After weeks of rumour and anticipation, the government has finally announced its energy bill support package for businesses and other non-domestic customers.
With forecasts that electricity and gas prices for pubs, shops, offices, schools, charitable organisations, industrial premises and many more could rocket by as much as four times the bills paid last winter, government intervention was both necessary and inevitable.
But what exactly do the measures announced mean for your organisation? Will you be able to switch the heating on this winter with a sigh of relief, or are you still left staring down a cost burden that could threaten your very survival?
Let’s look at the headline figures from the announcement, and then try to unpick some of the good and bad points. Unlike the domestic Energy Price Guarantee, where the government has in effect set a cap on what households can be charged by bringing down regulator Ofgem’s own tariff cap, the non-domestic Energy Bill Relief Scheme instead takes the form of an intervention in wholesale prices.
Under the scheme, business customers will be billed based on adjusted wholesale prices of £211 per MWh for electricity and £75 per MWh for gas.
Double trouble on bills
Let’s start with the good news. This intervention means that organisations will on average be paying 45% less than previously forecast unit prices. The changes will come into effect from 1st October, just as energy consumption starts to increase in line with falling temperatures. And the adjustments will be applied to all bills automatically, whether you are on a fixed, variable, default, deemed or flexible purchase contract.
Now for the less positive news. As with the domestic price cap, the reduced wholesale prices don’t mean business energy bills won’t go up – they will just increase less drastically than they would have done otherwise. Even so, it is estimated that the average non-domestic customer can expect to see their energy bills double this winter compared to the prices they paid last year.
Second, the scheme is only due to run for six months initially, although the government has already suggested that ‘vulnerable’ sectors such as hospitality will receive assistance for longer. The domestic price guarantee will run until 2024.
That means that come 1st April 2023, tens of thousands of businesses will be left facing another major hike in their energy bills. With no signs of wholesale prices falling, that could still mean unit prices of £405 per MWh for electricity and £115 per MWh for gas.
While people will point to the fact that April will coincide with heating being switched off, that’s little comfort for businesses that consume large amounts of electricity in particular as part of their core operations. There’s little comfort in the prospect of your bills doubling again come the spring after doubling this autumn.
The third piece of bad news is that the announced support package only applies to England, Scotland and Wales. Businesses in Northern Ireland, including ourselves, are being kept waiting on a separate set of measures – so yet more uncertainty as organisations try to find a way to budget effectively.
Overall, while there are obvious benefits to any kind of pricing support given the rampant inflation gripping the energy markets, these measures still leave businesses exposed to significant cost increases this winter with potentially more pain to follow next spring. Getting a grip on costs and cash flow as soon as possible will be essential for any business to ride out the storm.
If you are concerned about the solvency of your business in the face of rising energy costs this winter, or if you are simply looking for advice on how to adjust your budget accordingly, please get in touch with us for a free initial consultation on all matters related to debt management.