The Energy Crisis and the Support Mechanisms that the Government have in place to help people and businesses
Here at Support Solutions UK, we like to keep our followers and clients up to date with latest industry news. Our January briefing takes a look at the Energy Crisis and the Support Mechanisms that the Government have in place to help people and businesses.
The Current Situation
Energy markets began to tighten in 2021 because of a variety of factors, including the extraordinarily rapid economic rebound following the pandemic but the situation escalated dramatically into a full-blown global energy crisis following Russia’s invasion of Ukraine in February 2022.
The price of natural gas reached record highs, and as a result so did electricity in some markets. Oil prices hit their highest level since 2008.
Higher energy prices have contributed to painfully high inflation, pushed families into poverty, forced some factories to curtail output or even shut down, and slowed economic growth to the point that some countries are heading towards severe recession.
Europe, whose gas supply is uniquely vulnerable because of its historic reliance on Russia, could face gas rationing this winter, while many emerging economies are seeing sharply higher energy import bills and fuel shortages.
On the 8th September 2022, the government announced a significant support package to help with energy costs this winter to try and assist with extortionate energy costs.
This support package freezes the annual bill for a typical household at £2,500. It is estimated that this will save the average household about £1,000 per year compared to what they would have spent on a tariff at the maximum October price cap (£3,459)
The government and energy suppliers have a number of different schemes to help customers pay for energy. We will now take a look at these:
The governments Energy Price Guarantee
Freezing tariffs at £2,500 per year for the typical home, the Government has put an Energy Price Guarantee in place to protect customers from high wholesale energy costs. It caps energy unit prices for most customers so that a typical home shouldn’t pay more than around £2,500.
There are maximum rates that customers can be charged on a variable tariff for a 6 month period. For the typical home, the energy price guarantee caps prices at around 34p per unit of electricity and 10.3p per unit of gas.
Note – It is important to note that there are slight variations on what you pay depending on where you live and your method of payment
In terms of fixed tariffs, the energy price guarantee will be a discount on your tariff unit rates by around 17.8p per unit of electricity and around 4.4p per unit of gas
Note – many customers will have different fixed tariffs depending on when they locked their rates in. The amount of discount that you get depends on your tariff. If you are on a fixed tariff that is cheaper than what is quoted above you will not get any further discount
If your on a prepayment meter, the Energy Price Guarantee will be applied to the rate you pay for each unit of energy, so the money you put on the meter will last longer than it would have otherwise.
Many customers have queried whether or not the £2,500 figure is the maximum that they can pay for their energy. Here is the answer.
The Energy Price Guarantee affects unit rates, so the protection that you receive is relative to how much energy you use. If you use more-or-less energy than a typical home, your own yearly energy costs on a tariff priced at the maximum rates maybe higher – or lower – than the £2,500 figure which is based on the yearly usage of a typical medium consumption home that uses around 2900 kWh of electricity and 12000 kWh of gas per year
Note – by setting up a Direct Debit many suppliers tend to give you a discount of around £80 per year so this is something to consider to save you some money
Domestic Customers – Special government help during the Energy Crisis
The government have announced several ways that they plan on helping people during the energy crisis. A list of help available is detailed below:
£400 Energy Bill Support Scheme for Every Household
This is delivered in six monthly instalments starting from October 2022 through until March 2023
£150 Council Tax rebate
People who live in houses that are in council tax band A-D should have already received £10 directly to their bank account
£650 for people who receive Government Benefits
People who are entitled to certain benefits or tax credits will get £650. It will be sent to your bank account in two payments the first being in July 2022 and the second being in October 2022.
The eligible government benefits for this payment include:
Income Base Job Seekers Allowance
Income Based Employment and Support Allowance
Working Tax Credit
Child Tax Credit
£300 for Pensioners
Pensioners who are eligible to receive Winter Fuel Payment this winter will receive an additional £300 as a Cost of Living Payment
£150 in cost of living Payments for people with Disabilities
People on certain types of benefits will have an extra £150 paid into their bank accounts this winter. Those eligible for this include:
Disability Living Allowance
Personal Independence Payment
Armed Forces Independence Payment
Constant Attendance Allowance
Scottish Disability Benefits
War Pension Mobility Supplement
Regular Yearly Government Support
In addition to the special government help, there is ongoing support available from the government that is given to people who need help paying for their energy. This ongoing support includes:
£250-£600 Winter Fuel Payment
This is for pensioners who:
Get Pension Credit
Were born before 25th September 1956 – please note that theuy must have been in the UK for at least one day between the 19th-25th Sept 2022 (known as qualifying week)
It is also available for people on:
Income based Jobseekers allowance
Income-related Employment and Support Allowance
Note – the amount you receive depends on your circumstances and it should be received no later than 13th Jan 2023
£25 per day Cold Weather Payment
If the average temperature where you live is below freezing (zero degrees) or is forecasted to be below freezing for 7 days you can claim this if:
You are a pensioner on pension credit
Claiming Universal Credit
Claiming Income based Job Seekers Allowance
Claiming Income related Employment and Support Allowance
Claiming Income Support
Claiming Support for Mortgage Interest
Note – this will be paid straight into your bank account by no later than 31st March 2023
£150 Warm Home Discount (England and Wales only)
If you are a pensioner and live in England or Wales and are on means tested benefits, living in houses with high energy costs you can claim this.
A means tested benefit is one where the money, and whether you can have it, are based on how much money you make and already have.
People on the following benefits can claim this:
Income based Job Seekers Allowance
Income related Employment and Support Allowance
Pensions Credit Savings Credit
Child Tax Credits
Working Tax Credits
Note – prepayment customers will be given vouchers and they should be received by March 2023
Help for Businesses and Non-Domestic Customers
Around 14 months ago, the government announced the Energy Bill Relief Scheme (EBRS). This scheme is available to everyone on a non-domestic contract including:
- voluntary sector organisations, such as charities
- public sector organisations such as schools, hospitals and care homes
- on existing fixed price contracts that were agreed on or after 1 December 2021
- signing new fixed price contracts
- on deemed / out of contract or standard variable tariffs
- on flexible purchase or similar contracts
- on variable ‘Day Ahead Index’ (DAI) tariffs (Northern Ireland scheme only)
If you’re not connected to the gas grid the government announced that it would provide a fixed payment of £150 to all UK non-domestic consumers who are off the gas grid and use alternative fuels, with additional ‘top-up’ payments for large users of heating oil based on actual usage.
These schemes are intended to be of broad application but there are limited exclusions. These include:
- where gas and/or electricity is not supplied via a licenced supplier
- gas or electricity used to generate electricity to be sold to the grid, including where this has been stored first (under battery or pumped storage)
- any gas or electricity to be used to provide heating, cooling, hot water or electricity for end users in the Republic of Ireland (Northern Ireland scheme only)
Some large energy users may protect themselves from exposure to wholesale price changes by ‘hedging’ in the energy or financial markets. In these circumstances, their overall exposure to wholesale prices may end up being greater or less than the Reference Wholesale Price reflected in relation to the Supply Contract. If certain criteria are met, the level of EBRS support provided would be amended by their energy supplier to account for this.
The scheme is intended to provide relief on energy bills. Non-domestic suppliers and consumers must not profit from the scheme other than for its intended purpose. Any abuse of scheme arrangements could result in:
The government announced that it would provide a discount on your gas and electricity unit prices. To calculate your discount, the estimated wholesale portion of the unit price you would be paying would be compared to a baseline ‘government supported price’ which is lower than currently expected wholesale prices for the winter months.
For all non-domestic energy users in Great Britain and Northern Ireland this government supported price was set at:
- Electricity – £211 per megawatt hour (MWh) / 21.1p per kilowatt hour (KWh)
- Gas – £75 per MWh / 7.5p per KWh
For comparison, when the scheme was announced, wholesale costs in England, Scotland and Wales for the winter months were expected to be around:
- Electricity – £600 per MWh / 60p per KWh
- Gas – £180 per MWh / 18p per KWh
To ensure a level of support comparable to the domestic scheme and consistency between the domestic and non-domestic schemes, the government supported price is based on the implied wholesale element of the Energy Price Guarantee. However, the final per unit price paid by non-domestic customers would differ as it would reflect other costs such as network charges and operating costs, plus the impact of competition between suppliers.
The Energy Bill Relief Scheme is not subject to a price cap review, unlike the Ofgem price cap for the domestic market and the approach taken by the Energy Price Guarantee.
Applying the reduction – How it Works
Suppliers were asked to automatically apply reductions to the bills of all eligible non-domestic customers. Customers did not need to apply for their discount.
If you think your supplier has not applied the discount correctly, you should contact your supplier in the first instance.
The government announced it would compensate suppliers for the reduction in wholesale gas and electricity unit prices that they are passing on to non-domestic customers.
The discount applied will be in pence per kilowatt hour (p/kWh). The p/kWh government support for comparable contracts will be the same across suppliers, but the absolute level of individual bills would continue to vary across different contracts and tariffs.
Suppliers are required to ensure that where discounts are being applied under the scheme, they are subject to a minimum supply price set at the government supported price for gas and electricity.
For fixed contracts the discount would reflect the difference between the government supported price and the relevant wholesale reference price for the day the contract was agreed.
Customers who signed their fixed rate contract before 1 December 2021 will not have been exposed to volatile wholesale prices, so would not have been eligible for support under the scheme
Variable, deemed and all other contracts
For variable, deemed and all other contracts, the discount would reflect the difference between the government supported price and relevant wholesale price, but be subject to a ‘maximum discount’:
- Electricity – £345 per MWh
- Gas – £91 per MWh
Businesses on variable / flexible contracts would need to choose whether they move to fixed contracts. This was likely to suit businesses who didn’t want to be exposed to price variation.
The p/kWh government support for comparable contracts would be the same across suppliers, but the absolute level of individual bills would continue to vary.
Out of contract and deemed tariffs
For out of contract and deemed tariffs, the regulations set out the following process for suppliers to apply the discounts to customers.
A supplier must apply both:
- a) the relevant wholesale price discount and
- b) the discount for qualifying financially disadvantaged customers (QFDCs), if applicable, as set out in Part 5 of the EBRS GB Regulationsand the EBRS NI Regulations.
Part 5 of the Regulations makes separate provision for suppliers to provide an additional discount for certain QFDCs. The aim is to mitigate the financial disadvantage experienced by QFDCs in obtaining an affordable supply of energy. This may be, for example, due to their poor credit rating or because of their high energy usage.
For more information on how this applies to QFDCs, see:
Flexible Price contracts
For flexible price contracts, the relevant wholesale reference price is the contracted wholesale price on a volume-weighted average basis for that period, according to Regulation 11 of the EBRS GB Regulations and EBRS NI Regulations.
Third party intermediaries (TPIs) and energy brokers
Third party intermediaries (TPIs) and energy brokers have no influence over the per unit cost reductions that will have been applied to energy costs under the scheme. You did not have to take out a new contract or change your contract for appropriate reductions to automatically be applied to your bills.
Any intermediary in England, Wales, Scotland or Northern Ireland, that had been provided with EBRS support, should have passed this support on, in a just and reasonable way, to end users such as customers of heat networks and park home residents..
Example in Practice
The level of support for each organisation should have varied depending on type and date of contract. Take for example a hospital
A hospital uses around 2,000 MWh of electricity and 7,900 MWh of gas each month. They are on a fixed contract that they signed in June 2022, giving them a current monthly energy bill of about £1.7 million. At the time they signed their contact, wholesale prices for the next 6 months were expected to be higher than the government supported price of £211/MWh for electricity, and £75/MWh for gas, meaning they could receive support under this scheme.
The difference between expected wholesale prices when they signed their contract and the government supported price is worth £76/MWh for electricity and £27/MWh for gas, meaning they receive a discount of £370,000 per month, reducing their original bill by over 20%.
Suppliers should have been in contact with non-domestic customers to provide information about the implications of the scheme.
For customers with supply contracts in force as of 27 October 2022 (fixed, flexible or variable), suppliers were required to determine the contract type and inform customers of this by 11 December 2022 (45 days after the 27 October 2022 when the scheme was introduced).
If a customer disagreed with the classification of the contract, the customer should have notified the supplier within a reasonable time.
For customers entering into a contract after 27 October 2022, suppliers were required to determine the contract type at the point when the contract is entered into or by 11 December (45 days after the 27 October 2022 when the scheme was introduced), whatever is the later date.
Suppliers should have informed their customers of:
- the amount of the discount
- the discounted supply price
- the amount by which its charges for supply in the billing period have been reduced by applying the discount or the basis on which that amount can be determined. For each subsequent billing period suppliers must inform their customers of the above within 15 days of issuing the customer invoice or statement of account.
Review of the ERBS Scheme
HM Treasury conducted a review into the operation of the scheme and decisions on continuing support were announced in December 2022.
The review considered:
- how effective the scheme has been in giving support to vulnerable non-domestic customers
- which groups of non-domestic customers (by sector, size or geography) remain particularly vulnerable to energy price rises, taking into account the latest price position and forward curves, alongside other cost pressures
- how to continue supporting these customers – either by extending the existing scheme for some users, or replacing with a different scheme
EBRS legislation, rules and guidance
The Energy Prices Act 2022 provided government with the powers to establish the EBRS, ensure scheme benefits are passed on to consumers, and provide for an effective compliance and enforcement regime. Subsequent regulations have been made under these powers.
Support comparable to EBRS is being extended to non-domestic energy customers who receive gas or electricity via public networks from non-licensed providers. This small group was not covered by the EBRS legislation but will now be able to apply for non-standard EBRS payments from January 2023.
Other support for business/non-domestic customers
There is a range of ongoing schemes in place to support businesses with their energy costs. These include:
- the Industrial Energy Transformation Fund (IETF), which supports manufacturers in England, Wales and Northern Ireland with high energy use to cut their energy bills and emissions by investing in energy efficiency and low-carbon technologies. Sites in Scotland can apply for grant support through the Scottish IETF
- the UK Business Climate Hubwhich provides practical steps on cutting emissions and saving money. If businesses are based in England, they may also be able to access support via local Growth Hubs, who they can get in touch with to find out more
It was recognised that some businesses may continue to require support beyond March 2023, the overall scale of support the government can offer will be significantly lower and targeted at the most affected to ensure fiscal sustainability and value for money for the taxpayer.
Continuing support to those deemed eligible would begin at the end of the initial 6-month support scheme, without a gap.
It is important that users who are less vulnerable to energy price increases (particularly larger businesses that are not energy-intensive) use the 6 months support provided by the scheme to identify measures they can take to protect themselves against high energy prices.
A package of targeted support over the next 5 years will support businesses as they transition to their new bills, protect businesses from the full impact of inflation, and support our high streets.
On the 29th December 2022, the Government announced that support comparable to EBRS is being extended to non-domestic energy customers who receive gas or electricity via public networks from non-licensed providers
Energy Bill Relief Scheme: help for businesses and other non-domestic customers – GOV.UK (www.gov.uk)
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