Energy Bill Discount Scheme and Reduction in Wholesale Energy Costs; Will my business pay less?
Following on from our previous bulletin, aimed to give a better understanding of Non-Commodity charges, market drivers behind increasing energy costs in a volatile market, and foresight into future market trends and behaviours, we have composed this update to provide our stakeholders with an understanding of the Energy Bill Discount Scheme, effective from 1st April 2023, in replace of the Energy Bill Relief Scheme, and answer the most frequent questions asked about how this and the reported reduction in wholesale energy prices will affect your end unit price.
What is the Energy Bill Discount Scheme?
The Energy Bill Discount Scheme, (EBDS), is a scheme set by the UK Government to support businesses with their energy bills when the Energy Bill Relief Scheme, (EBRS), comes to an end on 31st March 2024.
The new EDBS scheme grants businesses a maximum discount of £19.61/MWh, (1.96p/kWh), and £6.97/MWh, (0.697p/kWh), for gas.
These discounts are only available when the wholesale price of energy is above £302/MWh (30.2p/kWh), for electricity, and £107/MWh, (10.7p/kWh), for gas.
Those in the know, or who paid attention to our previous communication, “Non-commodity charges, what are they and why are they increasing?”, understand that the wholesale element of the total end unit rate of energy, is now much smaller in comparison to the non-commodity element, and in fact, where electricity is concerned, is estimated to equate for between 20-30% of the delivered energy cost, market/supplier dependant.
This means that where the end unit cost illustrated on customer billing is 38p/kWh, the wholesale element, at top end, could only be as high as 11.4p/kWh, which is £114/MWh - far lower than the threshold needed to receive any form of support.
In summary, whereas the EBRS set a supported price capable of making a significant discount to billing, the EBDS scheme is, unfortunately, unlikely to make any great difference to the amount you pay.
Wholesale prices are decreasing; will I pay less?
In the old world, prior to the global, political, and economic tensions resulting from the Covid-19 pandemic, and the current Russia/Ukraine conflict, a reduction in wholesale costs would ordinarily have meant a sizeable reduction available for businesses due to explore options for the procurement of their energy contracts.
Unfortunately, entering a short-term contract in an attempt to take advantage of forecast reductions in wholesale cost is a strategy unlikely to have any form of positive effect, and in fact, may result in the ned user paying more.
Although wholesale costs are predicted to reduce further, the larger portion of the end unit rate, non-commodity costs, are forecast to increase. Therefore, a slight reduction in the element making up 20-30% of the delivered unit rate will be negated and overpassed by the increase in the elements making up 70-80% of the delivered unit rate, resulting in no savings at all, and possibly a slight increase.
What can I do to take advantage of the decline in wholesale costs, but avoid the increase in rising non-commodity charges?
Thankfully, there are a number of solutions First Choice Utilities can help businesses with to avoid the impact of rising energy costs.
1. Take advantage of our Fully Funded Solar (PPA) offering.
2. Procure your energy well in advance of your end date and continue to do so throughout your contract. – By buying your energy in year 2 of a 5-year contract, and every 12-months after, you get year 2 pricing in year 6, year 3 in year 7, and so on. It is also far easier to make alterations to business processes 12-48m in advance, when you know the cost of energy, than it is to budget for a 300% increase 1 month in advance.
3. Fix your non-commodity charges long-term, and float your energy on the wholesale market, buying blocks of energy based on market reports from dedicated industry experts from as little as 1 month at a time, or until your contract expires, to take advantage of reductions in wholesale cost and block out forecast spikes. – Our dedicated industry professional account managers will send you regular reports and advice to aid your decision making and justify their opinion on the best time to buy and how long for. – This is not a passed-through tariff.
For free independent advice, contact your FCU account manager on their direct line, drop us an email, web enquiry, or give us a call.
All information is provided for information purposes only. The information contained within this bulletin has been collected from a mixture of industry professionals and energy suppliers, is provided in good faith and is deemed to be true and accurate at time of publication. First Choice Utilities LTD, its employees, directors, and/or partner companies are not responsible for the use of this information outside of its own organisation or decisions made resulting from the use of this information either directly or indirectly. The use of this information is in accordance with the terms of service of First Choice Utilities LTD, available at www.firstchoice-utilities.com or are available at request.