pay.
To extrapolate, we know the following:
- Energy suppliers will be allowed to incorporate a capped wholesale price of 21.1p/kWh for electricity and 7.5p/kWh for gas.
- Applies to fixed energy contracts signed with suppliers since 1st April and variable/out-of-contract customers.
- There is a Maximum Discount limit which is currently predicated to work out at 40.5p/kWh for electricity and 11.5p/kWh for gas, the government will confirm this Supported Price on 30th September.
- It will apply to energy usage from 1 October 2022 to 31 March 2023.
- After the six months, ministers will focus support on the “vulnerable” but is yet to define which industries.
Using this information
We know that wholesale costs for this winter are currently predicted to rise to around 60p/kWh for electricity and 18p/kWh for gas. Meaning that the currently proposed Scheme will provide ‘protection’ keeping rates consistent.
However, if we are to use domestic pricing as a reference point, the rises ended up greater than those predicted, prompting widespread panic and government intervention. If the wholesale price was to increase by more than 40.5p/kWh from the Supported Price announcement in those 6 months, then rates will once again begin to rise for out-of-contract customers.
It’s incredibly important to note that Wholesale charges are only part of what makes up the final costs on an energy bill. Depending on what price is agreed in your contract, the wholesale costs are around 78% of your total cost on gas and 72% of electricity.
Therefore, you must note that the capped wholesale prices will not be the final rates that your business pays, your kWh rate will not be 21.1p and 7.5p respectively.
What if you are out of contract now?
If you are out of contract, then the government has advised you to set up a contract now and you will automatically have the appropriate reductions to your energy price for the duration of the scheme applied.
With the scheme, those on out-of-contract rates will only 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 throughout the Scheme. The amount of this Maximum Discount is expected to be around 40.5p/kWh for electricity and 11.5p/kWh for gas, subject to wholesale market developments.
Should I sign a new fixed-price contract?
You can still sign a fixed-term contract now as the relevant price reduction will be automatically applied to your bill by your supplier. If you are sitting on the out-of-contract rates you will still get support from the scheme but will end up paying more than if you are in a contract.
What if you signed before 1st April?
If you signed before the 1st of April, you will have missed the cut-off and not be eligible for the support scheme. This should mean that you have not been exposed to the recent rises in wholesale prices, and therefore will not be eligible for support under the scheme.
Will I have to apply for the discount?
No, the discount will automatically be applied by the suppliers from November onwards. You will not need to do anything or contact your supplier to have this applied if you are eligible.
Why is solar in this conversation?
Solar can offer businesses a very valuable and immediate lifeline, providing a much-needed pressure release on energy costs. Energy costs are still going to be over 200% of their price 12 months ago. Solar can provide still provide energy to your business at significantly lower prices than those proposed in the announced Energy Bill Relief Scheme.
For reference, our average PPA agreement sits between 12-15p kWh, which supplies your business with a tier one solar system, tailored to your usage with no investment costs… And yes, that is still less than the proposed wholesale cap as your entire final rate.
On average our solar systems can provide enough energy to cover approximately 30-40% of your overall usage (roof/ground space permitting). This reduction in grid reliance equates to an average saving of 20-30% on your total bill.
This is an illustrative example based on recent averages of forward wholesale prices and may differ from those experienced in practice, other examples can be found on the government website via the link below.
A medium-sized manufacturing business
A medium-sized manufacturing business uses 200 MWh of electricity and 1,600 MWh of gas each month. They entered into a fixed contract in August 2022, giving them a current monthly energy bill of around £560,000. At the time they signed their contract, wholesale prices for the next 6 months were expected to be higher than the government-supported price of £211/MWh for electricity, and £75/MWh for gas, meaning they can receive support under this scheme.
The difference between expected wholesale prices when they signed their contract and the government-supported price is worth £360/MWh for electricity and £90/MWh for gas, meaning they receive a discount of £215,000 per month, reducing their original bill by more than 35%.
If you would like more information, then please do not hesitate to reach out. If you would like to read the full policy paper, visit the government website here: https://www.gov.uk/guidance/energy-bill-relief-scheme-help-for-businesses-and-other-non-domestic-customers
If you’d like to know more about buying a considered and tailored solar PV system for your business, leave us a message here where one of our sustainability consultants will be in touch.