CEE response to the government's 'energy price guarantee' and 'Energy Bill Relief Scheme'


Read official details at https://www.gov.uk/government/publications/energy-bills-support/energy-bills-support-factsheet-8-september-2022

And about the Energy Bill Relief Scheme for businesses, the voluntary and public sector at https://www.gov.uk/guidance/energy-bill-relief-scheme-help-for-businesses-and-other-non-domestic-customers (and our short summary below this article) 

We welcome that the government has put in place an ‘energy price guarantee’ limiting the typical energy bill to £2,500. The £400 offered to bill payers by the Chancellor earlier in the year remains in place. Ofgem’s price cap hike of 80% to £3.549 is superseded by this guarantee. There will be a separate fund to assist those who use heating oil, who live in park homes or are on heat networks.

There will be a similar cap for charities, all businesses and the public sector for the next six months. This will be reviewed to see what further help needs to be offered to vulnerable sectors, for instance the hospitality sector. In the meantime, the Prime Minister advised, "companies with the wherewithall should be looking at ways they can improve energy efficiency and increase direct energy generation". Perhaps community energy groups should seek to exploit this advice with their local businesses.

However it does not solve the problem and comes packaged with a lot of downsides. Many millions of people are already experiencing serious hardship from the cost of living crisis.

It was calculated that under the price cap announced for October more than half the UK population would be in fuel poverty. Estimates are that by this government intervention this is reduced to around a quarter. That still means potentially more than 7 million households will be struggling to pay energy bills - and will be going cold and/or hungry this winter. There needs to be emergency provision for those people too.

The cost of this intervention - the biggest by any government in peace-time - was not revealed. This will be included in the Chancellor's statement due later this month but is estimated to be well in excess of £100bn. This will immediately be funded by borrowing but ultimately the cost will be borne by the taxpayer. This money will effectively add to the excess profits of the oil and gas giants who should be contributing to paying for it. 

The government has refused to extend or expand the windfall tax on excess profits by the oil and gas industry which Treasury figures estimate to be around £170bn over the next two years. 

The argument given was that a windfall tax would hamper growth and the ability of the oil and gas companies to invest - despite the CEO of BP saying a windfall tax would not affect his investment plans at all - quoted in the chamber by Keir Starmer. The Prime Minister specifically said we want to “give confidence to investors to back gas”. The IEA has said we cannot exploit new oil and gas if we want to limit warming to 1.5 degrees. They still assert these ambitions are in line with their Net Zero Strategy.

The Prime Minister promised a £40bn fund to provide liquidity to energy suppliers to avoid more businesses going bankrupt this winter with the huge cost that involves.

In other seriously negative news. The government has ended the moratorium on fracking, despite evidence (given by Kwasi Kwarteng and quoted in the Chamber by Kier Starmer) that it, or a dash for more north sea gas, will not reduce the European price of gas so will have no effect on energy prices or UK energy security. The government aims to get fracking going within 6 months.

They will also temporarily suspend all ‘green levies’ on electricity bills which pay for many measures in the energy transition. They made no statement about how these things will continue to be paid for or where some of them will simply stop.

All this will be enacted in emergency legislation.

The Prime Minister also promised an Energy Supply Task Force to focus action on securing domestic energy supply to reduce energy price shocks from international factors in the future. She said the regulatory structure had failed and would be reviewed.

Over the next 2 years there will be

  • A review of energy regulation to fix supply
  • A review to ensure that Net Zero will be achieved by 2050 in a way that is pro-business and pro-growth. It will be conducted by Chris Skidmore MP, a previous energy minister, who set up Net Zero Support Group of Tory MPs to counter the Net Zero Scrutiny Group led by Steve Baker MP and Craig Mackinlay MP

The Prime Minister wants a quarter of all our energy to come from nuclear by 2050 and announced new ambition to make the UK a net energy exporter by 2040. Jacob Rees-Mogg the new Business Secretary will produce a plan in the next two months to achieve this.

We can welcome a scrambling, big-gesture move to address a national emergency, because it will mean fewer people are catastrophically affected by energy price rises this winter, even if they will end up paying for it through taxation. But it contains little or nothing more to address the millions who are already struggling. And nothing at all to correct the appalling record of the Conservative government over many years to address a key root cause of this energy crisis by retrofitting our building stock - Europe’s leakiest. It deleted the Zero Carbon Homes Standard in 2016 and presided over a 92% reduction in insulation installations. Its Green Deal and Green Homes Grant were mostly fiasco. It still has £2 billion unallocated of the £9.2 billion pledged for building retrofit in the Conservative manifesto.

Major investment in retrofit is something that would genuinely improve domestic energy security as well as domestic health, happiness and economics. It would create employment, and reduce carbon emissions. It would protect property values, save huge health and welfare costs as well as being electorally popular. A no brainer, you would think…

Focussing on increase exploitation of fossil fuels, including restarting fracking, is a benighted and retrograde step. Renewables are now the cheapest form of energy and support our urgent energy transition. It is vital to decouple our electricity generation from the price of gas and to speed up ending the dependency on gas for heating our homes. None of this was mentioned.

Energy Bill Relief Scheme for businesses, the voluntary and public sector

On Tuesday 10 September BEIS released details for the promised support for all businesses, the voluntary and public sector.

The government will offer a discount on wholesale gas and electricity prices for all non-domestic customers (all UK businesses, the voluntary sector like charities and the public sector such as schools and hospitals). Support will be equivalent to the Energy Price Guarantee for households. The discount will automatically be applied to bills.

It will apply to fixed contracts agreed on or after 1 April 2022, as well as to deemed, variable and flexible tariffs and contracts. It will apply to energy usage from 1 October 2022 to 31 March 2023, running for an initial six-month period for all non-domestic energy users. The savings will be first seen in October bills, which are typically received in November. It will be reviewed after 3 months to identify particularly vulnerable sectors, such as hospitality, that may merit further support.

To administer the support, the Government has set a Supported Wholesale Price – expected to be £211 per MWh for electricity and £75 per MWh for gas, less than half the wholesale prices anticipated this winter – which is a discounted price per unit of gas and electricity. This is equivalent to the wholesale element of the Energy Price Guarantee for households.

Provided that the wholesale element of the price the customer is paying is above the Government Supported Price, their per unit energy costs will automatically be reduced by the relevant p/kWh for the duration of the Scheme. Customers entering new fixed price contracts after 1 October will receive support on the same basis.

Those on default, deemed or variable tariffs will 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 over the period of the Scheme. See details…

For businesses on flexible purchase contracts, typically some of the largest energy-using businesses, the level of reduction offered will be calculated by suppliers according to the specifics of that company’s contract and will also be subject to the Maximum Discount.

If you are not connected to either the gas or electricity grid, equivalent support will also be provided for non-domestic consumers who use heating oil or alternative fuels instead of gas. Further detail on this will be announced shortly.

We will publish a review into the operation of the scheme in three months to inform decisions on future support after March 2023. The review will focus in particular on identifying the most vulnerable non-domestic customers and how the Government will continue assisting them with energy costs.

Targeted support

The Government also announced today further details on the separate Energy Bills Support Scheme (EBSS) to ensure that the £400 discount to households starting from October will also be available to the 1% of households who would not otherwise have received this support.

Additional funding will be made available so that £400 payments will be extended to include people such as park home residents and those tenants whose landlords pay for their energy via a commercial contract. The government is committed to ensuring such households receive the same support for their energy bills.  The Government will introduce legislation to make sure landlords pass the EBSS discount on to tenants who pay all-inclusive bills.

The Government will also provide an additional payment of £100 to households across the UK who are not able to receive support for their heating costs through the Energy Price Guarantee. This might be because they live in an area of the UK that is not served by the gas grid and is to compensate for the rising costs of alternative fuels such as heating oil.

The Government will conduct a review of the Government Energy Bill Relief Scheme, to be published in 3 months’ time, to assess:

  • How effective the scheme has been in giving support to vulnerable non-domestic customers;
  • Which groups of non-domestic customers (by sector, size or geography) remain particularly vulnerable to energy price rises, taking into account the latest price position and forward curves, alongside other cost pressures
  • The extent to which the scheme could be extended and further targeted, or alternatively replaced with other targeted support for these most vulnerable users.
  • The scheme is intended to have a broad application but there may be very limited exclusions, for example businesses that use gas or electricity to generate or store power they are selling back into the grid, such as power stations, pumped hydro or grid-level battery storage.