Does the energy price cap apply to businesses?

energy-price-cap-businesses

As we approach the dawn of 2024, households across the United Kingdom are bracing for an update to the energy price cap on January 1st. This measure, introduced by the government, is aimed at providing consumers with a safeguard against soaring energy costs.

However, it’s crucial to note that while this cap applies to households, businesses find themselves excluded from its protection.

In this article, we delve into the intricacies of the UK energy price cap, exploring its impact on households and the distinct realm of business energy.

The Energy Price Cap Explained

The energy price cap, introduced to shield UK households from escalating energy costs, is a mechanism that limits the amount energy suppliers can charge consumers for their gas and electricity.

The cap is designed to reflect the wholesale prices in the energy market, offering relief to domestic energy users. This regulatory measure is part of the government’s broader efforts to address the ongoing energy crisis and provide financial support to households struggling with high energy bills.

Currently for the period of October to December 2023, the Ofgem price cap has been set at £1,834 for a typical household per year.

While it sounds simple enough, your payment amount will be influenced by your specific household consumption, location, meter type, and payment method. The provided figures are derived from the average costs in England, Scotland, and Wales for individuals utilizing Direct Debit payment and subscribed to a standard variable tariff, commonly known as a default tariff.

Households and the January 1, 2024 Update

Now, as the cap is updated every few months, there is an update looming which comes into effect January 1st.

For UK households, from January to March 2024, the Ofgem price cap will be set at £1,928 for a typical household per year.

The adjustment aims to align the cap with the current energy market dynamics, ensuring that consumers continue to receive a fair deal amidst fluctuating wholesale energy costs. This update reflects the government’s commitment to supporting households through financial challenges posed by high energy prices.

Business Energy: Exclusion from the Cap

However, a stark contrast emerges when we shift our focus to the realm of business energy. Unlike households, businesses and other non-domestic do not have a business energy price cap.

The cap exclusively applies to domestic energy customers, leaving business owners to navigate the volatile landscape of the energy market without the protective shield offered to households.

But what support do businesses have?

Government Support and the Business Sector

While the government’s focus on supporting households through the energy price cap is evident, the absence of a comparable mechanism for businesses raises questions about the level of support extended to the commercial sector.

In lieu of the price cap, businesses can avail themselves of the Energy Bills Discount Scheme. Replacing the Energy Bill Relief Scheme (EBRS) in April 2023, this program is designed for all qualifying non-domestic customers, encompassing businesses, charities, and public sector entities, who hold contracts with licensed energy suppliers.

Business owners facing high energy prices must explore alternative avenues, including government-backed initiatives and energy efficiency measures, to manage their energy costs effectively.

What are the current business energy rates?

 Business Size
(Annual Usage)
Unit Price/kWhDaily Standing ChargeFull Year Price (£)
Micro
(up to 5,000kWh)
29p67.4p£1,685.17
Small
(5,000-15,000kWh)
29.1p75.1p£4,642.19
Medium
(15,000-25,000kWh)
29.9p75.1p£7,746.61
Large
(25,000-50,000kWh)
29.3p140p£15,161.61
Very Large
(50,000-100,000kWh)
28.9p119.3p£29,356.62

The Role of Wholesale Energy Costs

At the core of the energy pricing structure lies the concept of wholesale energy costs. These costs, influenced by various factors such as market demand, geopolitical events, and global energy trends, shape the prices that energy suppliers pass on to consumers. Businesses, operating in an environment devoid of an energy price cap, must closely monitor and adapt to the ever-changing landscape of wholesale energy prices.

Understanding Business Energy Contracts

Business energy contracts play a pivotal role in determining the energy costs for non-domestic customers. Unlike fixed-price contracts prevalent in the residential sector, businesses often enter into flexible contracts that are subject to the fluctuations of the wholesale energy market. The absence of a price cap for businesses underscores the importance of carefully negotiating and managing energy contracts to mitigate the impact of price increases.