Business EnergyDiscount Post April 2023
The government has confirmed that as of April 2023 therewill still be business energy discounts available for another 12-months (untilend of March 24) to help with business electricity and gas costs in the UK, buton a much smaller scale. Here we will explain how the forward discounts willwork.
· ElectricityMaximum Discount as of April 23: 1.961p/kwh with a qualifying electricitywholesale market price threshold of 30.2p/kwh
· GasMaximum Discount as of April 23: 0.697p/kwh (point 696 of a penny) with aqualifying gas wholesale market price threshold of 10.7p/kwh
Electricity
October 22 – March 23: Majority* of business usershave been entitled to a government discount of varying levels dependent on whetherthey had:
· Secured a fixed term contract with fixed rateswith an electricity supplier
· Secured a fixed termed contract with variablerates with an electricity supplier
· If they were not in a fixed term contract withan electricity supplier but instead paying a suppliers deemed/out ofcontract/variable rates
whilst the electricity wholesale price element of the unitrate was above the level of 21.1p/kwh.
The discount you were given was dependent on whether youwere in a termed contract with fixed rates, a termed contract with variablerates or if you were sat on an out of contract tariff.
Fixed Term Fixed Price Contract
If you were in a fixed term contract with fixed rates, thediscount allocated was the difference between the 21.1p/kwh wholesale price thresholdlevel and the average wholesale price at which the market was trading duringthe week you secured your contract.
Example 1: If the electricity wholesale market wastrading at 50p/kwh as an average price during the week that you secured, youwould receive 28.9p/kwh discount, taking the wholesale element of the unit rateback down to 21.1p/kwh.
Example 2: If you secured a contract and the averageprice of the electricity wholesale market during the week you secured thecontract was 60p/kwh, then you would receive 38.9p/kwh discount, taking thewholesale element of the unit rate back down to 21.1p/kwh.
This ensured that all businesses that had agreed a fixedprice termed contract during the specified date range were all paying the samewholesale price level of 21.1p/kwh wholesale price aspect of the unit rate.
Non-Contracted Tariffs
For those sat on a non-contract variable tariffs with thesuppliers, the maximum discount allowed was 34.5p/kwh discount. This meantthose in fixed term contracts could actually benefit from higher discountlevels (wholesale price level dependent) and thus, contract price-dependent, acheaper unit rate.
As of April 2023, the government has increased the wholesaleprice qualification threshold level from 21.1p/kwh to 30.2p/kwh (to confirmthis means the electricity wholesale market price had to be higher than beforewith the original discount levels) and they have also reduced the discountavailable to a maximum of 1.961p/kwh, no matter when a contract was secured. Toconfirm, this does mean the maximum discount you can receive going forward asof April 23 is 1.967p/kwh and it will no longer be the difference between thewholesale market during the week you secured against the 21.1p/kwh level. Thiswill significantly reduce the amount of discount you maybe entitles to receive.
For example, a business using 25,000 KWH per month ofelectricity that may have been receiving 28.9p/kwh discount (depending on whenthey secured) may have been receiving £7225 discount per month (25,000 KWH *28.9p = £7225). That discount under the new scheme would now be reduced to £490.25per month (25,000 KWH * 1.961p = £490.25).
Gas
October 22 – March 23: Business users may have beenentitled to government discount if they had contracted with a gas supplier on afixed price contract whilst the gas wholesale price element of their unit ratewas above the level of 7.5p/kwh.
The discount worked on the same basis as the electricity,but with the gas discount levels applied instead. So if a client had secured agas contract whilst the wholesale gas price was above 7.5pkwh, they wouldreceive the discount taking the wholesale price element back to 7.5p/kwh in theunit rate.
Example 1: If you secured whilst the gas wholesaleprice was sat at 15p/kwh, you would receive 7.5p/kwh discount, bringing thewholesale gas price element of the unit rate back down to 7.5p/kwh.
Example 2: If you secured a contract whilst the wholesalegas price was trading at 20p/kwh, you would receive 12.5p/kwh discount on yourunit rate, again taking the wholesale gas element back to the 7.5p/kwh level.
This was again to ensure that all business users that hadentered contracts during the qualification window all ended up paying the sameprice for the gas wholesale element of the unit rate, where the wholesale pricewas above 7.5p/kwh at the time of securing.
As of April 2023, the government has again increasedthe threshold level of which the wholesale gas price had to be trading atwhilst you secured from 7.5p/kwh to 10.7p/kwh and reduced the discountavailable to a maximum of 0.00697p/kwh (to confirm that is point 697 of apenny).
The gas market also had different maximum discount levelsdepending on whether you were in a fixed term fixed price contract or if abusiness was on a non-contract rate with a supplier. Fixed term fixed pricecontracts were allocated whatever difference between the wholesale price theysecured and the threshold price of 7.5p/kwh. For variable price contracts andnon-contract tariffs the maximum discount allowed was 9.1p/kwh against thewholesale element of the unit rate. This again meant that a fixed term fixedprice contract could actually receive more discount than a variable ornon-contracted tariff.
Gas Discount Example
Example 1: If you secured your gas contract betweenthe 19th September and 25th September, the average pricethat week of the wholesale gas market was 16.43p/kwh. That means you would havereceived 8.93p/kwh discount to reduce the wholesale element of you unit ratedown to 7.5p/kwh.
Example 2: If you secured just 1 week later, themarket had increased again and the average wholesale gas price for that week(26/09/22 – 02/10/22) was 16.76p/kwh and that meant if you secured that weekyou would have received a higher discount level of 9.26p/kwh to take your gaswholesale element down in your unit rate to the 7.5p/kwh.
The government published their weekly average wholesaleprices for both gas and electricity which allowed businesses to confirm whatdiscount they would receive. LINKFOUND HERE
However as of 01/04/23, those discounts will end andthe maximum gas discount all will receive (if their contract was secured abovethe gas wholesale price threshold level of 10.7p/kwh and the maximum discountyou can receive is the .697p/kwh (point 697 of a penny).
To confirm It was also only the wholesale priceelement of the unit rates that was covered by the discount. The non-commoditycosts element of the unit rates weren’t covered by the discount scheme and thatis why not all unit rates were 21.1p/kwh for electricity and 7.5p/kwh for gasas all unit rates also included non-commodity cost elements as well, forexample distribution and transportation costs can also be included in the unitrates and they were not covered by the discount.
This is where there was a lot of confusion when businessusers were asking why isn’t my unit rate simply 21.1p/kwh for the electricityand 7.5p/kwh for the gas, because with both utilities, the unit rate is made upof both wholesale commodity cost (which is the actual electricity and gaswholesale costs that were covered by the discount scheme) and what we call non-commoditycost elements also, which weren’t covered by the discount scheme.
*There were certain conditions the government stipulated forbusinesses to qualify for discount.
