Are you ready for it?
A lot of attention will be paid to the Spring Budget when chancellor Jeremy Hunt announces his financial statement next week.
As well as the headlines about potential changes to tax; allowances and business rates – every director in the country will be looking very carefully at what is announced regarding business energy bills.
What is the Energy Bills Discount Scheme (EBDS)?
The first thing to note about the new scheme is that it isn’t as generous as the one it’s replacing so most companies will see higher energy costs from March 31st this month.
It is also important to understand that the Energy Bills Discount Scheme (EBDS) is not a business energy price cap.
It offers discounted unit rates on fixed price energy contracts that were signed on or after December 1st 2021 as well as on deemed and out-of-contract rates, subject to a minimum price threshold.
The new scheme effectively offers a discount on the amount a business pays on their electricity and gas rates – measured in kilowatt-hours (kWh).
Just like the current scheme, the EBDS discount will be applied to the wholesale portion of the unit rates as long as they are higher than a minimum threshold.
Businesses that are classed as one of the “Energy Trade Intensive Industries” will get a bigger relative discount as they have a high energy consumption so the threshold price will be lower. These include companies working in chemicals, steel, paper, plastics, mining, glass, refineries, cement, wood or ceramics.
How will EBDS work?
The scheme operates differently for gas and electric usage.
- Gas – A maximum of £0.00697 (equivalent to 0.7p per kWh) will be subtracted from the difference between the wholesale element of the unit rate a business pays their business gas supplier and the price threshold of 10.70p per kWh
- Energy intensive industries get 4.0p off with a threshold of 9.9p per kWh
- Electricity – £0.01961 (about 2.0p per kWh) will be subtracted from the difference between the wholesale element of the unit rate paid to a business electricity supplier and the price threshold of 30.20p per kWh
- Energy intensive industries get 8.9p off with a threshold of 18.5 per kWh
If a business is already paying the lowest rate that can be discounted (10.70p per kWh for gas or 30.20p per kWh for electricity) then it won’t be eligible for any discount. Discounts for energy intensive industries only apply to 70% of their usage meaning they pull full rates on the remaining 30%.
Energy intensive businesses have to apply for their discount but everyone else will have them applied automatically.
The EBDS only applies on rates that meet the minimum threshold and businesses might not get the full discount if their rate reaches the maximum for that fuel before it can be fully applied.
For example, if the wholesale part of their unit rate is 31.2p per kWh hour then they will only get a 1p discount as the rate has reached the threshold unit rate before the full 2p discount was applied. If the wholesale part of the unit rate is 32.2p per kWh or higher then the full 2p discount will apply.
“It’s a fair bet energy bills will rise”
Chris Horner, insolvency director with BusinessRescueExpert, said: “The energy price support schemes, while useful, are also confusing for the average director or business owner.
“It’s good that there will be some discounts applied from April 1st, but we’ve all seen how volatile the energy price market can be so there is no guarantee that it will be sufficient over the next 12 months.
“It’s a fair bet that energy bills will rise, although not as fast as they otherwise would have.
“With corporation tax rises already certain in the budget next week, inflation still above 10%, interest rates unlikely to be cut before Autumn and the business rates system still ripe to be reformed – this is still going to be a difficult year for even the most well-run businesses.”
Rising energy bills are just one more reason why directors and business owners need to consider what they can do in the next few months to improve their financial prospects.
Once they get a clearer idea of what the circumstances and issues are facing the business, they can suggest potential solutions. The earlier in the cycle, the more options directors have – usually more than they think they have.
Click the link above and arrange your consultation whenever is most convenient. It might be the best decision you make this year.