The Energy Bills Discount Scheme (EBDS) is the new support scheme for non-domestic energy customers that will apply from April 2023-March 2024.
To the Point
It is not as generous as the current Energy Bill Relief Scheme but will still give businesses, charities and public sector organisations some reductions on their energy bills. 'Energy and trade intensive industries' will get a higher level of support than other businesses.
The Treasury has published details of the Energy Bills Discount Scheme – the support scheme for non-domestic customers that will apply after the current Energy Bill Relief Scheme comes to an end at the end of March. See guidance and press release.
The new scheme will apply to all businesses (not just the most vulnerable ones, as we originally thought) but does not offer as much support as the current scheme does. The Government cannot afford to keep up that level of support, which has cost £18 billion over the last six months. The new support is estimated to cost around £5.5 billion based on predicted power prices over the coming year. It lasts for a year, from 1 April 2023 to 31 March 2024.
- How it works
The eligibility criteria are the same as for the current EBRS scheme. For details of the EBRS see our Insight, UK Government unveils Energy Bill Relief Scheme.
Like the current scheme, there is a discount on the unit prices of gas/electricity once they rise above a threshold. The discount is capped. The threshold and the level of discount are much lower than under the current scheme. This is partly because the government cannot afford to keep supporting businesses at this level; and partly because energy wholesale prices have come down since last autumn, although they are still well above pre-June 2021 levels.
The new EBDS offers a higher level of support for 'Energy and Trade Intensive Industries' (ETII), which are those listed here: List of sectors eligible for the Energy and Trade Intensive Industries (“ETII”) scheme. Businesses that think they are eligible will have to apply for support under this scheme; it isn't automatic. Further details are to follow.
Suppliers automatically apply the discount (in the case of ETIIs, once they are approved for the increased level of support) and the government compensates the suppliers (as in the current scheme).
The detail will be set out in regulations made under the Energy Prices Act 2022. Those regulations are yet to be made.
- Comparison with EBRS
The EBRS effectively capped the wholesale price element of bills. The new EBDS only offers a discount on the wholesale price – and only if that price goes above a certain amount. This means bills will follow the wholesale price much more closely and there is no maximum price that businesses could end up paying.
Under the EBRS, bills were capped at the 'government supported price' of £211/MWh for electricity and £75/MWh for gas. If wholesale prices went above this, the government would fund the difference but up to a maximum discount of £345/MWh for electricity and £91/MWh for gas.
Under the new EBDS, if bills go above a price threshold of £302/MWh for electricity and £107/MWh for gas, a per-unit discount is applied to bring them back down to the threshold. But the maximum discount is £19.61/MWh for electricity and £6.97/MWh for gas. The discount is phased in when the contract’s wholesale price exceeds the price threshold, until the total discount per MWh reaches the maximum discount for that fuel.
So, if wholesale prices go above the threshold plus the maximum discount, businesses will have to pay the difference themselves. This means bills will more closely track wholesale prices going forward that they have done under the capped EBRS.
For ETIIs, the price thresholds are lower, and the discounts are higher, as they need more support. The price threshold is £185/MWh for electricity and £99/MWh for gas and the maximum discounts are £89/MWh for electricity and £40/MWh for gas. They only apply to 70% of the energy volumes though. It is not clear whether the remaining 30% will get the lower level of discount, or no discount at all.
It is difficult to give concrete examples of the level of support a business will get, as the two schemes work slightly differently. These are two examples the Government gives:
A pub uses 4MWh of electricity and 16MWh of gas a month. They signed a fixed contract in August 2022, giving them a current monthly energy bill of about £7,000. At the time they signed their contact, 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 £380/MWh for electricity and £100/MWh for gas, meaning they receive a discount of £3,100 per month, reducing their bill by over 40%.
A typical pub uses 16 MWh of gas and 4 MWh of electricity each month. Under the new scheme, it could receive up to £2,280 of taxpayer funded support in the 23/24 financial year.
From these examples, it looks like the same pub will get less support in a whole year under the new scheme than they got per month in the current scheme.
- Industry reaction
Predictably, industry reaction has been somewhat negative, and many businesses are worried about surviving the next 12 months. On the positive side, they are grateful for the certainty offered by the new scheme lasting 12 months rather than six.
Businesses need more clarity on how the ETII scheme will work and what they need to do to apply for it. The Department for Business, Energy and Industrial Strategy (BEIS) are working on the design and will be consulting with industry shortly.
We understand from BEIS that the SIC codes are set in stone, but there may be some clarity on how they are applied. For example, a university may have 'library and archive activities' which is classed as ETII but its overall SIC code is 'higher education', which is not ETII. Is only the energy used by the library and archive activities eligible for the higher discount? We will have to wait for the guidance. In the meantime, consider joining the BEIS working group to make sure your views are heard.
What can you do?
It is good that the UK Government is still able to offer all businesses some level of support following March 2023, but that support alone may not be enough to bring energy bills under control. Addleshaw Goddard have produced a new Energy Ready tool that looks at the energy solutions that are available by sector and by asset class, core considerations for each solution and a brief example of where the energy solution has been adopted by our clients in practice. If you are interested in this, please let us know.
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