UK Energy Bill Relief Scheme

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The United Kingdom has published a fairly detailed plan to provide businesses and other non-domestic consumers relief from high energy prices this winter under the Energy Bill Relief Scheme ("EBRS" or the "Scheme"). For the convenience of our clients, we have summarized the primary aspects of the ERBS below. It is important to note that the ERBS will most likely evolve and change in the coming weeks and months.

Applicable Period

The discounts provided under the ERBS apply to the period between 1 October 2022 and 31 March 2023.

Eligible Businesses

Any business, not-for-profit, or public sector organisation is eligible to avail themselves of the benefits from the Scheme. However, EBRS states that businesses that use gas or electricity for the purposes of generating power to sell back to the grid may be excluded.

Contract Types

Any eligible businesses (i) with existing fixed price supply contracts signed on or after 1 December 2021, (ii) signing new fixed price supply contracts, (iii) deemed / out of contract or variable tariffs, and (iv) flexible supply contracts.

Discount Mechanism

The EBRS provides eligible businesses with a DISCOUNT on their electricity and gas unit rates– not a specified fixed price. The discount is generally calculated by comparing a business' wholesale unit rate against a government baseline – called the "Government Support Price" or "GSP."

For business in Great Britain, the Government Support Price is £211 per MWh for Electricity and £75 per MWh for Natural Gas.

Fixed-Price Contracts

For fixed-price contracts, the discount is the difference between the GSP and WHOLESALE PRICE ON THE DAY THE SUPPLY CONTRACT WAS SIGNED. The government will be publishing a table of wholesale prices for each day starting from 1 December 2021. For example, take two businesses that signed natural gas contacts on the same day – one at a price of £175 and the other at £182. If the wholesale price for the day is £174, then both businesses will receive a discount of £99 – leaving the first with a final price of £76 and the second with £83 – the differential is maintained.

Flexible Contracts

For flexible contracts, the discount is the difference between the GSP and THE APPLICABLE WHOLESALE PRICE FOR THE MONTH. A business's final price for the month will depend upon the difference between its monthly weighted average baseload price and the GSP. The maximum discount for businesses on flexible contracts is £345 per MWh for electricity and £91 per MWh for natural gas. For example, if in a given month the wholesale natural gas price set by the government is £160 and the business's weight average price for the month is £170 – the business's final price for the month will be £90 per MWh.

General Provisions

Suppliers are required to ensure that where discounts are being applied under the Scheme, they are subject to a Price Floor set at the Government Support Price. In short, the GSP is the lowest price available to a business.

For businesses on flexible supply contracts, selling hedged positions or changing contracting positions or financial instruments, or other similar actions in order to maximise support under the scheme may impact eligibility.

The EBRS specifically provides that it is intended to provide relief on energy bills. Non-domestic suppliers and consumers should not profit from the scheme. Any such activity may result in a reduction in support and those involved may be liable to further penalties.

More: Energy Market Commentary, Electricity, Energy Bill Relief Scheme, Natural Gas

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Richard Soultanian