Business Planning

Business energy prices to be cut by half expected levels

Energy bills for UK businesses will be cut by around half their expected level this winter under a huge government support package.

The scheme will fix wholesale gas and electricity prices for firms for six months from 1 October, shielding businesses from crippling costs.

Hospitals, schools and charities will also get help, the government said.

It comes after ministers announced a multi-billion pound plan to help households with bills for two years.

Analysts suggest the help for firms and households combined could cost up to £150bn.

Industry groups welcomed the package but warned further support may be needed after the winter.

It is understood the scheme will be reviewed after three months with an option to extend support for “vulnerable businesses” – but it is not known what sectors come under the category.

Wholesale prices, which are what suppliers pay for energy in bulk before they distribute it to customers, are expected to be fixed for all non-domestic energy customers at £211 per MWh for electricity and £75 per MWh for gas.

Those rates will be the base cost, to which other add-ons, such as standing charges will be added by suppliers.

Independent analysts Cornwall Insight said the plan marked a “substantial” 45% discount on wholesale energy prices at the end of last week.

The government said the scheme would apply to companies which had agreed fixed deals at higher prices on or after 1 April, when energy bills started to surge. Those on variable and flexible tariffs will also be eligible.

Companies do not need to contact suppliers as the discount will automatically be applied to their bills, with savings seen from October but received from November.

‘It doesn’t mean the panic is over’

Josh Farrant

Josh Farrant, manager at The Ye Olde Fleece Inn in Kendal, Cumbria, said the pub was facing a hike in energy bills from £44,000 to around £124,000 a year before the government’s wholesale cap was announced.

“That some help is coming gives us a bit of hope,” he said. “But we are still massively going to have to look at the way we do things.”

“It doesn’t mean the panic is over. It’s going to run for six months, then we’ll see.”

Guy Adams, who runs the Isle of Barra Beach Hotel in the Hebrides, said he had been quoted a 377% increase in his energy bills before the cap, which “would probably have finished us off”.

“At present our cheapest room rate is £110 per night. We would have had to raise that to £415 per night,” he told the BBC’s Today programme.

‘Not practical’

However, he said because his seasonal hotel will close for the winter and reopen in May, it was “absolutely impossible” to set prices for bookings given the support package will only run until April.

“The fact that it is going to be reviewed in six months is not practical,” he added.

Prime Minister Liz Truss said the government understood the “huge pressure” businesses, charities and public sector organisations faced with bills. She added that the new scheme would provide “certainty and peace of mind”.

Bur Labour business spokesman Jonathan Reynolds said there were still questions about “how much this will cost and who will pay for it”.

Lib Dem Treasury spokesperson Sarah Olney said the “delayed announcement” left businesses “under a cloud of damaging uncertainty”.

“The government have no plan beyond these next six months, paralysing businesses who need to make decisions for the long term,” she added.

Baker

Baker

The support will apply to all non-domestic energy customers in England, Scotland and Wales. A scheme offering comparable support will be established in Northern Ireland.

Officials have not said how much the package will cost the taxpayer, but Cornwall Insight estimates it at around £25bn.

Energy-intensive industries, such as steel-making, have warned that businesses could go bust due to their energy costs, which have surged since Russia invaded Ukraine.

Unlike households, businesses are not covered by an energy price cap, which is the maximum amount a supplier can charge per unit of energy. It means non-domestic bills have soared even higher.

The government announced earlier this month that bills for a typical household would be limited to £2,500 annually until 2024 under a separate scheme.

On Wednesday, it also said:

  • New laws would be introduced to ensure landlords passed the discount on to tenants who pay all-inclusive bills.

  • An additional £100 payment would go to households that do not receive support for their heating costs, such as those not served by the gas grid.

Analysis box by Simon Jack, business editor

Analysis box by Simon Jack, business editor

The big problem with this support for business is its shelf life. Few businesses plan with only a six-month time horizon and there will be some whose plans to cut production, close premises and let staff go will not change as a result of this intervention.

But many others – particularly those in retail and hospitality – may see this giving them a fighting chance over the commercially crucial Christmas trading period.

The government has thrown an emergency blanket over the economy this winter, but longer term, more fundamental reform to the energy supply market, its pricing and mechanics will be needed.

Developing more cheap renewables, securing foreign supplies of liquid gas, drilling for more domestic fossil fuels, breaking the link between gas prices and electricity and pushing ahead with hydrogen, carbon capture and storage, and small and large scale nuclear have been part of the government’s plan for nearly two years.

What’s new is the pressure applied by Vladimir Putin to do it as fast as possible.

‘Welcome but more to be done’

Stephen Phipson of Make UK, which represents manufacturers, said businesses would “warmly welcome” the government support package.

“Government has delivered a scheme which is simple to understand, giving reassurance to the business sector and making immediately available the much-needed help companies have been calling for across the board.”

However, he warned that energy prices were likely to remain high for more than six months and firms may need “support for a longer period if we are to protect jobs and remain competitive”.

Director general of UK Steel, Gareth Stace, said the price cap would give steelmakers “the chance to get through the winter”. But he called on the government to “rapidly reform the energy market to ensure longer-term competitive prices”.

Smaller businesses have also been struggling with rising bills, with brewery bosses warning that pubs and restaurants could be forced to close after energy costs soared by as much as 300%.

A landlord of one Essex pub told the BBC his energy bill had risen from about £13,000 a year to £35,000.

Kate Nicholls, chief executive of UKHospitality, said the industry was “relieved” by the support ahead of the busy Christmas trading period, adding it would secure jobs.

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https://news.yahoo.com/business-energy-bills-could-cut-231713793.html

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