The energy sector is undergoing significant changes to decrease carbon emissions and increase renewable energy capacity, with the introduction of a new energy bill discount scheme for low-income households. This scheme offers discounts on utility bills to vulnerable and energy-poor customers, aiming to reduce their energy bills and improve their welfare. While the scheme may bring relief to those struggling with high energy prices, it also presents an opportunity for energy suppliers, particularly smaller ones, to develop new business models and tap into the emerging market of low-income customers. However, there are also challenges that come with the implementation of this scheme, such as additional administrative costs and the need to ensure that support is provided to those who need it most. In this article, we explore the implications of the energy bill discount scheme for energy suppliers and how they can capitalize on the opportunities while mitigating the challenges.
What is the new energy bill discount scheme?
The Energy Bills Discount Scheme is a government-supported program in the UK that aims to help businesses struggling with rising energy prices. The scheme is designed to replace the Energy Bill Relief Scheme and offers discounted unit rates on gas and electricity bills for eligible non-domestic customers. This includes fixed-price contracts that were signed on or after December 1, 2021, as well as deemed and out-of-contract rates subject to a minimum threshold.
The discount applies to the unit rates for energy usage, which is measured in kilowatt-hours (kWh). This means that businesses will pay less for each unit of energy they consume. It’s important to note that deemed and out-of-contract rates are typically higher than contracted rates, so businesses may benefit from switching to a fixed-price contract to save money.
The scheme aims to support businesses by reducing their energy bills, thereby providing some relief from the financial burden of rising energy costs. However, it’s worth noting that the Energy Bills Discount Scheme is not a business energy price cap, meaning that prices can still fluctuate based on market conditions.
How does the EBDS discount work?
The Energy Bills Discount Scheme (EBDS) offers a discount on the wholesale portion of the unit rates for gas and electricity bills, provided they exceed a certain minimum threshold. The discount applies to most business energy users, with Energy Trade Intensive Industries (ETIIs) receiving a larger relative discount and a lower threshold price.
For most business energy users, the maximum discount for gas is £0.00697 per kWh, while for electricity it’s £0.01961 per kWh. The discount is applied to the difference between the wholesale element of the unit rate paid to the energy supplier and the threshold price of 10.70p per kWh for gas and 30.20p per kWh for electricity. However, businesses that already pay this amount or less won’t be eligible for the discount.
For ETIIs, which include industries with high energy consumption such as mining and manufacturing, the discount is more significant. The maximum discount for gas is 4.0p per kWh, while for electricity it’s 8.9p per kWh. These rates apply to 70% of energy volumes, with full rates charged for the remaining 30% of energy used. The threshold price is also lower for ETIIs, at 9.9p per kWh for gas and 18.5p per kWh for electricity.
How can businesses get the energy bill support?
The Energy Bills Discount Scheme (EBDS) is designed to help businesses struggling with rising energy prices, and most businesses do not need to apply for the discount. Similar to the Energy Bill Relief Scheme (EBRS), energy suppliers will automatically apply reductions to the bills of all eligible non-domestic customers. Therefore, if a business meets the eligibility criteria, the discount will be automatically applied to their energy bills without them needing to take any further action.
However, if a business belongs to one of the listed Energy Trade Intensive Industries (ETIIs), then they will need to apply for the discount. This is because the discount rates for ETIIs are different from those for other businesses, and therefore the process for applying for the discount is also different. Businesses can find a full list of qualifying ETIIs on the government website and can apply for the discount through their energy supplier.
Ed Whitworth, Head of Energy Performance at Bionic, said: “Although available to all non-domestic customers on contracted, deemed, and out-of-contract rates, it’s still worth comparing energy quotes and locking in your rates. Fixing your rates will guarantee bill stability in what’s still an uncertain market by locking in a consistent price for your energy. And, as with the Energy Bill Relief Scheme, the lower your contracted rates, the lower your discounted rates will be.”
What does energy bill discount scheme mean for energy suppliers?
The Energy Bills Discount Scheme (EBDS) will have implications for energy suppliers as they will be responsible for implementing the scheme and applying the discounts to eligible non-domestic customers’ energy bills. The suppliers will need to ensure that the discount rates are correctly applied to eligible customers’ bills and that they are not overcharging them.
Suppliers will need to update their systems to ensure that the discounts are applied automatically to eligible customers’ bills. They will also need to communicate the scheme to their customers and provide them with information on how the discounts are calculated and applied.
For energy suppliers, the scheme may result in a reduction in revenue as the discounts will apply to the wholesale portion of the unit rates. This reduction may be offset by an increase in customer loyalty, as businesses may be more likely to stick with suppliers that offer them the discount.
Additionally, energy suppliers may need to adapt their pricing structures to remain competitive in the market. As the EBDS provides discounts on fixed-price contracts signed on or after December 1, 2021, suppliers may need to offer more competitive rates to attract new customers.
If you need advice regarding the Energy Bills Discount Scheme, get in touch with us. We are here to assist our clients with any queries they might have.